Opportunities in the Canadian Grocery Business

John TeklenburgPresident & CEO JTI Group of Companies

(Canada, USA, Australia, Europe)

Lead, follow or get out of the way:This is a very competitive market!

Cowards will fail – Team players can win

A glance of Canada• Second largest country in the world• $1.8 Trillion GDP• Economy based on natural resources (oil & mining), technology and

service industry• Most of population and big cities all near US border: Toronto 5.4

million; Montreal 3.8 million; Vancouver 2.2 million; OTTAWA (capital) 1.2million; Calgary 1.2 million (2009)

• 35 Million people –- ethnically very diverse • 80% urban population (!) – etnically diverse (20% immigrant

households) • $36,000 GDP / capita at parity (8th in world) with increasing difference

between high / low income families

Conclusion: Food export opportunities in prosperous markets with diversified consumer profiles /costly distribution systems

Food in Canada

Households reported spending an average of $7,443 on food in 2010. This included $5,377 on average spent on food from stores and the remaining $2,066 on restaurant meals.The grocery business in Canada: • $83,000,000,000 per year (about 5% of GDP) – Approx 60%

through chain stores. • Employs approx 550,000 people (3.7% of total national

employment), some part-time• 22,402 storesAdditional opportunities: Food service and supply of products for food industry

The big boys

The largest chains have nearly 50% of the market:Loblaws = 20% market shareSobey’s = 13% market shareMetro Inc. = 9% market shareWalmart = 6% market share ($5 Bln / 167 SC’s)

They do not only operate supermarkets!

Competition between the big boys is fierce

Loblaws- More than 25 “banners”: Loblaws, Fortinos, No Frills, Zehrs, RCSS, Provigo. Some regional, some specialized, well “targeted” - Started in Ontario – now nationwide- 14 Million weekly shoppers- 136,000 employees- $30,000,000,000 sales (40th retailer worldwide) – not only groceries- 1,000 corporate / franchise stores- 400 associate stores- Sells to 4,700 independent stores- Low price strategy is important- 1/3 of store space = non grocery- Recognized as Private Label leader: PC, No Name - Big on product R&D / innovators

Loblaws

Sobey’s

- Started in Atlantic Canada- Bought IGA in 1998 – which made it national- Owned by “Empire Corporation”(bought in 2007)- 90,000 employees- $ 15,000,000,000 sales- 12 banners incl Sobey’s, Price Chopper, Thrifty, Target

Grocery- 1,334 stores- Private Label: Sensations, Compliments- Concentrated on groceries

Metro

- Started in Quebec- Bought A&P in 2005- 65,000 employees- $ 11,000,000,000 sales- 6 banners incl Metro, Food Basics, Super C,

Richelieu- “only” 564 stores- Private Label: Irrisistables- Concentrated on groceries

Metro(Example of JTI product line)

Walmart Canada(Example of JTI product line)

Other markets: PL(Examples of JTI product lines Mexico and Australia)

The other 50%: NOT only little boys fighting – most very competitive!

The food sector is very diverse, competitive and with many segments – strong competition in each segment

The other 50%

- Consumer club stores, e.g. Costco (approx 75 warehouses with big volumes.- Regional supermarket chains - Smaller chains and over 900 independently owned small

supermarkets.- Over 10,000 convenience stores – some connected with gas

stations- Approx 650 independent delicatessen stores- Frozen food products are a big trend in large chain stores but

there are also over 200 independent frozen product stores (excluding those specialized in meat products)

- Food items in drug stores (!): Shoppers Drugmart

Brands for the other 50% (We have our house labels and supply to major brands)

Consumer trends

1. Consumers demand “better” products: Health consciousness, Non-processed items, Product Safety (trend to local products – away from processed products). They read labels!

2. Consumers increasingly demand sustainable agriculture3. Consumers seek convenience4. Consumers demand VALUE (globalization, recession):

Price shopping versus value shopping5. Still a large demand for “lowest price” when it comes to

staples and junk products.

How are stores responding?Segmentation led to Polarization

1. Discount trending: Traditional supermarkets are still important but their market share declined from 67 to 62% in past 3 years. The big chains are going towards

– Hypermarkets (mostly low cost – not only groceries) now about 11% market share (!), and

– More discount stores: Large, medium and small

2. Premium trending: Format / Channel diversification (specialization) not only smaller stores. Part of the mass market is going upscale. Room for exclusives, premium fresh items, specialty items (etnic, gluten- free, organic, diabetic, health food, etc.). In high-end items of chain stores you will find lots of “ins and outs”. USP’s critical.

