From Our Table to Yours: Foodservice Operators in Canada Look to Retail

With a potential economic slowdown looming, Canadian restaurant operators have sought to diversify their coverage, with a strong retail presence now a key element of strategy.

Building a retail presence as a strategy for growth has been a trend in Canada for a number of years, with strategies that vary from having a restaurant and an adjacent grocery store selling specialty products (usually ethnic dried foods and sauces) to developing products for retail and sold under the respective foodservice operator’s brand name. The latter strategies have been quite successful across Canada and have been particularly prominent in the province of Quebec.

From soups and meals to sauces and dips: Foodservice bets on convenience and leverages high level of brand awareness

Quebec based chain of vegetarian restaurants Le Commensal has been supplying local grocery stores with its line of chilled soups, quiches and other products traditionally featured at Le Commensal restaurant locations for a number of years. In fact, the operator’s line of chilled soups played a key role in spearheading chilled soups category in retail in the province, and the products under Le Commensal brand continue to see double digit growth in Quebec grocery stores.

Aside from soups and meals, foodservice operators have been marketing other product categories, including sauces and dips, which can be more cost effective to package and supply to grocery stores, compared to chilled fresh products. For instance, Arahova Souvlaki chain of Greek restaurants markets its dips and spreads in grocery stores, while Quebec famous Les Rôtisseries St-Hubert has been selling frozen processed chicken products and sauces in Quebec grocery stores for a number of years.

Betting on the convenience trend, with many consumers appreciating an opportunity to avoid putting too many efforts into meal preparation (especially during working week), while leveraging brand strength and recognition, enabled foodservice operators to build on sales opportunities in both foodservice and retail. It also helps to retain consumers who scale down on eating out during tough times and can still find their favorites in retail to recreate the experience at-home.

MTY Food Group takes advantage of demand for ethnic cuisine

In summer of 2012 MTY Food Group announced that it will be launching products for retail market in Canada. The company is one of the leading foodservice operators in the country, with well-known brands like Sushi Shop, Thai Express, Tiki-Ming, Valentine, Culture’s, Country Style, and others. The company’s acquisitions over the past few years – Cultures in 2007, Country Style in 2009 and Valentine in 2010 – indicated MTY’s strategy to diversify beyond its initial portfolio of ethnic foodservice and into other fast food categories. New strategy reflects the company’s latest effort to capture consumers outside of foodservice domain.

The subsidiary of MTY – Tiki Ming Enterprises – signed a licence agreement with Produits Alimentaires Berthelet Inc, which will develop and market MTY’s branded products in retail stores across Canada. The first products are expected to be shipped to grocery stores in early 2013 and will include sauces and frozen processed foods. The company does not intend to supply fresh ready meals as it rightly anticipates the production and distribution to be costly. Additionally, the company stated that selling fresh ready meals in retail would create a competition to the MTY Food Group’s restaurants, many operated by franchisees.

The choice of brands for retail points to the fact that MTY is not simply seeking opportunities in retail but is seeking opportunities in fast growing ethnic foods – one of the fastest growing segments in Canadian food retail, driven flavours of Asia Pacific (the major source of immigration flows in Canada).

Opportunities and challenges ahead

Looking at success of other foodservice operators in building the retail presence, the move by MTY Food Group is likely to be successful as well, especially considering that it is tapping into a growing food segment. Choosing the right retail channels and retail locations to place products would be crucial for best growth opportunities. For instance, projections for the short to medium term sales potential of ethnic grocery retailers vary between C$1 billion and C$5 billion, and the expanding modern ethnic grocery supermarkets will be sharing the growing proportion of these sales. Ensuring product listings at these as well as mainstream grocery stores located in in the neighbourhoods with high proportion of ethnic shoppers can certainly be considered as a part of product marketing and placement strategies.

Challenges to growth, however, include strong competition coming from a wide range of products – made in Canada and imported – already found in Canadian retail, including those developed and marketed by the ethnic food stores themselves. Given that many consumers who are on lookout for ethnic flavours and ingredients often opt for products that are seen as more authentic, emphasizing expertise and knowledge of the regional preferences and flavours can help to support MTY’s product growth in retail. Careful pricing strategies and working with retailers, including lower-priced and discount retailers on product placement and presentation, can also help draw consumer attention and build wider customer base. Consumer education and information on recipes and food preparation with the MTY’s products to recreate Thai experience at home for those who cannot afford to eat out often, especially in view of still shaky economic recovery and as a result slower than expected recovery of foodservice in Canada, might also boost demand for the products and drive value and volume of sales.