Market Information
United States

Overview of the Retail Grocery Market in the US South Central States

June 2005

Agri-Food Trade Service
(www.ats.agr.gc.ca)

The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information. This report is intended as a concise overview of the market for those interested in its potential and is not intended to provide in-depth analysis which may be required by the individual exporter.

EXECUTIVE SUMMARY

This report is intended to provide the Canadian exporter with a concise overview of the retail grocery market in the South Central Region of the United States, which comprises the states of Texas, Arkansas, Louisiana, Oklahoma, Kansas, and New Mexico. The information contained in this report was drawn from secondary sources and from the experience and knowledge of the Canadian Consulate General in Dallas.

This region constitutes a dynamic, growing, and prosperous market with a consumer base of approximately 38 million people, almost 13% of the total US population. The majority of growth in the region lies in Texas where the grocery market is highly competitive between national chains and independent retailers. Overall, the retail grocery market is fairly mature, yet it continues to rejuvenate its image in order to meet changing consumer demands. In addition, stiff competition in the grocery industry is expected to heighten with the increasing strength of super-centres and alternative grocery store formats.

Attractive prospects for Canadian exporters lie in Texas where several large markets exist including Houston, Dallas, Fort Worth/Arlington, Austin/San Marcos and San Antonio. Other key markets in the South Central region include Kansas City, KS; Wichita, KS; New Orleans, LA; Oklahoma City, OK; Tulsa, OK; and Albuquerque, NM.

QUICK FACTS

• Retail grocery sales were approximately US$650 billion nationally in 2004 and retail food sales were US$425 billion in 2004.
• The South Central Region boasts 4,147 supermarkets with a total market value of US$57.8 billion in 2004, accounting for 12.3% of the country's retail grocery sales.
• Supermarkets accounted for 55% of the US retail grocery market, followed by convenience stores with 16%, warehouse/clubs with 9%, and dollar stores with almost 2% during the year.
• In 2004, Wal-Mart had a 30% market share of the South Central Region retail grocery sales, followed by H.E. Butt with 14%, and Kroger with 8%.
• The perishable foods sector in 2004 was led by supermarkets with 85% market share. Mass merchandisers followed with 5%, warehouses with 4%, and convenience stores with 1%.
• In 2004, fruit and vegetable sales were approximately US$74 billion and are predicted to grow 15% in the US from 2004 to 2008.
• Warehouse/club store formats are one of the fast growing segments in the US retail grocery market, with a projected increase of more than 20% by 2008.
• Growth areas include private label, home meal replacements, organic and natural foods, ethnic foods, and online grocery sales.
• By 2008, the US retail grocery industry is projected to reach US$720 billion.

SOUTH CENTRAL REGION

The US South Central Region offers a favourable business climate for Canadian exporters to test new markets. Texas is the state with the most urban centres in the region, with more than 1,200 cities. It also has an 85% level of urbanization and relatively high affluence. In addition, the personal income per capita of the population remains high at US$29,076 in 2004.

In a report released by the US Census Bureau, San Antonio, Houston and Fort Worth ranked in the top ten cities with the largest increase in population from 2000 to 2004. The South Central Region boasts several other fast growing cities including Albuquerque, Oklahoma City, Arlington, Laredo, El Paso, Plano, Overland Park, Wichita, and Dallas.

Texas is the state with the second largest number of cities with populations over 100,000. They include Austin, Fort Worth, El Paso, Arlington, Corpus Christi, Plano, Garland, Lubbock and Laredo. Reflective of its high level of urbanization and affluence, Texas boasts the largest market for food consumption in the US with grocery sales well over US$35 billion in 2004. Texas alone accounted for roughly 5.5% of total US grocery sales.

The South Central Region boasts 4,147 supermarkets with a total market value of US$57.8 billion in 2004, accounting for 12.3% of the country's retail grocery sales. The top three retailers in the region were Wal-Mart Super-centers, Wal-Mart and Albertsons. The players in the retail grocery market and the market shares they hold vary from state to state.

Arkansas

• 413 supermarkets with a total market value of US$4.4 billion and ranked 31st in country's top retail grocery sales by state.
• Top 3: Wal-Mart has 54 stores and 47% of market share; Kroger has 41 stores and 12% market share; and Harp's Food has 38 stores and 8% market share.
• Per capita personal income US$24,296, ranking it the 50th state overall.
• Little Rock has the most supermarkets of the state's urban centres with 81 stores, holding a sales value of US$997 million.
• Approximately 1,875 convenience stores in the state.

Kansas

• 393 supermarkets with a total market value of US$4.3 billion and ranked 32nd in country's top retail grocery sales by state.
• Top 3: Dillon Food Stores has 77 stores and 28% market share; Wal-Mart Super-centers has 34 stores and 26% market share; and Ball's has 19 stores and 7% market share.
• Per capita personal income US$29,545, ranking it 27th state overall.
• Kansas City has the most supermarkets of the state's urban centres with 242 stores, holding a sales value of US$3.1 billion.
• Approximately 1,250 convenience stores in the state.

Louisiana

• 577 supermarkets with a total market value of US$6 billion and ranked 25th in country's top retail grocery sales by state.
• Top 3: Wal-Mart has 56 stores and 36% market share; Winn-Dixie has 78 stores and 15% market share; and Brookshire Grocery has 40 stores and 7% market share.
• Per capita personal income US$26,038, ranking it the 44th state overall.
• New Orleans has the most supermarkets of the state's urban centres with 141 stores, holding a sales value of US$2 billion.
• Approximately 2,900 convenience stores in the state.

