Food & Beverage Report
Inflationary pressures hit the Canadian economy in 2022, and the food sector was not immune to the effects. Factors behind food inflation abound. A 2021 drought had reduced overall crop production in North America, while the war in Ukraine impacted grain movement, causing commodity prices to rise. Consumers started the year by spending their built-up savings from the previous two years.
The labour market tightened as businesses looked to boost production to meet growing consumer demand, causing unemployment to reach record lows and increasing wages. The Bank of Canada, in response to inflation, repeatedly raised its benchmark interest rate, applying further pressure on business borrowing costs.
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.
FCC Economics projects sales from the grains and oilseeds milling industry to increase 4.6% in 2023.
How we got here: Record prices drove sales growth in 2022
Sales increased 25% in 2022. Gains were largely a result of record prices, which increased 23%. The war in Ukraine and the 2021 North American drought pressured grain and oilseed prices higher. Strong demand allowed businesses to pass on higher costs to customers. Higher foodservice volumes drove the remaining balance of higher sales.
- With strong demand for flour and edible oils from downstream food and beverage manufacturers, retail and foodservice, the grains and oilseeds milling industry is poised for growth.
- Consumer interest in convenience and sustainability (e.g., sourcing more local grains and oilseeds) drove the success of this year’s domestic consumption.
- Healthy grain and oilseed products continue gaining traction at home and abroad, and Canada’s manufacturing capacity is positioned to expand.
Sales and margin growth forecasted to be weak in 2023
FCC Economics projects sales from the sugar and confectionary product industry to decline 1.3% in 2023.
How we got here: A normal year of holiday selling!
Sales increased over 15% YoY in 2022 to $5.2 billion. Fuelled by an 8% price increase, a rebound in volumes driven by foodservice and strong holiday demand, 2022 was the second consecutive year with sales growth above 15%. Chocolate ranked in the top 10% of total grocery volume growth among all food and beverage categories.
- Sugar and sugary production consumption has been declining per capita. However, the indulgence will continue, and a growing domestic population will provide growth opportunities.
- The number of confectionery imports from the U.S. proves ample opportunities to meet robust demand for indulgence.
- Growth can also exist in the international markets as global disposable incomes rise.
Sales growth expected to be strong in 2023; margin pressure to continue
FCC Economics projects fruit and vegetable preserving and specialty food industry sales to increase 5.8% in 2023.
How we got here: Shift from fresh to preserved
In 2021, customers preferred fresh produce and homemade meals because of COVID apprehension and higher disposable incomes. Delivered home meal kit sales were strong, providing competition to this industry.
In 2022, food inflation pushed consumers towards preserved foods and away from more expensive fresh foods. Sales increased 11% YoY in 2022 after declining 1% in 2021. Price inflation was the biggest reason for the increase, rising just under 10% for the year.
- A focus on promoting convenience, nutritional enhancements and affordability will continue to attract consumers – an important consideration as households’ savings dissipates and consumer spending slows.
- With the market share of domestic Canadian manufacturers declining over 4% YoY in 2022, now representing less than 44% of total sales, opportunities exist to replace imported product market share.
Value-added dairy products driving growth
FCC Economics projects dairy product industry sales to increase 8.0% in 2023.
How we got here: A double dip milk cost increase in 2022
Industry sales grew just under 8% in 2022 YoY, with higher prices leading the growth, stemming from two increases in butter support prices mandated by the Canadian Dairy Commission.
Demand is strong for products like creamers, products for lactose intolerant consumers, infant formula, ice cream and cheese; these will likely drive growth in 2023. Infant formula was in the top 5% of best-performing grocery volume growth categories in 2022.
- Monitoring trends in consumption preferences will be key to success.
- Evolving demand from foodservice channels for value-add dairy products shows potential.
- Keep an eye on growth in alternative beverages and consider strategies to maintain market share.
- Increasing input costs and inflation will pressure gross margins in the year ahead.
Sales growth to come from both strong export demand and domestic population growth
FCC Economics projects sales from meat product manufacturers to increase 2.5% in 2023.
