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MNP, in collaboration with the Conseil de la transformation alimentaire du Québec (CTAQ) and L’actualité ALIMENTAIRE, is proud to provide Quebec food processing companies with a forum where they can discuss, interact, and share their experience and knowledge of this important sector which helps drive our economy and employment. Competition is fierce; market trends evolve rapidly, and retailers exploit their dominant position. As consolidation continues to take place in the manufacturing and retail sectors and foreign companies continue to target the Canadian market given existing international trade agreements and pending new treaties about to be signed by the federal government, our entrepreneurs continue to develop strategies to counter competition and find opportunities for growth.
The end game is the same for all companies in the Quebec food sector – to increase revenue and profits. However, the participants of the 2015 edition of our roundtable each have different challenges, strategies and solutions due to the diversity of their product lines, company size, and the business lifecycle stage each happen to be in now. Yet, they agree on a number of points. Common themes raised during the animated discussions about growth and the challenges involved in getting to the next level include the increasing role of marketing, the need to innovate, investing in research and development and in equipment, access to financing and risk capital and access to manpower. Companies also need government support in their sector in terms of modifying regulations in order to support growth. They want government to introduce fiscal policies comparable to those available to other high profile sectors. It was also observed that branding and the use of social media today play a bigger role in the dynamics that support growth. Each participant in our roundtable acknowledged the importance of executing on well thought out strategic and marketing plans. MNP is pleased to have contributed to this discussion as a committed partner in the Quebec food manufacturing industry. We believe that, notwithstanding the myriad challenges and complex situations that our business community must contend with, Quebec entrepreneurs are up to the challenge.
Henry Rosenblum, CPA, CA – Senior Consultant and Team Leader – Food and Ag Manufacturing, MNP LLP On March 12, 2015, the sun was shining on the third roundtable orchestrated by MNP in collaboration with the Conseil de la transformation alimentaire du Québec. Six leaders from the food and beverage manufacturing sector present and they had quite a bit to say. Over two hours of lively discussion on a hot topic: growth strategies for Quebec food and beverage manufacturing companies. Guest participants at the roundtable were:
Hosted by Sylvie Cloutier, President and CEO of CTAQ, in collaboration with Lucie Chouinard, Senior Manager, MNP, the discussion had just begun when participants quickly reacted to the first multi-part question asked by Sylvie Cloutier: “Have you seen growth in the past year? If so, in which markets? What are the main factors that supported this growth? What specific strategies did you implement to promote this growth?”
Alain C. – Laiterie Chalifoux has seen an increase of 17-20% in its revenue, which rose from $34 million in 2011 to $56 million in 2014. The fourth generation of leaders, of which he is a member, has greatly changed the way they manage the business: they’ve gone from production driven to market driven. “We needed to ask ourselves what our customers wanted and needed, instead of saying, “Here’s what we produce, now who wants to buy?,” he confided. Since 2009, to stay competitive, the dairy has focused its strategy on customer needs, marketing, and R&D. To avoid overlooking needs expressed by customers, the company invested in all available certifications and standards: GFSI, HCCP, Bio, Kosher, Halal... pretty much everything out there! This makes it possible to serve all markets, even the big distributors.
Gerry VW. – For the first ten years, the business experienced annual growth of 30-40%. For the past four or five years, growth has been around 18-20% per year. “It’s not enough to know about growth. You have to know how to manage it. It’s hard to increase retail prices; competition is fierce and you can quickly be squeezed on margin . Our biggest challenge is managing growth and manpower. We’ve gone from 50 employees to 700-800 employees; that’s quite an accomplishment,” he says. Veg Pro now has revenue of $175 million with plants in Quebec and Florida providing the entire east coast of North America with fresh produce. To keep renewing itself, face challenges from competitors and grow, this fresh produce business gambled big, very big in fact, on packaging (from bags to trays), the health aspect and the convenience of its products (prewashed, ready to serve, ready to cook).
