Uncertainty…
Our plan was to start 2025 with a focus on each of our 10 trends each week. This week as tariffs were on and then off again, we are going to share more insights for producers and processors in this very challenging time. We will go back to our 2025 trends next week.
On Tuesday, despite Canada and Mexico responding to the false claims about border security, the regime in Washington went ahead with 25% tariffs across the board, with the exception of 10% on energy. In other words, every food or beverage produced and exported to the U.S. was subjected to this tariff. On Thursday tariffs were paused again. As tariff threats and negotiations change day by day you need to be ready to act.
We have provided some insights before and we have updated them based on recent developments.
Canadian consumer reaction
In all my time in the food industry this is the swiftest most decisive change I have experienced in consumer behaviour. Canadian consumers are pissed off and voting at the cash register. This is a reminder just how fast consumers can react in our industry. We know items like cars will increase but they are not a frequent purchase. We all buy food every week.
We used to talk about how hard it can be to get people to change their buying habits. They get used to a brand and they need a very good reason to change. Well, they now have a very good reason.
People want to know if products are made in Canada by Canadian companies.
- Does your packaging clearly indicate you are Canadian?
We assume you meet the legal, regulatory requirements. Now look at it from the consumer’s perspective. When they see your product on the shelf is it clear you are Canadian? Don’t make them pick it up or read the fine print. Win on the shelf. Right now, this is something that will change buying habits.
Consumers loyal to brands are switching. People are looking in other people’s carts to see if they have any U.S. products. Changing packaging is not something you can just run out and do next week but you can look at inventories and make some changes to your next print run. Perhaps a maple leaf on the front or something that is not a complete re-design.
- You need to make this as easy as you can for your customers.
Many retailers are putting Canadian flags on the shelf and highlighting Canadian products in ads and online. Is it very clear to them yours are Canadian? Do not assume they know and check to make sure you are getting the exposure you deserve. This will influence people to switch.
- Invest in marketing
Although it is a challenging time and you might be tempted to pull back spending, it might be the best investment you ever make. Consumers want to know and you need to tell them. A Canadian company making products in Canada is what people are looking for. We understand there are products manufactured in Canada but if the head office is in U.S. we know where the decisions are being made and where the profits go. Small to medium sized companies need to be nimble and react now.
This is a challenge and an opportunity
We know this is a huge challenge for businesses selling significant amounts or product into the U.S. The price of food and beverage is already an issue and an additional 25% will destroy many items or make room for a U.S. produced product to be much cheaper.
We do have to face the challenges head on and some will take a long time to overcome. Good export markets take work and time to develop.
If most of your sales are in Canada there are opportunities.
- Protect the sales you have
Regardless of whether you sell into the U.S. or not you could be impacted. Many Canadian companies who do sell into the U.S. are looking for opportunities to reduce this risk. Some of these customers might be the ones you supply. There is a chance they might go after Canadian business being done by someone one else. If you do sell into the U.S., talk to your American customers to understand the impact of a 25% price increase.
Talk to your customers, all of them. Make sure you are in a good place. If you have had some lingering issues recently, get them cleaned up. You do not want any excuses out there for them to consider ‘other options.’
- Review your sourcing of any inputs from U.S.
We did see a swift response from Canada to apply counter tariffs. From a patriotic perspective, it is great and something we probably have to do. Unfortunately, it will drive up your cost of goods and force you to absorb higher costs for inputs or get a price increase through. With this time, review all sourcing to understand the options. Perhaps when you made the decision to source from U.S. there was a close second from Canada or somewhere else. Might be time to go back to those decisions. The volatility will remain so remove the angst of dependence on the U.S.
Canadian retailers have announced they will expedite the cost increase process. If you are experiencing changes you do need to react and get paid the right price for your products.
- Understand the impact of a lower Canadian $ and interest rates
We always say at this point we are not economists…It is ironic when the Canadian dollar loses value exporting is more attractive. We saw the Canadian dollar drop by 2-3 cents, but it did recover part of that. It will cost you more to buy commodities priced in U.S. $. Equipment purchases might cost more. We will probably see more inflation in grocery stores as +/- 20% of what they buy comes from U.S.
Interest rates will probably stay lower. We need to keep the Canadian economy moving and they will be afraid to slow it down with higher rates. The lower rate on a loan for equipment might offset the currency.
- Changes to inter provincial trade barriers
Many in smaller provinces have been fighting for this for a long time. You have heard me say before it is not fair or make any sense that a food business in Ontario has access to a market of 15,000,000 people with the same inspections and food safety standards as a business in PEI with a market of 160,000 people.