New Mexico

• 203 supermarkets with a total market value of US$2.8 billion and ranked 36th in country's top retail grocery sales by state.
• Top 3: Wal-Mart Super-centers has 24 stores and 34 % market share; Smith's has 25 stores and 17% market share; and Albertsons has 23 stores and 16% market share.
• Per capita personal income US$25,502, ranking it the 47th state overall.
• Albuquerque has the most supermarkets of the state's urban centres with 73 stores, holding a sales value of US$1.1 billion.
• Approximately 900 convenience stores in the state.

Oklahoma

• 423 supermarkets with a total market value of US$5.2 billion and ranked 29th in country's top retail grocery sales by state.
• Top 3: Wal-Mart Super-centers has 49 stores and 39% market share; Albertsons has 31 stores and 9% market share; and Homeland has 46 stores and 7% market share.
• Per capita personal income US$26,567, ranking it the 40th state overall.
• Oklahoma City has the most supermarkets of the state's urban centres with 115 stores, holding a sales value of US$1.7 billion.
• Approximately 2,500 convenience stores in the state.

Texas

• 2,138 supermarkets with a total market value of US$35.5 billion and ranked 2nd in country's top retail grocery sales by state.
• Top 3: Wal-Mart Super-centers has 219 stores and 27% market share; H.E. Butt has 277 stores and 22% market share; and Kroger has 207 stores and 11% market share.
• 19.6% of stores are Independents which control 5.5% of state retail grocery sales.
• Per capita personal income US$29,076, ranking it the 30th state overall.
• Houston has the most supermarkets of the state's urban centres with 474 stores, followed by Dallas (382), Fort Worth (200), El Paso (54), and San Antonio (114).
• Approximately 13,725 convenience stores in the state, far more than any other state with 10% of stores in the country.

2004 INDUSTRY OVERVIEW

US retail grocery store sales were approximately US$650 billion in 2004, a healthy 2% increase over 2003. Grocery stores in the retail grocery market include supermarkets, convenience stores, dollar stores, warehouse/clubs, and specialty food retailers. Regardless of the increased competition, these retailers continue to find new ways to improve their operations and increase their share of the food retail market.

This diverse but fragmented sector may soon become a trend of the past as national and regional chains continue to consolidate in order to achieve economies of scale and increase their market share. In 2003, nearly 66% of the nation's supermarkets were affiliated with a chain, while the remaining 34% operated independently.

The convenience of both a discount store and a supermarket/drugstore format is highly attractive to today's consumers. The latest trend, called super-centers, can be described as a combination supermarket and discount store, with up to 40% of space dedicated to grocery sales. This new category of grocery store has brought about changes in the way market shares are calculated. Most of the recent sales increases can be attributed to industry changes, as stores such as Wal-Mart increase commitment to grocery related items in their super-centers.

Wal-Mart is one of the largest threats to traditional independent grocery retailers and currently operates 1,761 super-centers, 86 Neighborhood Markets, and 552 Sam's Clubs in the US. Wal-Mart's annual growth rate of 18% is largely attributed to its gains in the supermarket sector. In 2005, Wal-Mart anticipates opening approximately 300 new locations in the US.

Supermarkets

This is the largest segment of the retail sector. Supermarkets are dominated by chains. Despite success and growth this segment is under threat from discount, warehouse and club stores.

• Supermarkets dominate the US retail grocery sector with sales increasing 11% since 2000. In 2004, sales were more than US$355 billion, a 55% market share.
• Supermarkets typically have 25% gross margins, making it harder to compete with warehouse/clubs and dollar stores.
• Chain supermarkets operating within the annual sales range of the US$12-20 million bracket are most successful by contributing 19% of total supermarket shares.
• Chain supermarkets dominate 83% of total retail grocery sales while independent groceries account for 17%.

Convenience Stores

Typically selling luxury type goods, these stores continue to draw a majority of their sales from tobacco and alcohol sales. Grocery type products are an increasingly small percentage of total sales, while prepared take away type foods/meals are increasingly large.

• With more than 130,000 convenience stores across the country, in-store sales (not including gas) reached approximately $115 billion in 2004, a 16% market share.
• Approximately 80% of all convenience stores offer food prepared on site, especially grab-and-go breakfast products.
• Energy bars were very popular snacks sold in convenience stores in 2003, with sales of US$225 million, as well as granola/fruit snacks, at US$70 million.
• In New Mexico, beer sales have dropped due to alcohol sales restrictions. There are no such restrictions in the other South Central states.
• Best selling products in convenience stores in 2003 were cigarettes with US$40 billion in sales, food prepared on site (US$15.2 billion), beer (US$12.8 billion), snacks (US$5.2 billion), and coffee (US$4.9 billion).
• Convenience store grocery sales are projected to drop 9% from 2004 to 2008.

Warehouse/Club Stores

These outlets are an increasingly important player in the retail grocery market in the US. Larger families are reaping the benefit of these stores, but statistics show that the average American family size is shrinking potentially lessening the need for "club sized", or "family sized" product packaging. However, in the South Central region where Hispanics are an increasingly important consumer market, warehouse and club stores may be at an advantage considering the average Hispanic American family is larger than the national average. In addition, with lower than average incomes and higher than average food purchases, Hispanics could very well drive the success of these stores in the South Central region.

