The rise and fall of national food brands
The bloodbath in foreign-owned, large-scale food manufacturing in Canada continues. In the past few days, we’ve learned that two plants, employing nearly 600 workers, are closing: Dr. Oetker in Grand Falls, N.B. and Campbell’s in Toronto. Estimates suggest Canada has lost more than 30,000 similar positions in food manufacturing in a decade. This is not new.
Both cases have common denominators: both plants were ancient, outdated, and in dire need of a retrofit. However, the companies opted instead to consolidate assets and have products manufactured at more modern facilities. In other words, they never intended to reinvest to modernize the existing plants. The use of better automation and robotics could have helped, but instead the facilities were left to rot and die a natural death.
Ontario and other provinces have countless aging plants, owned by foreign companies, and in need of a significant influx of capital to remain in compliance with modern-day standards of food safety and product advancement. So do not be surprised to see more of these types of closures as we are now paying for years of foreign control in this sector. Brands are now worth more than the human capital working in their facilities across the country. It’s not personal, it’s just business.
National brands are becoming an endangered species. Every week, national brands, historically more expensive than private label food products, are marked down to compete with store-owned labels. And, more and more people are looking for organic, multicultural foods — an area mega-enterprises haven’t been associated with until recently. The pace of this shift is spectacular. We are seeing more consolidation in food processing around the world because consumers in the Western world are looking for something different, natural and local. Many of the brands we all know do not resonate with people looking for these so-called value-based brands.
This pressure is leading to seismic shifts in the sector. Keurig Green Mountain, the maker of coffee pod machines, is purchasing Dr Pepper Snapple Group for $18.7 billion. The new company’s portfolio will include products varying from coffee to soft drinks. This deal is really about competitiveness at retail and allowing major brands to remain competitive. Brand equity, which has ruled grocery aisles for decades, is slowly becoming an afterthought. Margins must be better managed and merchandising strategies will need to be reinvented. Consequently, becoming bigger and more resourceful is key.
Most Canadians do not appreciate that the food processing sector is the second largest manufacturing industry in Canada, in terms of value of production, with shipments worth $112.4 billion last year and employing more than 250,000 people. This represents 2% of our overall economy. It is a massive sector that has flown under the proverbial radar for decades. This is why Food & Beverage Canada was just created by the sector, so processors can have a voice. Without a vibrant manufacturing sector, Canada’s agri-food sector cannot prosper.
Growing commodities is helpful for rural economies and small to medium-sized businesses. As Canadians, it is what we know best. But given how our world is changing, this is no longer enough. Food manufacturing has a multiplier effect on growth, which cannot be emphasized enough. For years, we have been reliant on foreign brands to offer job opportunities in small communities.
Most of these brands, however, are American. The Canadian brand has never been fully exploited in the food value-added sector, a missed opportunity indeed. The needle is slowly moving in our country, recognizing that food processing needs to find its mojo. The Agri-Food Innovation Centre at the University of Saskatchewan opened this year, to support the sector’s will to diversify and launch new businesses. Many incubator and accelerator programs in Toronto, Montreal, Halifax and elsewhere have been launched to create ag-tech companies, which focus on providing more value-added products to the market both domestically and abroad. Quebec now has a new market access program to support companies looking for new markets. It is no longer just about spreading money to different sectors across the agri-food continuum. Scalability and generating significant economic activity throughout the country are becoming priorities for most stakeholders in both government and industry.
Becoming a world-class agri-food giant involves building an ample food processing sector. We also need to provide the sector with ways to mitigate against higher wages, restrictive trade rules and fluctuating currencies. Looks like someone is finally getting the message.