2022 FCC Food Report: Exploring fruit, vegetable and specialty foods
This information is shared from the 2022 FCC Food Report — highlighting the opportunities and challenges for Canadian food manufacturers by industry. To get the bigger picture — read the full report.
This industry is especially broad, including canned and frozen fruits and vegetables and specialty foods like frozen dinners or pizzas. 2021 was challenging as demand softened for canned products and higher production costs ate into margins.
Unlike 2020, centre-of-store shopping underperformed the perimeter in 2021. Customers returned to buying fresh produce, hurting volumes of frozen and canned fruits and vegetables. However, there is optimism for 2022. Frozen food and non-frozen products offer convenience, affordability and increasingly nutritious options. With inflation reducing consumers’ purchasing power, these (often cheaper) products offer a solution.
Sales declined 1.4% in 2021 after increasing 8.6% in 2020 (Table C.1) yet remained 7.1% higher than 2019. Imports declined in 2021. However, Canadians still ate less domestically produced products than the year prior. The industry struggled with productivity in 2021, with sales per employee declining as employee counts increased and wages grew double digits.
Table C.1: Both sales and gross margin declined in 2021
The broad scope and continuous innovation within the industry makes it difficult to compare profitability over time. Frozen and speciality foods now make up a larger percent of the industry but has come with lower margins. The expectation is that margins improve as penetrating pricing strategies on new products lessen and production investments increase productivity.
Raw material inflation and labour costs both contributed to lower margins in 2021 (Figure C.1). Q3 and Q4 saw improvement but didn’t offset early-year weakness. Hourly wages increased over 12% and cost of materials as a percent of revenue increased over 6%. With over 53% of product sold in Canada being imported, a rising dollar along with higher production costs make it a competitive Canadian market.
Figure C.1: Margins have steadily declined as the industry expands into higher volume, lower margin categories
FCC Economics projects sales to increase 6.8% in 2022. Growth is expected to be particularly strong in the second and third quarters, growing around 10%. Canned and preserved products do well during times when the purchasing power of customers is tight. Canadians are seeing elevated food prices, which will benefit lower-cost canned products. Frozen foods are also expected to see strong sales, led by continued product innovation focused on healthy options.
Figure C.2: Fruit, vegetable and specialty food sales expected to increase 6.8% in 2022
Grocery sales fell 1.1% in 2021 YoY, underperforming the total grocery increase of 0.3% (Table C.2). Fresh fruits and vegetables had a strong year with bagged fresh vegetables and pre-cut fruit doing very well, highlighting a continued demand for fresh convenient foods. Centre-of-store categories saw the largest declines, with canned tomatoes, mushrooms and beans all seeing double-digit declines in sales and tonnage versus 2020. Frozen fruit and vegetables also had modest sales declines in 2021 after seeing growth of 25%+ in 2020, but sales remained 19% above 2019.
Table C.2: Canned products underperformed compared to fresh in 2021
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.