• In the South Central Region the three major warehouse/club companies in 2005 include Sam's Club with 81 locations and Costco with 16 locations.
• Warehouse/clubs and super-centre sales reached US$60 billion in 2004, a 9% market share.
• Warehouse/clubs typically have 10% gross margins and pass these savings along to customers.
• More than half of American consumers now shop at warehouse/clubs.
• Threats to Warehouse/club retailers include the growing baby-boomer population, who do not require large size products.
• Grocery sales account for approximately one-third of warehouse/club sales and best selling products include dairy, meat, produce, and home meal replacement products.

Dollar Stores

• The growth of dollar stores is so noticeable that many large format retailers are now including "dollar aisles" in their stores.
• In the South Central Region the three major dollar store companies in 2005 include Dollar General with 1,852 locations, Family Dollar with 1,112 locations, and Dollar Tree with 308 locations.
• More than 8,000 new dollar stores are predicted to open in the US by 2010.
• Two-thirds of households in the US now shop at dollar stores.
• Low-income households are not the only dollar store customers. Households with incomes above US$70,000 increased their visits to dollar stores by 15% in 2003.
• In 2004, sales reached more than US$10 billion and are projected to grow by 6% each year, over the next five years.
• Best selling agri-food products in dollar stores are candy, snacks, frozen pizza, dairy, sugar, flour, meat, oils/shortening, diet aids, meats and seafood.
• Candy sales at dollar stores rose approximately 10% in 2003 and snacks sales rose approximately 12.9% in 2003.

CONSUMERS & BEHAVIOUR TRENDS

Per capita income in this region is in the bottom 50% of the US states. However, from a low of US$24,000 to a high of US$29,000 this region boasts healthy income levels and a consumer base which spends higher than average amounts of its disposable income on food purchases.

With the fast paced growth in Texas and New Mexico, the composition of the South Central population is changing rapidly. Texas and New Mexico are becoming core areas for Hispanics and people of Latino origin. By 2020, Hispanics are anticipated to make up 16% of the US population. Texas is highly influenced by the Mexican economy which is gaining strength, as seen in El Paso where Hispanic persons make up 76% of the population. Referred to by Business Week as America's "Bebé Boom" - the Hispanic community is quickly replacing the original baby boomers.

The changing demographics due to the increased immigrant population, particularly Hispanics in the Texas and New Mexico region, will undoubtedly increase the consumption of Hispanic and Latino foods. Consumption trends such as health concerns and price consciousness will drive demand for healthy, natural, organic and low carbohydrate diet foods, as well as private labels.

Increased purchasing power for Hispanics means that the move from neighbourhood "bodegas" to full-service supermarkets will continue. A restructuring of supermarket chains located within the Hispanic community is taking place as there is an in increase in bilingual cashiers and stockers, in addition to regional and ethnic products. Retailers have also made changes to their campaigns, offering advertising and in-store service in their native language. Hispanics spend 16% of their income on food, which is 3% higher than non-Hispanic families.

Apart from growth in the Hispanic population, this region is experiencing very strong growth in its Asian population. By 2020, Asian Americans will make up an estimated 7% of the US population. This is the fastest growing ethnic group in the US and the South Central Region. Texas is predicted to have more than one million Asian persons by 2020, an increase of more than 30%. These concentrations of cultures provide opportunities to cater to these market segments through diversifying product lines in the ethnic food market.

Health and Wellness

With two-thirds of the US population considered overweight, the obsession with diet and health food rages on. Customers are becoming highly conscientious of their food choices. Manufacturers and retailers have begun to address these concerns by making changes to their product lines. Product reformulations, reduced portion sizes, sugar and fat content are a few of the ways these companies are responding to health issues. Many food labels now carry symbols to display the health and/or safety benefits contained in the product.

Meal replacements, nutraceuticals and organics are gaining ground due to their ability to fill gaps in the eating habits of consumers. No preservatives, fortification and no trans fats are terms that can be found on food packaging and advertising. Over half of Americans have tried organic foods and as much as 10% use organic products regularly.

Value Shoppers

Economic instability and slow job growth has prompted US consumers to be more price conscious in their food purchases. This has lead to the growth in price-impact grocery stores where large quantities and less selection lead to more competitive prices. This no frills or gimmicks model minimizes customized packaging, and allows for self-checkout. Roughly two-thirds of consumers use price as a determining factor in purchasing food items. Several factors are propelling this trend including:

• "Fixed" household costs have increased and more middle to lower-income households are forced to spend less in discretionary areas
• Slowdown in job growth
• Price spikes in basic needs - gas, eggs & bacon, milk and meat and poultry

One of the effects of the more price conscious attitude has been growth of private label food products. Once perceived as a lower class product, it is now seen as a close equivalent to many brand name products. Many grocery stores are developing their own product lines in order to offer lower prices to consumers while increasing profit margins. Consequently, the private label market has grown rapidly with an increase of 99% from 2000 to 2004.

Alternative Store Formats

The distinction between the different formats of supermarkets is blurring as chains continue to reinvent their image. This is in an attempt to provide the convenience of an "all-in-one" shopping experience and to compete with alternative format stores which are cutting away at the already mature market. Super-centers are predicted to increase their market share by a substantial amount as other categories slim down through increased competition and consolidation.

Alternative formats such as the everyday-gourmet supermarket, the healthy-organic shop, and the dollar store are all markets that are booming rapidly. Consolidated grocers are noticing this trend and are acquiring food chains that meet the needs of these specific groups or dedicating aisles to these formats inside their existing stores.

The everyday-gourmet supermarket niche follows a general format. A third of store space is often dedicated to gourmet take-out and semi-prepared meals, while the rest of the store resembles a regular supermarket with familiar brands and specialty items. Some stores have large indoor and outdoor dining areas, coffee shops, cooking classes and culinary shops giving consumers a relaxing, welcoming and exceptional shopping experience.

