1) The food distribution industry has undergone significant consolidation in recent decades, with the average sales per company increasing from $4 billion to $11 billion and the number of public companies in North America decreasing from 45 to just over 20. 2) The Quebec retail food market is dominated by three major distributors: Loblaws, Sobeys, and Metro, which combined control over 80% of supermarket sales. 3) While supermarkets were once the dominant force, food sales are becoming more fragmented, with growth in places like pharmacies, warehouse clubs, discount stores and convenience stores outpacing supermarkets. Specialty stores and small, local businesses also see opportunities in niche markets neglected by large players.

1. Food Marketing in 2009
Marie-Claude Michaud
Business Strategy Consultant
www.dancause.net
FCC – SIAL Montréal
April 1, 2009

2. Retail food market
INDUSTRY EVOLUTION AND TRENDS

3. Evolution of the food distribution industry
In recent decades, the food distribution industry has

undergone a significant wave of consolidation.
• Increase in average sales per company from $4 to $11 billion
Ten years ago, there were 45 public companies in the

North American food distribution sector.
• Now – just over 20

4. Quebec’s retail food sales market is
dominated by three distributors
Market Share
Company
Quebec Canada
Supermarkets All Food Supermarkets All Food
Loblaws (Provigo) 36% 30% 41% 33%
93% 78% 20% 76% 15% 60%
Sobeys (IGA) 30% 26%
Metro (A&P) 27% 22% 15% 12%
Safeway - - 8% 7%
Overwaitea - - 6% 5%
Wal-Mart - 5% - 6%
Costco - 9% - 7%
Other 7% 8% 10% 15%
Source: CIBC World Markets

5. But the food supply has become more
fragmented…
Supermarkets are losing market share

Estimated retail food sales by network
Canada – 2007-2008
Market
Sales
Type of business Growth
share
($ million)
Supermarkets $61,390 4%
80.4%
Pharmacies $1,630 7%
2.1%
Warehouse clubs $5,100 5%
6.7%
Discount stores $4,115 11%
5.4%
Convenience stores $3,680 2%
4.8%
Other $415 14%
0.5%
TOTAL $76,330 5%
Sources: CIBC World Markets, Statistics Canada

6. Competition is increasing
In Ontario, supercentres have transformed the competitive

landscape.
Increase – In-store
Growth in food sales*
food purchases
Canada Canada Ontario Quebec
7.7% 3.3% 3.2% 4.2%
Per capita food store spending
2007 2008
Canada 8.5% 8.4%
Ontario 6.8% 6.7%
Quebec 9.9% 10.1%
* Supermarkets and convenience stores Source: Canadian Grocer, February 2009

7. But the current crisis should be good for
grocers
Net income for the major chains increased significantly in the

last fiscal quarter
Consumers are eating out less

However, consumers who didn’t eat out before the crisis will

also try to reduce spending and, more than ever, will be looking
for bargains
Sales are expected to increase 3.1% in Canada in 2009*

How much will profits increase?
•
*Canadian Grocer, February 2009

8. Explosion of private labels
The increase in the number of products carried under private

labels, particularly in the premium segment, has clearly
improved the position of the major chains.
Trying to compete, Metro and Sobeys have been particularly

aggressive.
• Sobeys launched 4,800 new Compliments-brand products in its 2008
fiscal year.*
• Metro announced that it will launch over 2,000 new products in the
next year.
Faced with category leaders and private labels,
what niche can Quebec SMEs carve?
*12 months ending May 3, 2008

9. Fragmentation of consumption

• Educated, informed and busy
• Care for their health AND want good food
• Concerned about the environment
• Worried about pesticides, GMOs, food poisoning, heart disease,
cancer, etc.
• Desire for organic food products
• Price sensitive

The one-size-fits-all approach to food
marketing no longer works for them.

10. The traditional supermarket is adapting
slowly
Major chains are not as well positioned to serve this “new

market”:
• They don’t have the flexibility to adapt their product and service line-up
quickly
“Micro-segments” are generally less attractive to the big

industry players
• Big companies—both retail and manufacturing—are structured to
produce and distribute large volumes
“The consumer is the boss.”


11. The retail food industry is polarizing
Specialty stores Big box stores
CUSTOMER focus PRICE focus
Bikes Bikes
$6,000 $150
• Volume and standardization
• Specialty and exclusive products
• Commodities
• Value-added products and services
• Price wars
• Attentive to the customer
• Standard courtesy
• Customer intimacy

12. Opportunity for small players
Like other retail sectors, the retail food sector is

restructuring:
• Rebirth of specialty shops
Market maturity and diversification of consumer tastes mean

that the “categories” of growth products are generally
smaller.
Small businesses are energized by the “new consumer” and

are trying to be innovative and exclusive.

