Food & Beverage Reports
The FCC Food and Beverage Reports highlight opportunities and risks for Canadian food manufacturers to help navigate economic recovery.
Several external factors impacted Canadian food industries in 2021, resulting in higher input costs, amplified labour shortages and upended food consumption patterns. Early on, there was hope that the pandemic was soon behind us – but new variants provoked more disruptions, restrictions and uncertainty. Despite these challenges, food manufacturers stayed resilient.
In this report, we look at the challenges and opportunities by industry. Read the full report or dig into what’s most relevant to you.
Industry highlights
Record prices and stronger foodservice demand in North America boosted sales and profitability after declines in 2020. High input costs and supply-chain bottlenecks put pressure on output and prevented a good year from being great.
Gross margin as a percent of sales increased off 2020 lows but remains below historical levels.
FCC Economics projects sales to increase 8.0% in 2022
Grocery sales of products using grains and oilseeds decreased 7.1% in 2021
Bottom line: With outputs like flour and edible oils being ingredients required by downstream food and beverage manufacturers, retail and foodservice, the industry is poised for growth in demand.
After a difficult 2020, the sugar and confectionery industry had one of its strongest years for revenue growth on record. At the onset of the pandemic, volumes of confectionery products and refined sugar heading to foodservice establishments declined as consumers stocked up on essentials. 2021 saw a shift back towards purchasing candy, chocolate, and other feel-good foods. Healthy choices remain a key trend in Canada, but indulgence isn’t going away.
Gross margins increased for the third consecutive year in 2021, driven by strong growth in Q1 and Q2.
FCC Economics projects sales to increase 14.3% in 2022
Grocery sales of sugar and confectionery products increased 3.3% in 2021
Bottom line: As the consumer becomes mobile again, opportunity abounds. For this industry, convenience and indulgence are differentiators for candy, chocolate, and other sugary pleasures.
This industry is especially broad, including canned and frozen fruits/vegetables and specialty foods like frozen dinners/pizzas. 2021 was challenging as demand softened for canned products and higher production costs ate into margins.
Raw material inflation and labour costs both contributed to lower margins in 2021
FCC Economics projects sales to increase 6.8% in 2022
Grocery sales fell 1.1% in 2021 YoY, underperforming the total grocery increase of 0.3%
Bottom line: Continued focus on promoting convenience, nutritional enhancements and affordability are three primary drivers attracting consumers to this category. This will be paramount as households’ savings dissipate and higher consumer spending slows.
Dairy product revenues grew in 2021 but were lower than anticipated due to softer demand. Revenue gains in foodservice outweighed declines from retail. The progressing rebound in restaurant and hospitality demand is forecast to support growth in 2022.
Gross margin as a percent of sales decreased in 2021 on higher labour and material costs
FCC Economics projects sales to increase 3.5% in 2022
Dairy products sales at Canadian grocery stores were up 1.0% in 2021 YoY and volume fell 3.3%
Bottom line: Monitoring consumption habits and costs will be key to success. Evolving demand from foodservice channels and for value-add dairy products provide optimism. Keep an eye on growth in alternative beverages and consider strategies to maintain market share. Increasing input costs and inflation will impact gross margin in the year ahead.
2021 meat manufacturing industry profitability was mixed. Costs increased dramatically, but through the year, processors could pass higher expenses to retailers. As restrictions eased in Q3, demand rebounded, helped by a high consumer savings rate, making it easier for processors to increase prices.
Gross margin as a percent of sales increased to 2019 levels in 2021 after declining in 2020
FCC Economics projects sales to increase 10.4% in 2022
Grocery store meat sales declined 1.0% in 2021, underperforming the total grocery increase of 0.3%
Bottom line: It’s been a balancing act for meat manufacturing. Processors rallied to source, retain labour and capitalize on strong demand in global and domestic markets. The year ahead looks bright as inflation subsides and meat sales look robust driven by foodservice, convenience meat products and export.
The seafood industry had a strong 2021. Global seafood demand started to move back from retail towards foodservice, helping volume shift towards more premium fish like salmon. Sales increased 22.3% in 2021, surpassing both 2020 and 2019.
Gross margin as a percent of sales increased in 2021 compared to both 2020 and 2019
FCC Economics projects sales to decrease 16.9% in 2022
Grocery seafood sales increased 0.1% in 2021 YoY, slightly below the total grocery food increase of 0.3% as consumers purchased less canned seafood
Bottom line: Foodservice demand and export markets are paramount to Canada’s seafood industry success. These two channels provide significant sales opportunities that drive volume, especially for premium products like salmon, lobster and crab. Long-term opportunities include communicating the convenience and health of seafood products to drive at-home consumption and support sustainable aquaculture growth in Canada.
