Natural Foods Merchandiser

Clearing Customs Takes Market Savvy

The United States, with its expansive network of natural grocery brokers, distributors and retailers, can be a daunting place for Canadian manufacturers to make a start.

"It's sort of a Catch-22," says Greg Herriott, president and co-founder of Hempola Inc., in Barrie, Ontario. "A lot of the [U.S.] distributors don't want to bring your products in if you don't have a representation network out on the street doing the work at the store level. And I don't blame them," he adds. "There's no question there that you have to be circulating to percolate, ya know."

Canadian exports are, indeed, percolating. According to Statistics Canada, the country's 2001 global agri-food exports hit a record high of U.S. $16.96 billion. About 62 percent of those exports went to the United States; of that, about 67 percent were consumer-oriented products. Wheat, cattle and beef, canola, fresh pork and frozen fries topped the export list.

Worth The Trouble
Manufacturers with the mettle to decipher the vast and complex U.S. system often find willing retailers and a profitable niche in a market potentially 10 times the size of Canada's.

"There are a lot of excellent Canadian products, especially supplements. Health Canada is much stricter than the Food and Drug Administration, so it's much easier to say yes," says Bruce Cohen, co-owner of Nutrition World stores in south Florida and owner of Natural Life Health Market in suburban Toronto.

But making a case for those products requires distribution tenacity, sensitivity to American buying habits and a measure of caution. "If you're looking at the United States as a market, you're automatically biting off more than you can chew," says Claude Chevalier, president and CEO of Bio-K International in Laval, Quebec. "It's like trying to tackle an elephant."

It's better, he says, to start with a few small regions. For two years, Chevalier focused only on California, south Florida and a few other U.S. states, pushing his food-form probiotics hard to a few key retailers, including Whole Foods Market Inc.

This summer, Bio-K decided it understood the U.S. market and distribution system well enough to go nationwide. By Dec. 31, Bio-K+ products should be available in seven U.S. regions; by next March, Chevalier hopes 3,000 U.S. stores will stock 3.5-ounce containers of his dairy-based product.

"In the United States, we found that you have a couple of major retail chains, then all of the big independents and regional lines, like Vitamin Cottage," Chevalier says. "Large chains like their brokers and have established relationships. All of them have their preferred distributors. We have had to adapt and reroute our approach to market using those established elements."

Hempola's U.S. sales of hemp-based food, nutrition and personal care products slowed last year to the point that the majority of its sales now are back in Canada. The legality of hemp products was a likely cause of concern, but there is another force working against the company: size. "[U.S.] distributors are becoming huge entities in the industry, and for very small, emerging companies such as ours, it's tough to deal with them because we are small. We're lost in the crowd," Herriott says.

This is why product differentiation is key. "Me-too products are always difficult," Chevalier says. "Why accept another set of pills when we already have plenty?"

Jocelyn Bates, sales and marketing manager for Kelowna, British Columbia-based HealthCo Canada Enterprises Inc., says there is no point in trying to penetrate the U.S. market with a knock-off product. HealthCo recently introduced ReBar, an organic produce bar. "If you have one SKU, you have to make sure that one SKU is a real seller and is totally unique," Bates says. Smaller manufacturers must shore up market share before making a run at U.S. retailers. HealthCo is developing another 10 products, which may give the company more visibility with distributors and brokers.

Packaging and labeling also are important. Packaged goods to be distributed south of the border must bear English-language nutrition information panels that comply with U.S. regulations. And for best results, packages should appeal to the American eye.

Retailer Cohen says his Canadian customers are much more willing to buy products bearing plain, European-style labels. "[In the United States], we're not so accepting of that," he says.

Crofter's Organic jams and juices moved slowly when they had European-style labels. When the Parry Sound, Ontario, company updated its packaging, the products sold much better, Cohen says. "We do care what's inside, but a nice looking package is more appetizing."

O Canada, Our Brokers Are On Guard For Thee
Cohen says the real barrier to entry for most manufacturers is navigating U.S. distribution channels. "When you're talking about United Natural Foods Inc., or Tree of Life, you're talking about nine houses for each one of them, and they carry 15,000 to 25,000 items per location. You're lucky to find a distributor with 5,000 items in Canada, and you're even more lucky if their in-stock ratios are at 80 percent."

David Neuman, vice president of sales and marketing for Nature's Path Foods Inc. in Delta, British Columbia, says Canadian brokers provide more personal service than their U.S. counterparts. "They help get new products placed both at distribution and at retail. I would call it more brand management than I would strict, true brokering," he says.

In Canada's small market, this works. But in the United States, Chevalier says, manufacturers have to develop brand relationships on their own. To boost Bio-K+ to the top of the probiotic market, the company blitzed store decision makers with information and samples. Employees who try Bio-K+ and have good results are likely to direct customers to the product. "It's a strategy of influencing the influencer," he says.

U.S. brokers may charge $100 per SKU per warehouse to accept a product and require manufacturers to pay for space in an advertising catalog and for tabletop shows. Naturals retailers may also demand co-op advertising dollars. "They don't want to sit with merchandise stuck in the warehouse," Cohen says.

Although these programs aren't as costly as mass-market slotting fees, they do make it difficult for small Canadian companies to operate profitably in the United States.

Neuman says that Nature's Path likes to take the best practices from both countries and apply them where appropriate in either country. For example, "In Canada, [brokers] do a lot of telemarketing and flash faxes because the area is so [vast]," he says. "We think it's a good practice for those brokers in the States, who are overburdened with too many stores and not enough time, to get back to that routine of blitzing some of the smaller stores that they don't call on with faxes and new-item kits."

HealthCo Canada's Bates says that her greatest challenge in doing business Stateside is understanding how to work within distributors' and retailers' programs. "Ideally, you have to target the retailers for the retailers to get you the leverage to get the distribution," she says.

Steve Taormina is a president of PixelPort Productions, a Web design and writing company based in Nelson, British Columbia.

Natural Foods Merchandiser volume XXIII/number 9/p. 19

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