Whole Foods Market, a Texas based company, is the world's largest natural and organic food retailer. The blend of products that appeal to wellness and gourmet tastes has resulted in tremendous growth in recent years. Consumers, while price conscious, are highly concerned about having healthy choices.

Added Value Services

From gasoline pumps to drive through windows, chains are experimenting with additional services in order to enhance the customer experience. Clearly, this trend is paying off as supermarkets with a pharmacy have seen increased store traffic. Sales of health and beauty care products rose 15% to 20% in the first year after retailers made these changes. Prescriptions sales in supermarket drugstores reached US$25 billion in 2003. As the rapidly growing 50-plus age demographic continues to increase, the number of stores combining food and other services is bound to expand. By 2007, food and drug combination stores are expected to account for 15% of the grocery industry's market share.

Beyond added services, chains are looking at their own capacity to produce private labels. Goods are often produced by manufacturers under contract to a retailer, which distributes them exclusively under their own "house brands." Many opportunities exist for Canadian exporters looking to enter the private label sector.

PACKAGED FOOD TRENDS

Retail sales of packaged foods exceeded US$290 billion in 2004 and by 2009 total sales of packaged foods are estimated to grow 12%. Since 2000, several products within this sector were strong performers. Leading the way, total sales of meal replacements increased 53% from 2000 to 2004. Snack bars also sold well with a 51% increase in the same period, followed by chilled processed foods (26%), frozen processed foods (19%), sweet and savoury snacks (18%), spreads (18%), baby food (17%), and noodles (17%). The snack bar category includes energy bars and breakfast supplement bars.

Consumers continue to spend on packaged foods, despite rising prices, as long as their needs for convenience, portability, nutrition, and flavour are being met. These trends have driven sales of frozen and chilled foods, meal replacements, and private label products. Meal replacement products are projected to lead packaged food sales in 2009 with a 64% increase over 2004 sales. Other projected increases by 2009 include chilled processed food (28%), snack bars (27%), sweet and savoury snacks (20%), noodles (17%), spreads (14%), baby food (13%), and frozen processed food (13%).

Private Label

Private label packaged foods are on the rise as consumers begin to view these products as possessing brand name quality, nutritious selections, and competitive prices. Many of these private label lines include frozen ready meals and organic and ethnic products both inline with today's trends. Sales of private label foods reached US$50 billion in 2004. This segment rose 2% from 2003 to 2004.

Increased customer loyalty, improved store image, increased sales margins of 35% to 40%, and lower prices for customers are only some of the many positive results of selling private label brands. Four important reasons for the growth of the private label segment are an expansion in the number of products offered, an increase in the quality, differentiation from other brands, and a change in consumer perception about these products. Top selling products in the private label segment are frozen processed food and meal replacements.

Frozen Foods

Frozen processed foods made up 10% of the packaged goods segment in 2004. With sales projected to increase an additional 13% by 2009, to US$30 billion. Even more substantial is the expected rise in chilled processed food sales, growing approximately 28% by 2009. Ethnic flavours, private label line expansion, and greater choice of portion size will draw more consumers to chilled foods. By 2009, frozen pizza sales are estimated to increase 21% over 2004 sales. Chilled ready meal sales are also expected to see a large increase, growing 16% from 2004 to 2009.

Meal Replacements

In 2004, total sales for the meal replacement sector reached more than US$3.5 billion and are expected to surpass US$6 billion by 2009. This category now includes snack bars, energy bars and drinks, breakfast replacements, diet-reduction products and nutritional products. The increase in demand for nutritional products can be accounted for by the increase in the number of persons over age 65. It may also be attributed to the general population's change in perception toward these foods, from convalescence products for the elderly to nutritional products for any age.

OPPORTUNITIES

Organics

It is no surprise that organics are developing as a strong market in the South Central Region as people become increasingly aware of the environmental, social and health benefits associated with the production of organic foods. The demand for prepared or easy-to-prepare meals in the organic food segment is expected to expand as people look for quick, portable and healthy alternatives. Categories with strong growth potential include organic cakes and dessert mixes, ethnic food entrees, condiments, noodles and rice mixes and beverages, frozen foods, baby food and pet food.

In 2004, organic food sales are projected to surpass US$15 billion. Sales are predicted to grow 110% to reach US$32 billion in 2010, largely due to the strong growth estimated for future years. Organic dairy, breads and grains, and beverages are expected to double in sales by 2010, while fruits and vegetables are actually predicted to triple in demand. Meats and produce are anticipated to perform better in the upcoming years.

*All values in US dollars

Canadian exporters already have the capabilities to produce many organic foods in demand in the South Central Region. Some of these foods and ingredients include organic beef and chicken; grains, cereals and breads; fruits and vegetables; apple products; coffee, teas and juices; ice cream; canola, safflower and sunflower oils. Canadian manufacturers of organic foods should benefit from consumer perceptions of Canada as a clean, pure and unspoiled source of food.

Private Label Partnerships

One way to build up exports is to become a private label provider. Canadian exporters should consider the growing premium private label lines sold at many US retailers. Retailers are aggressively sourcing private label goods to add to their shelves and seek high quality products with attractive packaging. Total sales for private label products reached US$50 billion in 2004.

Developing new products suitable for premium private label lines can be profitable. Opportunities exist for quality Canadian manufacturers that can produce private label products for specific markets or who specialize in particular product lines; especially those involved in organic, ethnic or children's foods. In the South Central Region, several private labels that are rapidly expanding include Albertsons' Essensia; Kroger's Private Selection and Naturally Preferred organics; H.E. Butt's Tellurian wines, Own Brand or H-E-Buddy for kids; and the Whole Foods Market's 365 Organic label.

