Canada is one of the wealthiest nations in the world and remains an attractive investment destination, especially for U.S. product manufacturers. The once highly rural society has become a high-tech industrial society within the past century. Post World War II, there was an immense expansion in the Canadian economy. Canada’s new economic growth closely integrated Canadian and US economies, and Canadian economic trends even mimicked those seen in the US.
The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) dramatically amplified trade and economic integration with the US, increasing bilateral trade between Canada and the US by 52%. Due to the low tariff and close vicinity between the two countries, trade has continued to thrive. According to the US Census Bureau, Canada is the top country with which America trades, and there is no sign of slowing down.
Consistently, Canada has remained one of the world’s most stable business climates with a $1.8 trillion US dollar GDP in 2014—11 in the world, according to World Bank statistics. International trade makes up a large part of Canadian economy, and export is primarily successful due to the country’s abundant supply of natural resources. According to Statistics Canada, in 2009, 58% of Canadian exports came from natural resource exports, and another 38% came form machinery, equipment, and automotive manufactured products. The US is Canada’s primary trading partner with total trade between the two countries amounting to $707 billion, according to the Office of the United States Trade Representative. Canada was the United State’s largest goods export market in 2013, totaling $300.2 billion. The United State’s goods export market to Canada continues to grow as US exports to Canada are up 2.6% from 2012, 77% form 2003, and a whopping 319% from 1993 (Pre NAFTA). Exporting to Canada will likely continue to be a fruitful venture.
Because Canada’s economy relies so heavily on natural resources, important questions must be raised about sustainability. Despite Canada being a leading producer for decades, there is little risk of depletion at this time. Large discoveries continue to be made; expansion continues (including offshore oil rigging), and many regions remain largely undeveloped. It appears that Canada will remain a primary natural resource producer, as the supply and demand appears to be consistently increasing.
Due to Canada’s stable business climates, it remains an appealing investment destination. As the wealth of the country progressively increases, consumer spending will do the same. Canada has been, and will remain, a highly attractive investment destination for US product manufacturers.
NUTRITIONAL PRODUCT MARKET
The nutrition product market in Canada plays an important role in supporting a healthy lifestyle for millions of Canadians while also contributing greatly to Canada’s economy.
Canadians understand the importance of nutrition and supplement use. According to a 2010 Ipsos-Reid survey, 73% of Canadians take natural health products regularly. This number is only expected to increase, as the percentage of Canadians aged 65 and above will continue to grow. The elderly typically consume more vitamins and dietary supplements to compensate for the weakening in their absorption of nutrients and/or loss of essential vitamins or minerals, increasing demand for nutritional supplements.
Canada appears to have become an appealing target for many US companies selling natural health products as US expansion in the nutritional health market has slowed. Some US natural supplement companies have even seen their Canadian client base double over the past year. Although entering the Canadian marketplace seems like a no-brainer, integrating is not as easy as one would hope.
In the US, dietary products are regulated post-market, making it easier for new supplements to enter into a marketplace. In contrast, Canada requires dietary supplement products to be licensed before entering into the market by the Natural Health Products Directorate (NHPD). Prior to 2004, supplements did not require pre-market approval and many concerns were raised about consumer’s health and safety as well as the efficacy and quality of the products. That is why, in 2004, Heath Canada instituted the NHPD and the Natural Health Products Regulations to confront the concerns. The NHPD requires all supplements to become pre-approved before entering into the workforce. In addition, the Canadian sites that manufacture, package, label, and import all natural health products are required to have site licenses.
Today, many companies struggle to meet requirements set by Health Canada. Since 2004, the NHPD has processed over 70,000 applications and either withdrawn or refused 48% of those. In 2004, when the NHPR came into effect, the immense number of products that were already on the market but needed to be processed created a major backlog of applications. Since then, NHPD has received some heat from consumers and stakeholders to increase the speed of access to products. In order to maintain consumer safety while increasing speed of access, in 2012, NHPD published the “New Approach to Natural Health Products.” This document outlined a more flexible and efficient regulatory approach. Under the “New Approach to Natural Health Products,” application review times are based on the amount of information known to NHPD about the product. The higher the level of product certainty, the shorter the review time for the product.
