This is the ninth in a series of export sector surveys authored by State officers supporting the President’s National Export Initiative (NEI) and the Secretary’s Economic Statecraft program. The NEI strategy and ways to strengthen interagency collaboration is outlined. This survey covers Canada’s niche foodservice equipment market, focusing on new business opportunities and challenges facing U.S. exporters. The Canadian foodservice industry generates over $60 billion in annual sales and accounts for four percent of the national economy. With over 30,400 commercial foodservice establishments in Ontario and nearly 81,000 across the country, there are approximately 24 dining establishments per every 10,000 Canadians. Every dollar spent in these establishments generates an additional $1.85 in spending, well above the average for all other industries in Canada. Foodservice equipment that features new technology and improved energy efficiency will be in demand for both new establishments and those replacing older equipment as this sector emerges from the economic downturn. The North American Free Trade Agreement (NAFTA) has significantly reduced barriers to trade and U.S. Commercial Service (USCS) and State officers are prepared to help U.S.-based small and medium-sized businesses increase U.S. exports to this market.
Foodservice equipment manufacturers, suppliers and distributors provide specialized products for food preparation, cooking, storage and table service. Major end-users of this specialized equipment include commercial and institutional kitchens located within restaurants, hotels, catering businesses, schools and colleges, hospitals and other residential health-care providers. Franchise restaurant chains, particularly in the fast-food sector, are especially important for large-scale sales and repeat business. Major product categories include: ovens, stoves, ranges and other devices for heating food or keeping it warm; refrigerators, freezers, display cases and other products for keeping food cold; refrigerated equipment for dispensing beverages; and ice-making machines.
The foodservice equipment market is made up of global players primarily based in the U.S., Europe and Japan. Despite a global recession, industry demand and growth has been fueled by a need to replace existing equipment and capitalize on the technological and energy efficiency advantages offered by state-of-the-art foodservice equipment. Purchase decisions are increasingly driven by a desire to reduce operational costs, increase consistency, and improve energy efficiency and other “green” considerations.
Food safety remains a key issue for all Canadian foodservice establishments. Ensuring that their foodservice equipment is designed to meet high standards of safety and sanitation is essential to these customers. Sustainability is also a growing concern for Canadian end-users. Hotel and restaurant operations necessitate extensive consumption of energy and water and produce significant volumes of solid and liquid waste. Successful manufacturers are addressing these concerns by designing products to make more efficient use of energy and water and reduce their customers’ output of waste.
The restaurant and foodservice industry plays a key role in Canada’s economy. With over 17.8 million restaurant visits every day, Canada’s foodservice industry accounted for 3.8 percent of GDP in 2010 with $61 billion in annual sales. Restaurants account for 23.1 percent of household food dollars spent. Every dollar spent at a restaurant creates an additional $1.85 of spending in the Canadian economy, a value-add well above the average for other industries, and every one million dollars spent at a restaurant creates nearly 27 jobs, making foodservice one of Canada’s top job creators.
There are nearly 81,000 commercial foodservice establishments in Canada, or roughly 24 establishments for every 10,000 Canadians, employing over one million people. Fully 64 percent of Canadian restaurants are independent brands, with chain restaurants accounting for the remaining 36 percent (many of them locally owned and operated franchises). Of Canada’s 80,800-plus foodservice establishments, approximately 36,390 are fullservice restaurants, 31,911 are limited-service restaurants, 6,447 are contract and social caterers and 6,096 are drinking establishments.
Total Canadian commercial foodservice operations (operations whose primary business is food and beverage service) were forecast to generate annual revenues of $48.9 billion in 2010, accounting for 80 percent of the Canadian foodservice market. The remaining 20 percent is comprised of non-commercial foodservice operations (foodservice in hotels, motels and resorts), which were forecast to produce $12.2 billion in annual revenues during the same period.
Ontario Accounts For 38 Percent of Canadian Foodservice Establishments Servicing Canada’s economic engine and one of North America’s largest economies, the commercial foodservice market in Ontario comprises over 30,400 establishments with sales over $23 billion, comprising almost 1.5 percent of GDP. It also employs over 408,000 residents, over six percent of Ontario’s total workforce. Commercial foodservice sales in Ontario increased 4.3 percent in 2010 over 2009. Ontario’s commercial foodservice establishments comprise 35 percent of the national total, with non-commercial foodservice establishments in Ontario comprising 40 percent of the national total. Provincial residents spend 4.6 percent of their total personal expenditures in restaurants alone.
Foodservice establishments in Ontario enjoyed 12.5 percent growth between July 2010 and July 2011, with 6.6 percent growth year-to-date, signaling a positive economic recovery in the province that generates almost 40 percent of Canada’s GDP. Current forecasts for Ontario’s economy point toward modest growth of 2.3 percent in 2012, noting the limited impact on consumer spending and housing demand in the province following the global economic slowdown.
Canadians Still Eating Out and Foodservice Sales Projected to Increase Despite weak economic conditions, most Canadians (60 percent) have not cut back on the frequency of restaurant visits in the past year. In a recent survey 14 percent of respondents stated they are eating out more often, with 54 percent of those stating the primary reason for eating out more often is convenience. Research has also shown that dining out is one of the top three tourist activities in Canada.
A healthy recovery in Canada’s economy combined with rising disposable income is expected to increase foodservice sales as consumer confidence improves. Between 2011 and 2014, commercial foodservice sales in Canada are expected to increase by an average of 3.6 percent per year. The Conference Board of Canada anticipates stronger economic growth in Canada over the next two years after posting modest growth in 2011. Most Canadian provinces expect economic outlooks to improve in 2012 and 2013. Private sector activity is expected to pick up in 2012, helping to offset sharp declines in federal and provincial infrastructure spending.
Ontario Tourism Fuels Foodservice Growth Occupancy rates at Ontario hotels held their own during the first half of 2011 despite a sluggish economy and a strong Canadian dollar. The Ontario Ministry of Tourism and Culture reported that hotel occupancy rates were up 2.7 percent in the first quarter of 2011 over the first quarter of 2010. During the same period sales at Ontario’s restaurants and bars, which make up 37.8 percent of Canada’s total restaurant and bar sales, grew 2 percent. Ontario’s total visitor spending outlook is positive through 2015. Using a model that factors in the expected performance of certain economic variables, including personal disposable income, travel prices, exchange rates, oil prices and GDP, and the history of how changes in these variables affected travel patterns, the Ontario Ministry of Tourism and Culture projected total visitor spending in Ontario to increase 4.3 percent in 2012 and 5.6 percent in 2013. Projections for 2014 and 2015 were 4.5 percent and 3.3 percent respectively.
With improved same-store sales and traffic levels, investment in foodservice equipment and other capital spending will likely increase. Despite uncertainty regarding the overall economic recovery in the United States, restaurant operators in Canada are optimistic about future sales growth, with an uptick in plans for capital expenditures for equipment, expansion and remodeling over the next six months.
New restaurant and hotel openings combined with increased competition have made the Canadian hospitality industry extremely receptive to new products, new concepts and new technologies. Canada’s growing hotel and restaurant sectors offer excellent export opportunities for U.S. manufacturers and exporters serving the foodservice equipment market. USCS anticipates strong interest in the foodservice equipment sector by U.S. manufacturers, due to current market conditions and the access to Canada that U.S. firms enjoy under NAFTA. USCS is poised to assist U.S. small and medium-sized businesses with trade development in Canada by providing professional business counseling and a cost-effective, low-risk and hassle-free means to establish and develop valuable long-term contacts in Canada