We have discussed some issues impacting consumers and customers as we move into 2020. This week we will include some discussion about issues impacting the entire food and beverage industry. This is a challenging industry and to succeed you need to know what is happening. You can't always control it but you need to determine how it will impact your business and what you need to do about it.

One thing you can do is take advantage of business development opportunities. We are excited to be offering two courses with Perennia this year to help your business in 2020.

For producers and processors who have products in retail there is the Surviving to Thriving program. This is designed for producers and processors already in production and on the shelf. There would be category exclusivity in these sessions to ensure that participants are not in competition with one another while learning. There are only ten seats available ensuring that each business will receive specific and one on one training. By the end of the 7 week course, participants will be able to:

· Articulate their unique selling proposition

· Understand how to develop an annual promotion plan

· Develop prosperous relationships with retailers

· Walk the store and understand what is happening

· Implement the process to generate a price increase

· Prepare and deliver a kick ass presentation to a category manager

For producers and processors who are developing new ideas into products there is the Great idea to viable product course. This six week course is specifically designed for Nova Scotia agriculture producers and agri-food processors who are passionate about a product but to date have no consistent production or sales history. In other words, they are doing direct selling and want to expand distribution and get a product to the shelf. There would be category exclusivity in these sessions to ensure that participants are not in competition with one another while learning. There are only ten seats available ensuring that each business will receive specific and one on one training.

By the end of the course, participants will have:

· An enticing unique selling proposition for their product

· Defined the target market and the value for each product

· Understanding of the components of a successful product

· Improved knowledge of the grocery store, the product category, what their customer is trying to accomplish and where they can play a role in making the customer more successful

· Understanding of the capabilities of a successful food business

· A 12 month sales and promotion plan

· A thorough understanding of how to develop a strong long-term relationship with retail customers

· Know how to get the product listed at a retailer

· New confidence that will be evident when meeting with category managers

Both courses include 3 face to face sessions in Halifax and 4 online modules. The content is designed specifically for the food industry and we will find solutions relevant to your business. As we are now a couple of weeks into 2020 we will discuss some industry issues that could impact your food and beverage business this year.

We have separated these 2020 focus areas into three distinct reports for you:

1) Consumers,

2) Customers,

3) Industry

Industry

Trade

In recent years we have had a lot of uncertainty in the trade between countries. The U.S. took a very aggressive stand to leverage the power of their lucrative market. This created a number of challenges. There are never any guarantees in food and beverage but the inability to access certain markets or with high tariffs was a big concern for some.

We appear to be moving into a period of more sanity as the new USMCA is being ratified in all three countries and the U.S. and China are close to an agreement. This is important for producers and processors who export but also for those who depend on ingredients crossing international borders.

My experience has been producers and processors focus more on export, as that is the opportunity when it comes to international trade. Keep in mind there will be more access to this country with new products coming in as well. Take the time to assess the impact on your business and what you need to do to ensure your markets, no matter where they are, remain viable.

Technology

The impact of technology is not new. The massive size of the food and beverage industry requires complex systems and efficient logistics to differentiate and deliver a bottom line. The pace of change is accelerating because of the limited labour force and the awareness to new methods of doing business.

Labour is a challenge for almost any player in the value chain. This is forcing retailers to invest in more automation in their warehouse, their store and even the interaction with consumers. Sobeys’ new $200,000,000 warehouse is being built to operate with minimal human labour to pick consumers’ online orders. Loblaw are testing robots in stores to monitor in stock position and electronic shelf labels now have an enticing payback for the dollars invested. On the consumer interaction Sobeys introduced the Smart Cart in Oakville and self-scanning checkouts are common in many retailers. Your item needs to be easier to scan than ever or if you are in produce with a PLU code it needs to be easy to find.

Over 30% of the Canadian food industry is now done through retailers operated in the U.S. Walmart, Costco and Whole Foods do business differently. Most likely they are the cheapest cost per case in the market at Walmart and Costco, which allows them to invest more in retail pricing. Sometimes people wonder how can Walmart be a certain price. The reality is that it costs them less per case to get the product from the warehouse through the cash register. Technology plays a big part in that. You will see the Canadian retailers investing to narrow the gap.

Product transparency

Consumers want to know more about the products they buy. Retailers are reducing their risk by forcing suppliers to be more transparent about food safety and production or processing methods. Both of these issues impact the transparency suppliers must deliver in the market.

Shoppers in store want to know the best before date, they want to know how it was produced and they are more interested in ingredients than ever before. These issues can be the difference between a purchase or being left on the shelf. How often do you see a consumer stop in the aisle, read a label and put the product back on the shelf? It had nothing to do with price because they see that before they pick it up. Something else caused them to put it back.

We will see more focus on blockchain and other traceability programs as retailers off load risk. There are too many recalls and retailers see these as taking focus away from sales and costing money. Obviously they prioritize the safety of their consumers but recalls have become an all too frequent distraction from the real priority they have which is selling food and beverage. You will also see more audits on production and processing methods. These are being implemented to ensure products are produced safely and ethically. With global supply chains, suppliers in all parts of the world are being asked to complete the same audit process.

Cannabis

This category has received a lot of press as Canada moved to legalize cannabis in October 2018, which was followed by edibles in 2019. According to Stats Canada sales of legal marijuana in the first 12 months were $907,833,000, which was $24 per person in the entire country. With the launch of edibles the expectation is the dollar sales will increase by another 50% to $1.5 billion. This has been the experience in U.S. states where edibles were introduced.

There has been considerable media about this industry and investors seem to want them one day and sell them the next. There is no doubt resources from the food and beverage industry have migrated to cannabis. Greenhouse production and product development expertise would be the two areas most impacted. We do see some consumer packaged goods companies exploring the edibles as well.

It is here to stay and the retail side will continue to evolve. Changes are happening in N.B. and Ontario and there will be more. At some point it will be a choice between carrying these products and others in more traditional retail.

Cost of goods

Focus on cost of goods is also as old as the industry. Some costs like labour continue to increase across the country. We expect to see more focus put on keeping total cost reasonable, given the guaranteed increase in labour.

Suppliers will need to find more efficient logistics, automation and other input costs. This is a challenge when there is a demand for packaging that is more environmentally friendly and completing costly audits and/or food safety programs. Suppliers will need to have more facts to share that illustrate the cost of doing business. Perhaps we will see product cost move to more of an open book style, which is used in other markets. Suppliers and retailers agree on the acceptable margin for the supplier, then they both have access to the cost of goods and there is no negotiation.

Store closures

Canada is behind the U.S. in the adoption of online shopping in food. The shipping and logistics are more complicated in Canada and the cost is higher as a percentage of sales because the market is smaller. Over time and perhaps not this year but soon enough we will see physical stores close in Canada.

Suppliers need to think of the buying process changing as less is done at the shelf in the store. It is a critical point when the consumer makes the decision to buy. It will change to a screen or perhaps something even more advanced. Marketing and sales investments need to evolve from a store focused decision that relies on packaging and point of sale material to something different. Consumers buying today on Amazon never see the package until the product arrives at their door. There is a lot of cost built in for something that will be less important in a few years for a percentage of the product sold.

This is our final report for issues impacting the industry in 2020. We hope it has caused you to think about your business and make some plans to capitalize on where things are going in our industry. If you have any questions or would like to talk about any of these opportunities give me a call at 1 (902) 489-2900 or send me an email at Peter@skufood.com and I will get back to you.