The level of product certainty is broken down into a three-class system criterion. Applicants are encouraged to use NHPD monographs, which are essentially a written description of particular elements of an ingredient, to receive the quickest review. Class I products are those with a high level of certainty that can be indexed against an individual monograph. Class I applications are typically processed within 10 days, using the electronic Product License Application form (ePLA). Class II applications are those with medium level of certainty and are comprised of applications with multiple NHPD monograph ingredients. The safety of the combination of monographs must be assessed and are subject to an expedited risk-assessment that takes about 30 days. Class III applications have the lowest level of certainty and are comprised of products that either have ingredients or ingredient combinations never seen before, significant safety concerns, or previously unlicensed claims. Class III applications typically take up to 180 days. Thanks to the three-class system, NHPD has completed the review of all unprocessed applications as of February 2013. All needed documents can be found on the Health Canada website.
For US companies importing products to Canada, the situation is even more intricate. Every shipment of product entering Canada from the American-Canadian border can be inspected to ensure compliance with regulation. Customs agents are trained to spot-check shipments to verify that the supplements possess either a NHPD license or process number. In addition, all products must be manufactured, packaged, labeled, and imported in accordance with the NHPD’s Good Manufacturing Practices. Finally, all US products must be brought into the country by a domestic importer that has been issued a valid Site License by the NHPD. As long as US companies have a submission number for each product and an importer on record with a valid Site License, US companies may enter the Canadian marketplace. Although the system in place may become difficult at times, the benefits will likely outweigh the hurdles. The Canadian supplement industry is poised for sustained growth with a value CAGR of 2%, forecasted to reach sales of 1.6 billion Canadian dollars in 2019. In addition, Health Canada’s regulatory model is being recognized internationally, meaning markets all over the globe look favorably upon products licensed by Health Canada. Although the process is tedious, many American companies are seizing the fruitful opportunity and have begun to take charge of the Canadian nutrition product marketplace.
Beauty Products Market
Beauty, spa, and cosmetic products comprise a significant portion of the Canadian retail market. Canadians are one of the highest global performers in the beauty market—with makeup as the strongest performing subcategory, comprising 35% of the country’s beauty sales with a 12% increase over the past year. Makeup and beauty sales are highest in urban areas—including Atlantic Canada, Alberta, Ontario, Quebec, and British Columbia.
In 2012, Statistics Canada reported that out of total household consumption spending of $56,279, Canadian households spent $1,194 on personal care products. Industry experts estimate that the Canadian beauty products market is valued at $5.3 billion dollars annually, and expected to rise 6% each year.
The Canadian beauty market is mature, and although Canada is the number one beauty market in the world, the Canadian market only registered modest positive growth in value terms in the past year, according to Canadian Country Report. The Canadian population is not significantly expanding and the marketplace has an excess of surplus, negatively effecting demand. There is, however, a large trend in the growth of premium products that helped support revenue increases for the Canadian beauty industry. Canada is the number one prestige beauty market in the world, spending $1.4 billion annually. The Canadian prestige beauty market is experiencing an eight-cent in dollar growth in 2013, well over the five-cent growth in America.
With Canada’s expansive growth in prestige beauty, average beauty product prices are on the rise. It is evident that Canadians are willing to pay more when it comes to budgeting for beauty. The NPD Group recently launched Canada BeautyTrends® that showed one in 10 Canadians stated that they were willing to cut back in other areas in order to spend more on beauty products. Specifically in the makeup category, premium foundation and eye shadow prices are seeing the highest growth rates, up 40% and 5% respectively.
High-end beauty products are not the only things on the rise, product development has recently contributed to the dynamics in retail, and consumers are more willing than ever to try new products. As the average age of Canadians continues to rise, beauty products for the aging population will likely become an area of high demanded worth watching. Developing products, such as anti-agers and denture care that cater to the older population should remain on the agenda for product developers. Multifunctional products have also become increasingly popular over the last few years. Multifunctional products, such as face lotion with anti-aging serum or oral care with whitening, rose in demand in 2014 and will likely continue to see growth. Beauty and personal care manufacturers increasingly use natural and organic ingredients in new product development. Developers should begin to take a more natural approach to beauty and personal care, paying attention to ingredients, packaging, and making an effort to focus on more environmentally friendly ingredients and manufacturing techniques. The health and wellness trend has definitely made an impact in beauty and personal care, and consumers are definitely willing to spend more on better quality and safer products.