Trends in grocery retail

• Price pressure to be competitive: Possible through globalization.

• Diversification of sourcing: Openness to buy from a variety of sources (NOT only China!)

• Sharper focus on category management• Market segmentation

Canada imports lots of food products

- 24% of food products are imported (15% from the USA alone)- Fresh foods and vegetables / fish are

biggest imports- For commodities: It’s price!- For specialties: It’s a USP- Less supplier loyalty although one has to

be part of the club to be a supplier

Whatever your business is: Even a small % of the $80 Billion is business

If you cannot compete in global markets, Canada is NOT the place for you.

To be successful: - Know and understand your market and

your place in it- Have a solid plan- Carefully select penetration and

distribution - Understand volatility: Be fast and flexible

Strengths- Climate- Proximity (ocean freight)- Excellent professionals- New in market- Internal market with

interesting products

Weakness- Home market focus/small size

companies (few huge)- Internal Logistics- Sometimes: Lack of marketing

& export experience- Lack of certifications: BRC, etc.

Opportunities- Free Trade Agreement- “Tropical” items- Organic Markets- Good reputation (coffee)- Market more open-minded

Threats- International Competition- Late market entry- New in market

Positive Negative

Internal

External

A SWOT ANALYSIS FOR THE COLOMBIAN FOOD EXPORT SECTOR

Additional focus onOpportunities and Threats

Opportunities:- Fresh Produce vegetables and fruits. We cannot even grow lettuce because

of our (lack of) climate. Canada has two seasons only: “Construction” and “Winter”

- Consider cultivating items we need because of climate and high Canadian labor cost

- Prosperous market / some of your specialties may have potential

Threats:- High Canadian distribution cost- Lots of competition- Requirements of factory / productoon certification: HACCP, ISO, BRC- Finding a good distribution network is not simple (You may need several

distributors to serve several geographic areas and distribution channels).

Private initiative: The Danper Farms – A unique venture

It commenced in 2004: Danper started with converting 445 ha of desert lands in Northern Peru with an ideal eternal spring climate. It rapidly went from this..

To this: A leading agro-industrial complexIn the North: 2,000 ha highly productive asparagus fields. Plus: In 17 valleys spread across Peru, 2,200 ha of “black land” to cultivate artichokes and much more…. The industry created jobs - 100’s of thousands found work..

(Preserved) Food Products- Do you know your potential place in the market: Market size, target

markets and do you know your competition?- Pushing your own brand is nearly impossible: Listing fees- CFIA requirements and certifications required by Grocery chains: Food

safety, QA, Social Responsibility, BRC- Understand packaging and shipping requirements (distributors know

and can package your bulk items in Canada).- Logistics: The need of Just-on-time deliveries. Constraints within

Colombia, transport issues, CHEP pallets, best freight routes- How does Canada fit in your general portfolio?- Can you produce year round? What is your production window and

how does it compare with the competition from other countries?- Your sustainability?

ANALYSIS RESEARCH IS KEY

Three dimensional:- What can you offer to each market?- What does each market seek?- How will you sell / distribute?Don’t even try to make a long term entry before doing your homework.

An example of teamwork – vertical integration to build a private label product

line

STRATEGIC PARTNERS ARE KEYApart from finding some short term opportunities, in this global environment you have only a few choices:- Don’t play- Be a minor player- Efficiently organize your optimum vertically

integrated supply system by creating strong partnerships: In Colombia (agricultural crop, packaging, logistics) and in Canada (distributors).

WHAT CAN WE DO FOR YOU IN CANADA?

1. Assess the possibilities for your product(s) in Canada.

2. Be your (master-) distributor if your product fits in our product portfolio.

3. If your product(s) do not fit in our portfolio: Identify one or more distributors for your product(s).

Build Alliances ….to solve the SUCCESS puzzle

Vertical integration of the supply chain is key. Efficient, professional, fine-tuned team work is essential.

JTI Inc. (Canada)JTI Foods Inc. (USA)

JTI Foods Pty Ltd. (Australia) Agrosol International Inc. (Europe)

John TeklenburgJohnT@JTIFoods.com

Call me directlyHQ near Toronto +1 (905) 681-2555, ext 211