Ethnic Foods and Ingredients

The emergence of the Hispanic and Asian populations indicates a shift in demographics in the US South Central. Currently the US retail ethnic food market is valued at US$26 billion. The composition of the ethnic food market by cuisine/sales in 2002 can be broken down into three major categories:

• Hispanic foods: 67%
• Asian foods: 22%
• Emerging Ethnic Foods: 11% - including Caribbean, Indian, Middle Eastern and Greek foods.

In the Hispanic foods market, there is a strong demand for foods that emphasize hot and fiery tastes. In the Asian food market, Pan Asian and Fusion cuisine ingredients have gained popularity while pre-made sushi and chai continue to be in high demand. There is also much interest in the emerging cuisine market with concentration on the Caribbean, Mediterranean, Middle Eastern, African, and Indian cuisine. Chiles, spice blends, sweet & sour concoctions and piquant fruit dressings are increasing in popularity as people crave authentic culinary experiences.

Canadian exporters have demonstrated the ability to deliver many products that are in demand in the South Central Region. The following is a list of products that are common to all ethnic cuisine trends in the South Central Region and can be exported by Canadian companies.

• Shrimp, lobster, crab, salmon, mackerel, ackee, saltfish, cod, scallops and calamari
• Calf brains, kidneys, beef, lamb, pork, chicken, goat, spicy sausage, meat pies, ethnic beef stew and ethnic chicken stew
• Tofu and vegetarian dishes
• Dark chocolate
• Garlic, ginger, coriander, cinnamon, curries, cilantro, cumin, chillies, oregano, bay leaves and laurel leaves
• Black bean soup
• Chickpeas, cranberries, zucchini, tomatoes, potatoes, mushrooms, peppers, olives and almonds
• Sparkling waters and wines

Gourmet/Specialty

The increasingly sophisticated taste of the American consumer is also indicated by the rapid growth in the gourmet/specialty food market. In Texas, people tend to eat out on week nights then flock to grocery stores in attempt to recreate expensive meals for the weekend. It is estimated that supermarkets account for almost 45% of gourmet foods and beverages sales and are expected to increase by 8% to US$44 billion by 2007. Led by gourmet beverages and confectionery, the sales of specialty food will draw from synergies with the ethnic foods market and the natural foods market. Some of the emerging trends from the specialty foods market include:

• Convenience in all forms including pre-washed salads, convenient gourmet sauces, seasoned ready-to-cook meats, quick-heat fully cooked meats, single-serve bottles, and many more.
• All-natural, organic and ingredients known for their health benefits
• Focus on retro, comfort and home-style foods

E-Food and E-Pharmacy

US online grocery sales reached US$2.5 billion in 2004. Although gaining moderate revenue, sales are expected to reach US$6.5 billion by 2008. This industry represents an exciting and new growth opportunity for retailers to sell and deliver their services. With three out of four Americans enjoying Web access at home or work, companies have strong opportunities to increase their services on the Internet. Likewise, as generations who were engulfed in the internet age are shifting into older demographic categories, the kind of internet savvy required to utilize these services is now incorporated into the categories of consumers best suited to use these services. Currently, nearly 87% of supermarket companies have Web sites, a 15% gain since 1999.

For supermarkets with pharmacies, the Internet will serve as a convenient means for consumers to place online prescription refills, track prescription orders, find pharmacy location and hours of operations, as well as explore links to health-related sites. Almost 90% of supermarkets that operate store websites also have a convenient pharmacy section. In the South Central Region, some of the retailers operating online pharmacy sections include Wal-Mart, Kroger, Albertsons, and Randall's Food & Pharmacy.

COMPETITIVE ENVIRONMENT

Local Capabilities

Canadian exporters will face intense competition from small to medium sized local and national food manufacturers that typically operate on a regional level. Louisiana is widely recognized for its strong production of seafood and fish. Arkansas is known for its rice, poultry and eggs. Oklahoma is recognized for its peanuts, grains, pasta and meat. Kansas is known for its meat and Texas for its fruits, nuts, vegetables, cotton and baking-related goods.

The grocery industry in the South Central region is well-established, and products from other states and Mexico provide ample support for food capabilities in the region. The diversity in food commodities imported into Canada from the South Central region shows that each state holds different strengths in agricultural production.

Canada has long been the number one exporter of meats, processed fruits and vegetables, grain mill products, bakery goods, sugar and confectionary, and fats and oils to the US. Canadian capabilities to produce these products are also a distinct advantage over international competitors. There is now a stable presence of large multinational manufacturers such as Danone and Nestle, which entered the South Central market through acquiring smaller producers.

International Competition

Imported food is one of the fastest growing categories in many US supermarkets. Canada, Mexico, Chile and Argentina are long time global competitors in the US market. Newer agricultural exporters are providing heightened competition from Brazil, Russia, India and China. The top countries importing agri-food and seafood into the US are Canada, Mexico, Chile, France, Italy and China. The main imports originating from these countries are as follows:

• Mexico: edible vegetables, alcoholic beverages, edible fruits and nuts, beer and tomato products
• Chile: edible fruits and nuts, fresh grapes, shellfish, peaches, and alcoholic beverages
• France: wine, brandy, vodka, sparkling wine, and dairy products including cheese
• Italy: wine, olive oil, prepared cereal and flour, dairy products, and cheese
• China: prepared vegetables and fruit, seed oils, edible fruits and nuts, citrus fruit, and tea

According to the USDA, 78% of the fish and shellfish consumed in the US are imported, up 10% from 2000. Imported wine had 27% of the US market last year compared with 21% in 2000. An array of products from around the world is increasingly being imported to the US.