In 2014, smaller brands have gained share at the cost of bigger companies. Smaller companies that specialize in ecological and niche premium products have benefited the most from the ever-increasing interest of Canadians. The Canadian beauty and personal care industry is highly competitive. About 93.2% of the Canadian beauty market is imported, which is up from 89% in 2009.
Although the Canadian beauty products market is only experiencing modest growth, the forecast is still optimistic in the coming years. Economic slowdown, market saturation, and inflation in various categories of the market may begin to impact the industry in the future as Canadian population growth is slowed. In contrast, as average disposable incomes are projected to continue to grow as the economy recovers for the 2008-09 crash, enabling more customers to spend money on more prestigious, economical, and value-added products. As aging population continues to grow, so will the demand for beauty products targeted for the elderly. As long as your company continues to watch trends and targets the correct market, Canadian beauty products will likely continue to be a solid investment opportunity.
Food & Beverage Market
The functional food and drink industry in Canada is becoming increasingly popular, and the number of companies involved is growing dramatically with time. Canadians have been taking their health and wellness more seriously, which is most likely the cause of growth in the Canadian sector of functional food and drink products.
According to a 2012 Ipsos-Reid report, 98% of Canadians surveyed had purchased some type of functional food or drink in the past year. Although healthy eats appear to be popular with Canadians, the functional foods and drink market in Canada is relatively new compared to other countries—such as the US, China and Japan—offering much room for growth.
In 2013, overall retail sales of functional foods and drink showed moderate positive growth. However, sales in certain categories showed a much larger positive growth. Specifically, liquid concentrates; organic coffee and tea as well as gluten-free food products were highly mature in the Canadian marketplace. The functional foods market seems to be “trendy” with drivers of growth shifting within product categories. As with any market, any significant movement within one category typically comes at the expense of another. Understanding consumer purchasing behavior is key to successful commercialization and market trade.
The wants and needs of Canadian consumers are constantly shifting, which quickly alters and effects market conditions. The most common types of functional foods or drink purchased in 2012—according to an Ipsos-Reid report—included healthy cereals, healthy snack foods, yogurt with added probiotics, and juices with added nutrients. The most sought-after ingredients, regardless of the product, were: fiber (87%), vitamins and minerals (86%), protein (85%), and omega-3 fatty acids (80%).
In the functional drink market, liquid concentrates have been receiving much attention at the expense of the soft-drink marketplace. Mio concentrates were introduced to the Canadian marketplace in 2012, and ever since, more brands—including private labels—have contributed to the boosting of the liquid concentrate category in Canada. Another trend in the functional drink market includes beverages with reduced or no sugar content. Health Canada recently approved Stevia as an ingredient allowed in foods and beverages, and subsequently, there has been a drastic increase in products incorporating Stevia into the formulation.
Because there has been such an increased demand for functional foods and drink in the market, large companies such as PepsiCo, Nestle, and a number of others have manufactured a healthier product line. Therefore, leading marketers of foods and beverages in Canada also topped the list of marketers of health and wellness products, making it difficult for small companies to make an impact.
Companies developing functional foods and drink products should market to specific demographics in need, such as the aging population, infants and youth, and mothers. Older adults typically need foods that lower cholesterol, while parents are interested in foods for infants and children that have health-benefiting nutrients, such as DHA-enriched products.
Functional foods and drink sales in Canada are only expected to increase modestly in the near future. Small businesses focusing on functional foods and drink are facing a difficult operating environment when battling a previously established, highly developed marketplace. Categories and brands focusing on healthier nutrition are expected to remain the focus of major marketing and product development. Of course, growth in some categories of functional foods is likely to come at the expense of other categories, making this market one of the tougher ones to stay on top of.