13. Small businesses – stores of the future?
Neighbourhood grocery stores and specialty food stores are

closer to their customers and better positioned to meet their
expectations and create a close relationship with them
Two main factors are fostering the growth in the number of

small specialty shops
• Information technology
• Demographic shifts

14. Small businesses
A FEW STRATEGIES FOR BREAKING
INTO THE MARKET…

15. Develop a unique feature
Develop a unique expertise or product that cannot be

reproduced on a large scale
• Complexity of implementation and impossibility of industrial
production protect small from big players
This strategy has two constraints:

• Places the company in market segments that value this type of
product and involves specific and selective marketing
• Mandates a high price strategy

16. Increase the barriers to entry
This strategy is based on developing a protected brand that

guarantees origin or quality of the product based on rigorous
specifications
Means of controlling the number of potential entrants

Focus on consumer recognition and value of the label

Examples:

• Agneau de Charlevoix: protected geographical indication (PGI)
approved
• Ice cider: approval pending

17. Set yourself apart
In mature markets or undifferentiated product categories,

focus on innovation
• Trademark
– Bella tomatoes by Demers or Veau de Charlevoix
• Different, attractive and/or practical packaging
– La Tomate’s tubes
Inject energy into a product category lacking in innovation

• E.g.: Europe Best (frozen fruit) a few years ago…
Dare to go where the big players never invest…

• Nutra-Fruits cranberry-based product line

18. Cultivate a regional identity
Avoid spreading resources thin by focusing most

development activities in region of origin
Maximize benefits of proximity:

• Reduce advertising costs through local word of mouth
• Knowledge of customer needs and habits
• Personal business relationships rather than formal or contractual
ones
• Ability to respond quickly and adapt to change

19. Build partnerships
With a customer

• E.g.: La Meunerie Milanaise and Première Moisson
With another processor

• Distribution - manufacturing – sale of complementary products
With a distributor or retailer

• Exclusive or customized products
With producers

• Regional label products
With regional businesses or organizations

• Develop a label, portal-type Web site, shared booths at regional events

20. Looking ahead…
Basic trends favour small producers and food processors

• Consumers are looking for premium, different, Quebec-origin
products…
• Small retailers can set themselves apart by offering unique,
innovative, quality products from here…
• Growth in food sales in specialty, gourmet, organic, regional,
health niches, etc. is higher than the industry average…
• Specialty neighbourhood shops are booming…

21. Medium and large businesses
WHAT IS THE RIGHT WAY?

22. Forced to innovate…
Between the inevitable rise of private brands…

• In the U.S., just 9% of consumers believe that national brand
products are better than private labels and 60% believe that they are
manufactured in the same factories as national brands.*
… and the trend pushing consumers towards food products

perceived as better quality,* all brands combined
Despite the current economic context that slows but does

not change these basic trends
*The Hartman Group, Contemporary Food Trends, 2008

23. New definition of quality
Products with a “history” – origin, producer/manufacturer or

method of production
Packaging that signals quality (transparent, matte finish,

etc.)
Products manufactured using fewer, better-quality

ingredients
Products for the more adventurous palate

Products that seem less industrial, less mass-produced

Source:The Hartman Group, Contemporary Food Trends, 2008

24. SIAL Paris 2008
TRENDS IN INNOVATION

25. Trends in food innovation
MAJOR CATEGORIES
43% 24% 17% 14% 1%
PLEASURE CONVENIENCE HEALTH FITNESS ETHICS
Time-saving Natural Slimness Environment
Fun
Energy /
Handling Vegetarian Citizenship
Exoticism
Well-being
Sensory Portability Medical
Cosmetic
variety
Sophistication
SIAL Paris – 2008; Identified by XTC

26. Trends: product handling – time saving –
sensory variety
SIAL - Paris 2008 Selections
Roast veal in juices
Individual sauce packets
Ready after 10 seconds in the microwave

27. Other examples of the 350 innovations
selected at SIAL Paris 2008
Slimness - Sophistication
Product handling – Sensory variety
For co-branding and new format
Italian french fries
with 1% virgin olive oil,
bake in the oven.
Breaded chicken or ham sticks stuffed with
La Vache Qui Rit cheese

28. Grand Prix 2008 – SIAL Paris 2008
Pastry dough… in sweet or salty flavours!
Selected for the flavours that provide
a base for new and original pie recipes
Innovation
Sensory variety – Time saving
Taste of Provence – tomato and oregano
Chocolate

29. NAVIGATING THE PRESENT AND
CHARTING THE FUTURE…

30. Don’t minimize the importance of marketing
Follow up, be proactive and innovate

• Identify opportunities and risks
• Reassess your price strategies regularly
• Increase product development initiatives
Get to know the consumer better*

• 68% change brands regularly
• 5% are loyal to one brand
• 73% shop in at least five types of stores
• 26% are loyal to one merchant in particular
*U.S. data Source: GMA - Deloitte,Shopper Marketing 2007

31. “Shopper marketing” or the importance of
the store…
70% of buying decisions are made in the store.

68% of in-store purchases are unplanned.

The shopper is not necessarily the consumer…

“Shopper marketing” still a vague concept but growing in

importance:
• In recent years, U.S. manufacturers and retailers have increased
marketing spending by 2%.*
• Increased spending on “shopper marketing”:
 Manufacturers: +21%
 Retailers: +26%
* Estimated average annual growth rate 2004-2010 Source: GMA - Deloitte,Shopper Marketing 2007

32. Rethinking your marketing mix?
Get started or solidify a base in “shopper marketing”

• You don’t need to do it all, but do something
• Know your customers and their strategies and become their partner
 Retailers are becoming more effective and sophisticated marketers
Invest in your consumer and shopper knowledge

Align your initiatives with the retailer’s objectives and marketing

plan
Develop innovative marketing plans tailored to every major

customer

33. Questions? Comments?
Marie-Claude Michaud
Business Strategy Consultant
www.dancause.net
FCC – SIAL Montréal
April 1, 2009