Canadian Position

Canadian companies will find several opportunities in the foodservice sector considering that roughly four cents out of every dollar spent by South Central consumers on imported food flows back to Canada. The changing demographics of age and ethnicity, depending on the specific area in South Central, make it wise for exporters to conduct thorough consumer analysis.

• It is estimated that Canada's agri-food and seafood exports to the US will be up 2.9% in 2005 over 2004.
• In 2004, Canada exported $790 million of agriculture and agri-food products to the South Central US, a slight decrease over 2003.
• Texas is the largest South Central customer for Canadian agri-food exports with nearly a 60% share, followed by Arkansas (13%), Kansas (12.5%), Louisiana (8.5%), Oklahoma (5%) and New Mexico (2%).
• Other leading exports included beverages, spirits and vinegar, which together accounted for almost 13% of total exports to South Central, prepared cereal and baking ingredients (12%), prepared vegetables, fruit and nuts (10%) and animal and vegetable fats and oils (7.5%).
• Accreditation by the USDA National Organic Program is mandatory.

MARKET ENTRY CONSIDERATIONS

Merchandising mix

Thinking "healthy" is vital to the well-being of many supermarkets today and this mindset is likely to persist as consumers become increasingly concerned with their food choices. Specific product lines important to today's merchandising mix include low carb, perishables, organics, and meal replacements and beverages.

Numerous "Fad" diets have prompted higher sales of low carbohydrate foods. The low carbohydrate phenomenon has led to sales totalling US$1.4 billion in 2003, while a majority of households have reported at least one member in the household attempting a low carbohydrate diet. As a result, meat sales increased 22% in retail outlets while frozen pork and beef gained more than 50% in annual sales.

Perishables made up half of supermarkets purchases, with fresh meat and seafood accounting for 14.39% of total purchases in 2003. Beverages and alcohol accounted for 11% of total purchases. Other produce, dairy and frozen foods round out the top 5 products, with floral and self-service deli listed as the least popular commodity with a combined 1.2% of total purchases.

Other growing segments include soy products; nutritional, energy, and wellness bars; weight-control categories; and bottled energy, sport and water beverages. These products averaged 18% growth per year from 1999 to 2003 and gained popularity in the supermarket sector.

The appeal of organic foods is evident as more and more variations on mainstream products are being developed to cater this growing market segment. The prepared or easy-to-prepare organic foods segment is expected to be one of the top areas of development. Certified and organic meats, kosher foods, and fresh ingredients continually grow in demand. Already, over half of food consumers are estimated to have purchased an organic food product in 2004.

Retailer Consolidation

A smaller number of retailers control a bigger share of the food retail pie. Because there are fewer customers to sell to, it's more difficult to get new items accepted. Doing business with these large retailers requires a high level of sophistication and preparedness on the part of the exporter. The top five retailers in the United States hold 35% of the market. In the South Central Region, two of the top three retailers have several other chains under their banners in the area. Kroger also consists of King Soopers City, Fred Meyer, Smith's, Dillon, Fry's, Quality Food Stores, Kwik Shop, and Loaf N' Jug Mini Mart. Albertsons also consists of Jewel-Osco, ACME Markets, Osco Drug and Sav-on.

Distribution Channels

The South Central Region is headquarters for some of the largest food distributors in North America. The majority of exporters (75-80%) choose to ship their product directly to the retailer's warehouse. The advantage of this channel is expediency over shipping to distributors/wholesalers without the excessive transportation and labour costs of shipping directly to the store. To arrange distribution in the South Central Region, the manufacturer has three options at their disposal: manufacturer direct to the food outlet, manufacturer to merchant wholesaler to food outlet, or manufacturer to distributor to retailer to food outlet.

Many large grocery retailers in the South Central Region have their own distribution operations. Retailers with their own distribution centres located in the region include Kroger, Albertsons, Wal-Mart, Safeway, Costco, and Whole Foods.

Natural/Specialty Distributors

Lower volume, niche or higher-end products are best sold through a wholesaler or distributor who will manage the logistics of inventory management, shipping and store service. This is especially important in the South Central where freight is expensive and there is such a large geographic area to cover. Warehouse and distributor consolidation can also help to reduce costs to Canadian exporters.

Some broadline and specialty wholesale/distributors operating in the South Central Region include Brenham Wholesale Grocery, McLane Foodservice, C.D. Hartnett, River City Produce, Banta Foods and Unified Western Grocers.

Warehouse and Distributor Consolidation

Super-centres deal with large volumes of goods and are prohibitive to smaller exporters. Large exporters willing to offer discounts may consider selling directly to a super-center. The US based support infrastructure is well established and open to working with Canadian exporters. This market is best-suited for sophisticated exporters with in-depth experience and understanding of the American marketplace. Key points which Canadian exporters need to consider before entering the market are as follows:

• Dealing with time consuming and unpredictable border crossing paperwork can be an even greater challenge then managing shipping costs. A thorough understanding of the cost and timing implications of cross border shipping is critical to attract sophisticated US buyers.
• Careful consideration of costs and benefits of a broker must be calculated before requesting their services. Furthermore, companies involved with private label are less likely to make use of brokers.
• Being flexible and responsive to buyer's needs will help develop stronger credibility and access to new market opportunities.