If they do remove some of these barriers it could change the dynamics in some categories. We might see Canadian food and beverage businesses looking to sell into other provinces.
- Retailers looking for more Canadian products
It has been interesting to see the reaction from retailers. Specialty stores have been all over the issue. A great strategy for them to differentiate and react quickly. Support your customers in these stores.
The large retailers are working to source more Canadian made products. This is the right thing to do and it will help them avoid price increases from products with Tariffs coming from U.S.
Loblaw have implemented a swap option on their e-commerce platform that allows consumers to ‘swap’ a Canadian product for a U.S. product. Try this out in your category and make sure your products come up for consumers to select.
This is definitely an opportunity for Canadian manufacturers. We all know what the leaders say in the media and what happens in a category manager’s office can be different, but now is the time to leverage the opportunity. If you did not get to the shelf last time or into new markets, now is the time to try again. Show them what you are doing, that includes giving the retailer credit to illustrate to consumers you are Canadian and drive sales.
- Private label is an opportunity
As we see consumers posting all over about Canadian products, private label is a mystery. Many products say “produced for” but there is no clear origin. Retailers will be looking to reduce the risk of higher prices and also some good publicity.
If you have the capability and food safety requirements now is the time to get in there and make your case. After the bad publicity of inflation retailers would be happy to make the claim “we switched 15% of our private label volume to Canadian manufacturers”.
- Reinforce participation in ‘local programs’
Many provinces have their own buy local program. Make sure the signage is on your products and that you are identified online as part of the buy local. In the past you might have felt this was a positive but not a game changer. The dynamics have changed. People want to know.
- Exemptions for ‘only available from U.S.’
When the Canadian government announced the counter tariffs, they did indicate products coming into Canada that were only available from the U.S. could be exempt from tariffs.
We did not see the process to apply for this, but there could be some work you could do in advance.
- Understand how the tariffs would work
Our sense was a lot of people were scrambling to understand the actual process. Talk to your customs brokers and others to understand the mechanics of this.
You should also talk to your U.S. customers to really determine what will happen to sales.
Cash flow is very important if you are going to have to pay the duties to customs brokers up front.
- Explore U.S. co packers
We know of some Canadian companies exporting to U.S., who have explored partnerships with U.S. based companies to co-pack for them. Product is made there so would not be subject to tariffs. This is not an ideal solution because production will leave and impact the operations of your business. There is the potential to earn something form managing the sales and the customer relationship.
- Push government, retailers and other manufacturers to support ‘Buy Canadian’ programs.
This will help in some cases but never make up for the lost volume going to U.S. There is demand from consumers so let’s make it easy for them.
- Put pressure on our Canadian regulators
Now is the time to reduce the cost of doing business in Canada. We are over regulated and with companies probably facing lost volume, the bottom line will be even tougher. This is the time to get attention and improve our ability to compete globally.
- Explore new export markets.
This is much easier said than done and it takes time, money and persistence. Given the protectionist approach being pursued in the U.S. it is possible some countries will be less interested in U.S. products. Explore export markets where your product could work and look for U.S. made products on the shelf. They might be looking for a friendlier alternative from Canada. We do need to diversify our export volume, so perhaps now is the time to explore something you had put lower on the priority list.
- Talk to your customers
We know the appetite for a cost increase is very low, given the period of food inflation we have been through. The reality is you need to know your costs and if this will impact your business. Be proactive with your current Canadian customers and let them know the impact on your cost of goods. For example, if you are going to incur a 25% increase in ingredient cost from U.S. because of tariffs that is a reality you and they need to reflect.
- Participate in the dialogue
There is an appetite from industry trade associations and bureaucrats to talk about the impact and options. Make sure they understand your business. They can only advocate for you when they understand your position.
Peter
SKUFood Recipes for Success Podcast
In this episode, we’re excited to feature Carzan Local Meats, a family-owned business from Southey, Saskatchewan, dedicated to producing premium grass-fed beef and jerky products. Founded on the principles of sustainability and regenerative ranching, Carzan has become known for its locally raised meats and innovative flavour offerings in their growing jerky business.
Join us as we delve into their journey with Carter and Carmen, from their family roots to their commitment to providing top-tier products that reflect their passion for sustainability and community.
Get ready to hear the inspiring story behind Carzan Local Meats.
More proof consumers are looking at labels
We used to see consumers pick up products to have a closer look at the nutrition facts table. Now they want to know where it is made.
Make sure it is clear your products are made in Canada. Use stickers in the short term if it is practical. Could make the difference!
I do have travel coming up to Toronto so if you want to connect or have an event in any of these locations give me a call or send me an email.