Pierre R. – Since the market is stable with the big distributors, it’s time to think about developing new markets and investing in marketing and R&D. “The scope of brand recognition needs work. For St-Hubert, one of the best ways was to hold taste-tests in our client community; for example, we handed out thousands of pies to consumers in an Ontario suburban train station. Doors don’t open automatically and conquering new markets can take months, even years!” he says. The trend observed among distributors is stability and taking little risk with new products; they prefer to stick with proven winners. “When you consider that Loblaw's and Sobeys alone own more than 50% of the grocery market share in Canada, growth has to happen with new products and new markets. You need to invest in infrastructure, automate production, and focus on profitable categories; you can’t excel at everything!” he relates wisely. “Focus on what you know and do well, continuously improve your product quality, follow food trends, and never neglect R&D: that’s key!” he adds.
Marie-Ève SA – In terms of direct delivery, the business experienced a rise in sales. On the other hand, one of their products reached the end of its cycle with a national client who was not immediately replaced. Therefore, growth in the last year occurred mostly in Quebec. Over the next few months, a lot of effort will go towards pursuing the growth of market share in Quebec. In 2015, the plan is to continue to gain ground in Ontario, ideally the entire province with the main distributors, and open up to the North American market. “We’re aiming for a minimum growth of 15% in sales, and we started using tools to reach this very realistic goal with our expansion last fall. For the first time in the bakery’s history, we’re talking about surplus production capacity; in the past, production capacity was dependent on sales growth,” Ms. St-Amour states proudly. An R&D department was established and they have hired a full-time resource to apply the necessary effort towards creating new products and improving existing products. There are a number of other projects simmering: “We are also currently working with different players to develop business partnerships and develop products under our brand,” she says.
Charles-Henri dC – In Québec, the government has monopolized alcohol distribution. For the first twelve years, they had to sell directly at the winery and face the challenges of agritourism. His company saw strong growth between 1995 and 2000, and in 1996, it was granted the right to sell directly to the HRI industry – hotels, restaurants and institutions. L’Orpailleur was the first Quebec winery to stock bottles at the SAQ. “You could say we came in through the back door, then the back of the store, then the middle of the store (laughter) and so that’s how it went,” he says, smiling. Eighteen months ago they took a big step forward with the Terroir d’ici brand, which lead to a sales increase of 30%. Positioning a product such as Terroir d’ici is a steep climb with the SAQ, considering that some 12,000 wines come from abroad and are distributed in 480 stores. Out of the 220 million bottles of wine distributed by the SAQ, only 400,000 bottles come from Quebec. “You have to follow the established track and go through the motions. Blind taste tests, in-store tastings, quality assurance: anything to gain visibility,” he says. There are many changes on the horizon for all Quebec alcohol producers: the law, which goes back to 1920, will be reviewed, and other actions will be taken. “The main obstacle to growth in Quebec – despite our particularly harsh climate – remains the administrative burden. You need to stay on top of regulatory changes and be ready to react when you’re granted an increase in volume,” he adds. Like others around the table, this grape grower couldn’t help emphasizing the difficulties in recruiting specialized manpower and dealing with seasonal work.
Sébastien A – Growth has been rather stable since 2012 with the largest part of production dedicated to private labels. In step with the latest management trends and wanting to build on these strengths while keeping an eye on blind spots, Sébastien Alix also invested in a training program for leaders, Chef and Company by Leaders Without Borders. “To bring the business to a new level, you need to know yourself as a leader. I wanted to evaluate myself to learn about my strengths and how to apply them to grow the business,” he says with pride. You need to know how to innovate, develop your business, and especially, know the needs of consumers to see growth, and you need the right people at the right place and know how to use the strengths of each individual within the business. In the past, the challenge was putting sliced apples alongside sliced vegetables; today, you need to find your niche in the snack world – one product in many forms. One of the biggest challenges remains the capacity to produce volume while innovating and introducing new products. “The only way to innovate is to come up with new products and new mixes,” he says. “Sometimes people want to excel at everything. Today, I realize I prefer to focus on my strengths, surround myself with good people and do what we do best: apples!” he says. This entrepreneur believes in partnership, but understands the need to attract the right people: “You don’t need to earn my trust, but you might lose it,” he concludes.