EXPORT LOGISTICS

Agriculture and Agri-Food Canada's partners in Team Canada Inc have compiled information for those interested in exporting to the United States. The information is presented in a comprehensive guide to interested Canadian exporters at exportsource.gc.ca

Case studies on exporting to the South Central region are also available. These are on the website, under the heading, "Case Studies of Successful Export into the US Southeast and Southwest" ats.agr.ca/us/e3460.htm

Free and Secure Trade (FAST) is a completely paperless cargo release mechanism put into place to reduce Customs information requirements and has dedicated lanes at major crossings for participants. The program is designed to streamline the commercial processes for clearance by offering expedited clearance to carriers and importers enrolled in Customs Trade Partnership Against Terrorism (C-TPAT) or Canada's Partner's in Protection (PIP).

Website www.cbsa-asfc.gc.ca/import/fast/menu-e.html#information 

FAST into Canada fast-expres@ccra-adrc.gc.ca 

FAST into the United States industry.partnership@customs.treasdhs.gov 

EVENTS

Trade shows represent one of the most important ways of entering the lucrative and competitive US food and beverage market. Export-ready companies can learn about market and product trends, check out their competitors, and meet prospective customers at trade shows. At key shows, the Canadian government organizes official Canadian food pavilions, which exporters are invited to join. The Government also organizes several expositions and other trade promotion events to help introduce Canadian food and beverage exporters to the U.S. market. For more information, contact the Agri-food Trade Service office nearest to you.

Website: ats.agr.ca/region/home-e.htm

2005 National Conference
The Healthcare Food Service Conference
June 12-15
Sheraton New Orleans
New Orleans, LA
Website: www.ashfsa.org

2005 Louisiana Foodservice Expo
August 6-8, 2005
Ernest N. Morial Convention Center
Halls I-J
New Orleans, LA
Website: www.lra.org

2005 Southwest Foodservice Expo
June 26-28
Dallas Convention Centre
Dallas, TX
Website: www.restaurantville.com/cc/swexpo/index.cfm

2005 New Orleans Wine and Food Experience
May 25-29
New Orleans, LA
Website: www.nowfe.com

OTA's 2005 All Things Organic Conference and Trade Show
April 30- May 3, 2005
McCormick Place
Chicago, Ill.
Tel: (207) 842-5468
Email: lmurray@divcom.com
Website: www.organicexpo.com

Food Marketing Institute (FMI) Show, 2005
May 1-3, 2005
McCormick Place
Chicago, Ill.
Tel: (202) 220-0839
Email: igap@fmi.org
Website: www.fmi.org

World of Private Label International Trade Show
May 24-25
RAI Exhibition Centre
Amsterdam, Netherlands
Tel: (31) 20 5753032
Website: www.plmainternational.com

Texas Hot & Spicy Festival
April 1, 2005
Reliant Center at Reliant Park
Houston, TX
Website: www.texashotandspicy.com/

Southwest Supermarket & C-Store Expo and the Latin American Food & Beverage Expo
July 20-22, 2005
The Westin Hotel Riverwalk
San Antonio, TX
Tel: (210) 224-6500
Email: dana@txgca.org
Website: www.txgca.org/html/expo_2005.html

National Gourmet Food Show
January 14-17, 2005
Dallas Market Center--First Floor of the World Trade Center Bldg.
Dallas, TX
Tel: 1-800-DAL-MKTS
Email: dmc@dallasmarketcenter.com
Website: www.dallasmarketcenter.com

American Wholesale Marketers Association Real Deal Expo
February 23-25, 2005
Las Vegas Convention Centre
Las Vegas, Nevada
Tel: (703) 449-6418
Email:awmaregistration@jspargo.com
Website: www.realdealexpo.com

Supermarket Industry Convention
May 7-9, 2006
Bottom of Form
McCormick Place, Chicago, Illinois
Contact: Lori Campbell
Phone: 202-220-0849
Email: fmi@fmi.org
Website: www.fmi.org/events/may/2006/index.cfm

2006 National Gourmet Food Show
January 20-23
Dallas, Texas
Dallas Market Center--First Floor of the World Trade Center Bldg.
Contact number: 1-800-DAL-MKTS
Email: dmc@dallasmarketcenter.com
Website: www.dallasmarketcenter.com

2006 Oklahoma Restaurant Convention & Expo
Cox Business Services & Convention Center
April 11-12, 2006
Oklahoma City, OK
Phone: 800-375-8181
Email: loric@okrestaurants.com
Website: www.okrestaurants.com

Southwest Supermarket & Convenience Store Expo & Convention
Latin American Food & Beverage Expo
July 20 - 22, 2005
The Westin Hotel Riverwalk
420 West Market St., San Antonio, Texas
Phone: 210/224-6500
Fax: 210/444-6000
Website: www.txgca.org/html/expo.html

Dollar Store Expo
June 22-23, 2005
Las Vegas Convention Center
Las Vegas, Nevada
Phone: (800) 859-9247 or (702) 893-9090
Fax: (702)893-9227
Email: Info@bentleyintl.net
Website: www.dollarstoreexpo.com

CANADIAN GOVERNMENT AGENCIES

Canadian Consulate General
Laura Aune
St. Paul Place, Suite 1700
750 North St. Paul Street
Dallas, TX 75201
Tel.: 214-922-9812 (x3357)
Fax: 214-922-9815
Email: laura.aune@dfait-maeci.gc.ca