How we got here: Rebound in restaurant sales
Meat product manufacturing sales increased over 9% YoY in 2022, largely due to stronger domestic sales (up 12%), led by foodservice growth. Prices were stable compared to many other industries, rising 1.8% YoY. Canadian retailer prices rose 8.1% in 2022. The discrepancy was largely the result of delayed price increases after manufacturing prices rose 12% in 2021. Nonetheless, Canadian consumer meat prices rose less than in the U.S. and abroad. According to the UN, global meat prices rose 10.4% YoY in 2022.
- The past few years have entailed a balancing act for meat manufacturing. Canadians still have strong preferences for meat amid a desire to diversify their food basket and alternatives that have emerged.
- Labour challenges in the industry led to higher wages and strengthened benefits packages to attract new employees, with industry employee earnings growing over 7% YoY.
- The number of meat manufacturing businesses declined by 14, with the reduction of small and independent manufacturers.
- The year ahead looks bright if a significant slowdown of the Canadian and global economies can be avoided: inflation is expected to subside, and meat sales look robust, driven by foodservice, convenience meat products and exports.
Despite a challenging year, demand remains strong
FCC Economics projects seafood product preparation and packaging industry sales to increase 9.8% YoY in 2023 but remain 5% below the 2021 level.
How we got there: Lower production numbers led to export declines
Seafood product preparation and packaging sales declined nearly 14% in 2022 due to weaker exports. Salmon, lobster and crab export volumes declined YoY, and the closure of a salmon manufacturing plant in Surrey directly impacted sales. On the east coast, many operators were hit hard by Hurricane Fiona.
- Foodservice demand and export markets are paramount to Canada’s seafood industry success.
- These two channels provide significant sales opportunities that can drive volume, especially for premium products like salmon, lobster and crab.
- Production headwinds exist, but the global demand for sustainable seafood produced in Canada is very robust.
Baked goods expected to be food and beverage sector leader for growth in 2023
FCC projects sales from bakery and tortilla product manufacturers to increase 5.4% in 2023.
How we got here: Higher commodity prices fuelled by export demand
Bakery and tortilla manufacturing sales increased 18% YoY to $16.3 billion in 2022. Cookie and cracker sales increased 31% YoY, bread and bakery product sales increased 16%, while dough and pasta sales declined 8%. Cookie and cracker sales growth accelerated as the year progressed, eclipsing 40% YoY in Q4.
- A foodservice rebound and bakers providing convenient staples are setting the stage for a solid performance in 2023.
- The opportunity to provide healthy and locally produced goods allows for differentiation.
- Finding ways to alleviate labour challenges should boost productivity and drive growth.
Despite a difficult year, a rebound appears unlikely
FCC Economics projects beverage manufacturing industry sales to decline 2.3% in 2022.
How we got there: High costs among stiff competition
Beverage manufacturing sales declined 1% YoY in 2022 to $14.4 billion. Soft drink sales increased 13% YoY while alcoholic beverage sales declined. A small YoY rise in winery sales of under 1% could only partially offset distillery sales decreasing 12% YoY and brewery sales declining 3% YoY (14% YoY in Q4). Since 2019, alcohol consumption as a percent of total household consumption has declined 2%, while cannabis consumption has increased 23%. This trend is expected to be much stronger in the 15-24 age demographic.
- The alcoholic beverage industry faced challenges in 2022 that will not fade in 2023.
- Younger Canadians aren’t drinking as much as older generations have. However, there are opportunities in the 10-billion-dollar industry to displace international suppliers with high-quality products.
- The beer industry is heavily concentrated, but there is strong demand for craft beer.
- In all three, innovative new products that differentiate businesses can lead to growth.
Bakery and tortilla product manufacturing sales grew over 11% in 2021 but faced cost and labour pressures.
Global seafood demand started to move back from retail towards foodservice, helping volume shift towards more premium fish like salmon.
Profitability in meat product manufacturing was mixed in 2021.
After a difficult 2020, the sugar and confectionery industry had one of its strongest years for revenue growth on record.