With a dash of humour, Sylvie Cloutier continued with the second question for those at the table, insinuating that they had answered all the questions in the first round (laughter). “Do you expect to post growth in 2015? If so, on what markets, and how? If you do not anticipate any real growth, then what are the obstacles? Based on your experience, what are the winning strategies for success in both the national and international markets?”
Alain C – No, a rather stable year in terms of growth in preparation for the market opening up to the importation of European cheese planned for the end of 2016. “The price of milk in Canada is high and we all pay the same price. When you estimate that 71-75% of the cost of cheese comes from the primary ingredient, which is milk, you can see why we call it white gold!” says Alain. It must be understood that our cheeses will have trouble competing with theirs, at least on cost. This is why, at Laiterie Chalifoux, a good part of 2015 will be devoted to R&D (no less than $20 million in 24 months) and innovation. “We need to stand out, reinvent ourselves, make room for different forms of our products such as cheese flakes and cheese petals, work on products that can’t be imported and have a shelf life of less than 35 days. This is what we’re focusing on; we have only one chance, not two!” he exclaims. 2015 will be a hard year for cash flow: a lot of money will have to be advanced and put toward market development, marketing and planograms, to develop the Riviera brand. Currently, the HRI industry is a nice lifesaver for Laiterie Chalifoux by providing growth for both the private label and its own brand. The entire dairy industry needs to reposition itself with new consumers (18-45 years) who can choose other options such as soy, almond and other beverages, competition that was unimaginable 30 years ago.
Pierre R – Generally speaking, the 2015 economic outlook is more promising. The drop in oil prices might lead to higher discretionary spending. In Quebec, there is a certain morosity with a high unemployment rate and government austerity. Buyers are also pickier. Sales are important to the business, but marketing and R&D are even more important. “You have to stand out to take your place in the market. You can’t displace a competitive product from the shelf if you don’t have something different to put there!” affirms Pierre. Government aid doesn’t seem to be an alternative, especially when you think of the administrative burden involved in the process. “We should perhaps draw inspiration from the American and Ontario models,” he suggests. In the United States, one of the strategies put forth by the government to overcome the crisis was to invest in local businesses to generate economic activity and expand the GDP. It was the same in Ontario when they replaced the automotive industry with agri-food, and it’s working!” Plus it should be emphasized that the profit margin is shrinking for processors, with only four major distributors in Canada: Loblaw's, Sobeys, Metro and Wal-Mart.
Marie-Ève SA – A lot of effort will go into growing market share in Quebec and developing the Ontario market. In the past, the bakery always reacted to demand; but with this expansion, we also need to remember that, while producing more, there will be a greater demand on sales and this is new for them. Sales will need to be secured in advance and follow the rhythm. What about the hotel, restaurant and institution (HRI) industry? “We have a lot of work to do on this aspect: we’ve included it in our planning!” she maintains. And as for the challenge of recruiting manpower in its region of Lanaudière, the bakery has defined the ideal profile: quality of life is a priority. “We put forward not only the stimulating challenges presented by the business, but the quality of life to be found in St-Donat. The living environment sought, both professionally and personally, must fit together. Lovers of clean air and fresh air, St-Donat is expecting you!” she says with a smile. Charles-Henri dC – One of the challenges the company has given itself for 2015 is to exploit social media, so a communications director has been hired to curate the various communities. “What’s in the bottle is important, but everything that gravitates around it is just as important,” he states. “We need to take a position on topics and talk about what we believe in to attract customers!” 2015 will be a pivotal year, an important time for marketing, communications, and social networks. “We have to flood the industry in a positive way, talk about the benefits of the Ecocert certification,” he says. Lobbying will be done so that Quebec can follow the Ontario model: “The government should establish a policy with obligations to serve Quebec products, with specifications and everything!” he exclaims. Finally, it was noted that the Quebec government is too timid, doesn’t dare break the rules, and yet elsewhere in the country exemptions from distribution agreements are commonplace. “While elsewhere in the country they make exemptions and before they get caught, they develop markets and gain ground!” he shares. In Quebec, it seems people are afraid of a slap on the wrist.