Agriculture and Agri-Food Canada (AAFC)
International Markets Bureau
930 Carling Ave.
Ottawa, ON K1A OC5
Contact: Brent Wilson, Senior International Market Development Officer
Tel.: (613) 694-2394
Fax: (613) 759-7506
Email: wilsonb@agr.gc.ca
Website: www.agr.gc.ca

Canadian Food Exporters Association (CFEA)
885 Don Mills Rd., Suite 301
Don Mills, ON M2C 1V9
Tel.: (888) 227-8848 or (416) 445-3747
Fax: (416) 510-8044/3
Email: info@cfea.com
Website: www.cfea.com

Canadian Food Inspection Agency (CFIA)
59 Camelot Dr.
Ottawa, ON K1A 0Y9
Tel.: (613) 225-2342
Fax: (613) 228-6125
Email: cfiamaster@inspection.gc.ca
Website: www.cfia-acia.agr.ca

ExportSource
Team Canada Inc.
Phone: 1-888-811-1119
Website: exportsource.ca

International Business Opportunities Centre (IBOC)
Tel.: (613) 944-6000
Fax: (613) 996-2635
Email: iboc@dfait-maeci.gc.ca
Internet: www.iboc.gc.ca

Market Research Centre (TMR)
Contact: Jennifer Gowan, International Market Analyst
Tel.: (613) 996-1835
Fax: (613) 943-1103
Email: jennifer.gowan@dfait-maeci.gc.ca

Market Support Division (TMM)
Contact: Clément Coté, Trade Commissioner
Tel.: (613) 995-1773
Fax: (613) 943-1103
Email: clement.cote@dfait-maeci.gc.ca

United States Business Development Division (NUB)
Contact: Dan Mrkich, Trade Commissioner
Tel.: (613) 995-0759
Fax: (613) 944-9119
Email: dan.mrkich@dfait-maeci.gc.ca

Export Development Canada (EDC)
151 O'Connor St.
Ottawa, ON K1A 1K3
Tel.: (800) 850-9626 or (613) 598-2500
Fax: (613) 237-2690
Email: export@edc4.edc.ca
Internet: www.edc.ca

International Trade Canada (ITcan)
125 Sussex Dr.
Ottawa, ON K1A 0G2
Website: www.itcan-cican.gc.ca

CANADIAN FOOD INDUSTRY ASSOCIATIONS

Agri-food Export Group Québec-Canada
668, Montée Montarville
Saint-Bruno, (Québec)
J3V 6B1 Canada
Tel.: (450) 461.6266 / 1.800.563.9767
Fax: (450) 461.6255
info@groupexport.ca
Website: www.groupexport.ca

Canadian Food Exporters Association
885 Don Mills Road, Suite 301
Don Mills, ON M3C 1V9
Telephone: (416) 445-3747 or 1-888-227-8848
Facsimile: (416) 510-8044

Food Beverage Canada
17311 - 1023rd Avenue, suite 201
Edmonton, AB T5S 1E5
Telephone: (780) 486-9679 or 1-800-493-9767
Facsimile: (780) 486-0985
Website: www.foodbeveragecanada. com

Alliance of Manufacturers and Exporters of Canada
75 International Boulevard, Suite 400
Toronto, ON M9W 6L9
Telephone: (416) 798-8000
Facsimile: (416) 798-8050
Website: www.palantir.ca/the-alliance/ default.html

US Government Agencies 

US Department of Agriculture (USDA)
14th Street and Independence Avenue SW
Washington, DC 20250
Tel.: (202) 720-2791
Website: www.usda.gov

US Food and Drug Administration (FDA)
Dallas District Office
4040 North Central Expressway, Suite 300
Dallas, TX 75204-3145
Contact: Maria Velasco, Public Affairs Specialist
Tel.: (214) 253-5205
Fax: (214) 253-5318
Email: mvelasco@ora.fda.gov
Website: www.fda.gov

Embassy of the United States of America
490 Sussex Dr.
Ottawa, ON K1N 1G8
Tel.: (613) 238-5335
Fax: (613) 688-3082
Website: www.usembassycanada.gov

Commercial Service
Tel.: (613) 688-5217
Fax: (613) 238-5999
Email: ottawa.office.box@mail.doc.gov
Website: www.buyusa.gov/canada/en

Food Safety and Inspection Service (FSIS)
Tel.: (202) 720-7025
Fax: (202) 205-0158
Website: www.fsis.usda.gov

OTHER RESOURCES

National Frozen & Refrigerated Foods Association
4755 Linglestown Rd., Suite 300
P.O. Box 6069, Harrisburg, PA 17112
Phone: 717-657-8601
Fax: 717-657-9862
Email: info@nfraweb.org
Website: www.nfraweb.org

National Confectioners Association
8320 Old Courthouse Road, Ste. 300
Vienna, VA 22182
Phone: (703) 790-5750
Fax: (703) 790-5752
Email: info@CandyUSA.org
Website: www.ecandy.com

National Association of Convenience Stores
1600 Duke Street, Alexandria, VA 22314
Phone: (703) 684-3600
Fax: (703) 836-4564
Email: nacs@nacsonline.com
Website: www.nacsonline.com

International Dairy Deli Bakery Association
313 Price Place, Suite 202, PO Box 5528
Madison, WI 53705-0528
Phone: (608) 238-7908
Fax: (608) 238-6330
Email: iddba@iddba.org
Website: www.iddba.org

Food Industry Business Roundtable
(Ethnic & Specialty Food Industry)
c/o Community Development Technologies Center
520 West 23rd Street, Los Angeles, CA 90007
Phone (213) 763-2520, ext. 227
Fax (213) 763-2729
Email: info@fibr.info
Website: www.fibr.info