The foodservice industry is an important market for baked goods. In Q3 and Q4, sales increased over 16% as COVID restrictions eased and people ate out more. Cookies, crackers and pasta recorded sales growth of 20% in November, picking up where it left off pre-pandemic when it grew over 20% in 2019 and over 30% in Q1 2020.
Gross margin as a percent of revenue decreased to a decade low in 2020
FCC projects sales to increase 8.2% in 2022
Bakery grocery sales fell 0.3% in 2021 YoY, slightly below the total grocery increase of 0.3%
Bottom line: A foodservice rebound and the convenience and staple products that bakers provide set the stage for solid performance. Opportunity to provide healthy and locally produced goods allows for differentiation. Finding ways to alleviate labour challenge strains will boost productivity and drive growth.
Beverage manufacturing is a low-margin, high-volume business where minor shifts in demand or production costs can have significant financial implications. The pandemic shifted consumer purchases from foodservice to retail, limiting a revenue stream with strong margins for many businesses. In 2021, consumers started to shift their purchases back to the service industry. However, lingering restrictions and higher production costs reduced market opportunities.
In this report, we look at the challenges and opportunities by industry. Read the full report or dig into what’s most relevant to you.
Industry highlights
Brewery manufacturing sales increased 7.4% in 2021, led by volume growth in the service industry and demand for Canadian beer from retail stores. Price inflation was modest for the year at 0.8%, with the biggest price gain coming from retail stores. Low price inflation during higher input prices compressed profitability to decline for the third year. Breweries are also increasingly shifting their focus to the growing hard seltzer market to offset declines in market opportunities for beer.
Gross margin as a percent of sales decreased to its lowest point of the past 20 years and fell for a third consecutive year in 2021.
FCC Economics projects brewery manufacturing sales to decline 1.8% in 2022.
Beer sales at the retail level for the 2020/21 year declined 1.4%, with total litres sold declining 2.3%.
Bottom line: Low price inflation and rising input costs are trends to monitor. Look for data-driven ways to boost margins and manage inventory, product mix and pricing strategies.
Winery manufacturing sales increased 30.9% in 2021. Consumers increased wine drinking at home during COVID lockdowns, and the sale of higher-priced wines did well with elevated savings. However, manufacturing sales don’t tell the whole story for wineries.
Gross margins were pressured in 2021 from higher grape growing prices and higher packaging costs in the face of a shift towards more packaged sales at the retail level.
FCC Economics projects winery sales to decline 6.8% in 2022.
Retail wine sales grew 2.4% on volume growth of 2.1%, led by red, rosé and white wines.
Bottom line: After a chaotic year of pandemic-induced restrictions, weather events and supply chain disruptions, there’s optimism with a return to on-premises sales tied to increased tourism and travel.
Sales declined 1.9% in 2021. The first quarter of the year was strong, with sales growing over 43% before rapidly falling in the second half. Retailers and wholesalers bought many products ahead of the expected reopening of the economy in 2021, only to live through a third and fourth wave of COVID restrictions. This inventory is now being sold, stalling downstream sales from manufacturers.
In 2021, growth is coming from convenience and pre-mixed liquors, though compressed by a steep increase in material and labour costs.
FCC Economics projects distillery sales to decline 4.8% in 2022.
For the 2020/21 year ending in March, liquor retail sales grew 14.3%, led by spirit coolers, whiskey and liqueurs.
Bottom line: With continued focus on managing costs, the good news is robust demand. Find ways to utilize marketing tactics to push through inventory and expand reach with Canadian consumers.
Record prices at the end of the year and stronger foodservice demand in North America boosted sales and profitability in 2021. High input costs and supply-chain bottlenecks put pressure on output. Sales increased 8.1%. Gains came in Q4, led by higher prices and volumes in the quarter. Demand for convenience, low caloric and caffeinated beverages continue double-digit rate growth and is driving the increase.
Gross margin as a percent of sales increased for the fourth consecutive year in 2021.
FCC Economics projects soft drink and ice manufacturing sales to increase 4.8% in 2022.
Grocery beverage sales increased 5.3% in 2021 (compared to 11.9% growth in 2020), with volume increasing 1.3%.
Bottom line: Successfully managing higher material costs, inventory and labour costs are keys to margin growth. The desire for convenience fosters opportunity, and a return to on-the-go lifestyles fueled by tourism and travel coupled with back to school and office bodes well.
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The 2022 FCC Food Report illustrates food manufacturing’s resilience and growth in 2021.
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