Gerry VW – It might be a good idea to forecast a year, but our company prefers to look at a 3-year plan. New products and distributor support might contribute to development and short and medium term growth. “Absorb, or be absorbed! We’re gaining market share in Quebec, but we’re falling behind in Ontario. The buy local slogans, Made in Québec, Aliments du Québec…, are not easy to manage when you go outside Quebec! We’ll have to make some decisions and invest in the right places to grow,” he added. One of the main issues remains manpower and recruitment. In the fruit and vegetable sector, there are a lot of foreign workers and many agencies to manage hiring. Unfortunately, there is no clear regulation on this matter and there’s a long road ahead. Since the business has plants in Canada and Florida, its leader can’t help but note the major differences in hiring practices and the treatment of the (sometimes illegal) foreign workers, as well as the role of government in this industry, where the differences are blatant. “We’ll have to decide where to invest and we have to study all these factors – regulation, government support, manpower shortage... the political scattering of resources has to stop. The government has to either get truly involved and create a legislative framework, or get out of the way completely,” he says. Finally, “We exist because we are in the fresh food business; it’s our main competitive edge. Fresh food can’t come from the other side of the planet; the fresher it is, the more local it is!” he concludes. Sébastien A – For this entrepreneur and businessman, there are many things to question and ponder. “I wonder whether we should continue in this context, because we really need support in our industry. There might be more young people in the food and agriculture industry then,” he muses. This sad reflection doesn’t affect his entrepreneurial drive: to create, dream and innovate remain at the heart of his preoccupations. Sébastien wants to focus more on the snacking industry in 2015, by developing partnerships and signing agreements based on cross branding.
To conclude this roundtable, the participants wanted to answer a final question. “If you could ask consumers a single question or send them a single message, what would it be?”
Alain C – How can we identify the eating habits and meet the needs of Generation Y? Should we focus on distributing to small, medium or large grocery stores to reach Generation Y?
Pierre R – How can we understand consumers and their so-called desire to eat healthy when they continue to demand fries and gravy?
Gerry VW – A lot of different strategies and campaigns have been deployed to encourage people to eat more vegetables; so what is the limiting factor that stops people from eating more vegetables?
Charles-Henri dC – Consumers say they want healthy, organic food, but what do consumers think eating healthy means? Are they truly capable of understanding what characterizes healthy eating and certified organic food?
Sébastien A – What do we really need to communicate to consumers? Labels sometimes contain too much information, which just adds to the confusion of the consumer. Confusion feeds the rumour mill and myths that are shared and repeated, particularly on social media. What should we say, how should we say it, and where should we say it?
Marie-Ève SA – What about the contradiction between “eating healthy” and “treating yourself” for the consumer? How can we combine the two – is it possible?
Many growth projects and strategies were put forth during this roundtable. The quality of the entrepreneurs and the diversity of the sectors yield a great deal of hope as to the importance of this industry in Quebec, in Canada and in North America. Despite the diversity of these sectors, some common denominators were identified with regard to the challenges and high stakes faced by the entire manufacturing industry. Among the most recurrent, let us highlight governmental and regulatory frameworks, rules, standards, and support. And second, but not by much: the challenge of recruiting manpower is alarming. Seasonal employment, specialized workers, foreign skills, illegal workers, sectors that are overly, poorly or not at all regulated, isolated regions, inadequate training are the underlying challenges mentioned by our guests worried about human resources. And to conclude on a happier note, the good news is that one jewel continues to be handed down from one generation to the next: passion!
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