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Overview of the Food Service Market in the Pacific Southwest StatesJuly 2006The 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. Although every effort has been made to ensure that the information is correct, Agriculture and Agri-Food Canada assumes no responsibility for its accuracy, reliability, or for any decisions arising from the information contained herein. Please address any comments or suggestions you have on this report to: Ben Berry - berryb@agr.gc.ca EXECUTIVE SUMMARYThis report is intended to provide Canadian exporters with an overview of the food service market in the Pacific Southwest region of the United States. This region includes the states of California, Arizona, Nevada, Utah and Hawaii. The information contained in this report was drawn from a series of secondary sources as well as market intelligence generated from Canadian diplomatic staff. This region is a prominent market in North America due to its sheer size, wealth, and trend-setting consumer base. Food consumption in the region is influenced by the aging Baby Boom generation, the time pressures of dual-income households, growing demands for healthy, convenient products and a large and quickly growing ethnic population. QUICK FACTS
THE UNITED STATES AS A MARKETThe United States represents Canada's largest export market. In 2005, Canada exported $348.1 billion worth of goods and services to the United States, an increase of over $20 billion from 2004 totals. Canada imported $214.9 billion in return, an increase of over $6 billion from 2004. These values lead to a positive Canadian balance of trade of roughly $133.2 billion for 2005. Canada exported over $15.8 billion in agricultural and agri-food goods to the United States in 2005. These exports were lead by meat and edible meat offal, preparations of grains, pasta, live animals, as well as edible vegetables. The food service sector across the United States faced considerable obstacles in the past year. Food service operators and their distributors were challenged by an intense storm season, mad cow (BSE) and bird flu concerns, as well as a sharp increase in energy costs. As is the case in most industries, food service operators had to quickly adjust to widespread economic and environmental influences; as a result many opted to stock fewer ingredients with less focus on high-end meal components. Despite these challenges and the necessary industry adjustments, the National Restaurant Association's outlook for 2006 remains strong. Analysis has shown that nearly 60% of food service operators have reported sales gains over the previous year, nearly 50% have reported increased customer traffic and finally, over 60% plan on making significant capital expenditures on their establishments over the next 6-12 months. All these indicators point to promising industry performance results in 2006 and towards 2007. Finally, growth in the sector in its entirety is influenced by consumer lifestyle trends and economic pressures. Increased time pressures cause consumers to eat away from home more often. Likewise, consumers increasingly demand cuisine uniqueness without compromising health and taste attributes as well as reasonable price associations. The challenge for food service operators is finding ways to keep prices low despite rising commodity/input prices and sophisticated consumer demands. THE PACIFIC SOUTHWESTThe Pacific Southwest region accounts for roughly 16% of the US population and over 16% of total restaurant sales in the US according to the National Restaurant Association. This region's combined GDP of US$46 billion is comparable to the GDP of countries like the Ukraine and Morocco. This region has experienced strong growth in terms of population, employment and disposable income. Trade agreements like the North American Free Trade Agreement (NAFTA) are helping the industry in this region prosper. The food service market is vast, dynamic and extremely competitive. It is a market that perpetuates economic growth and consistently generates high sales and tax revenues. Likewise, this is an industry that employs nearly 2 million people within the region - and on average represents close to 11% of total employment per state. This industry's performance and growth is central to the overall economic health of the region. The significant population growth in the Pacific Southwest over the past 10-15 years is due in part to the US government's provision of land for resource development. The US government allows for things such as oil and gas drilling and distributes grazing permits for livestock. Local and state government also offer incentives such as low taxes, cheap utilities and inexpensive land as incentives to attract business, which in turn attracts a workforce. As urban areas develop and farmland decreases, the Pacific Southwest region has a greater need for imported goods in an effort to satisfy the food demands of a growing urban and working population. The Pacific Southwest is close in proximity to Canada. This puts Canada in an excellent position to take advantage of the opportunities that a market of this magnitude has to offer. It is important to note that this is also one of the most competitive markets in the world, due to extreme market competition and an ever evolving consumer base. As a result, this market demands well-defined and concise business strategies on the part of Canadian exporters. This market is characterized by a strong demand for distinctive, high-quality products at competitive prices; potential exists for private-label goods, specialty foods, convenience foods, natural products and ethnic food items. In the broadest sense, there are four demographic trends that significantly affect sales volume and spending patterns in the Pacific Southwest food service industry. These factors are currently, and have been for many years - the most important to consider when entering the market:
The food service sector in this particular region is closely tied to a rebounding, and in many cases thriving tourism industry in most of the major cities housed within the Pacific Southwest. It is estimated that on a nationwide scale, travelers and visitors account for close to 40% of fine dining sales, and 25% of casual dining sales. In a region that encompasses many popular travel destinations such as San Francisco, Las Vegas, Honolulu, the Grand Canyon or Salt Lake City, the food service sector is bound to thrive and remain highly competitive within the region during periods of consistent growth in tourism. Canadian Exports to the Pacific SouthwestOver $1.6 billion in Canadian agricultural exports went to this market. Canada's top agricultural food product exports to the Pacific Southwest region in 2005 were bovine cuts (boneless, fresh or chilled) accounting for 17.5% of total exports, rape/colza seed oil-cake at 7%, bovine (live except pure-bred breeding) at 4.3% and swine cuts (fresh or chilled) accounting for 3.7% of total exports. Exports have remained consistent over the past few years with exact totals ranging from $1.646 billion in 2003, to $1.681 billion in 2004 and $1.645 billion in 2005. STATE OVERVIEWSCalifornia
Arizona
Nevada
Utah
Hawaii
Key Sub-marketsThe key food distribution hubs in the US Pacific Southwest are Los Angeles, San Francisco, Fresno, Phoenix, Salt Lake City, and Hawaii (Honolulu). These hubs represent some of the largest cities in the region, and are excellent starting points for penetration into this market. They do not, however, represent the best or only entry points for specific products. Given their population, location and importance to their respective states, these cities were selected as possible food service market entry points. There are a number of other cities in the region whose large size may provide opportunities for exporters, such as San Diego, Las Vegas, San Jose, or Anaheim. Los Angeles, CA
San Francisco, CA
Fresno, CA
Phoenix, AZ
Salt Lake City, UT
Honolulu, HI
THE FOOD SERVICE SECTOROver the past few decades the restaurant industry has become an undeniable influence on, and indicator of national economic performance as a whole. This all encompassing industry includes commercial and non-commercial food service establishments; segments like military restaurant services or institutional food service establishments all fall under the US restaurant industry umbrella. The National Restaurant Association; an American organization considered the leading business association for the restaurant industry, estimates that annual sales will reach US$511 billion nationwide, with 12.5 million employees and 925,000 locations serving over 70 billion meal and snack consumer requirements. This represents the 15th consecutive year of real growth, with restaurant industry sales forecast to increase by 5% in 2006, to a point where it represents nearly 4% of US gross domestic product. According to the National Restaurant Association, restaurants and bars account for just over US$360 billion of this total, with other categories such as hotel food service and food service vending representing the other 30% of the food service market. According to a Food Institute report, eating and drinking places recovered from slower growth rates during February of 2006, to experience sales of nearly US$36 billion in March of 2006, a value that was up nearly 9.2% from the previous year's totals during that month. With such promising and rebounding indicators, the National Restaurant Association's estimate that sales will surpass the US$500 billion mark in 2006 seems on par. Consistent consumer demand is the key reason why an industry as diverse as this is capable of recording substantial growth from year to year. With the typical American consumer spending approximately 45% of their "food" dollars on restaurant industry spending; industry operators are exploring new and advanced food preparation techniques, using diverse produce, flavours and seasonings, and producing health and wellness considerate menu options in an effort to meet and exceed consumer demands and attract their portion of this substantial spending. Fast Facts
Commercial SectorCommercial food service providers including fast food outlets, quick and full service and other restaurant formats, account for nearly 80% of away-from-home expenditures. Favourable conditions helping the growth of the food service industry include the narrowing gap between the price of eating out and eating at home, and the rising number of dual-earner households. Unfavourable conditions hindering the growth of the food service industry include rapidly rising fuel costs and concerns for food safety bumping up commodity costs. Current trends within the commercial food service sector include companies developing a variety of restaurants to satisfy consumer preferences, fast-food outlets redesigning their menus to offer selections similar to those available at quick casual restaurants, and restaurants and food retailers competing to meet the needs of quick causal diners with home meal replacement products. Companies are also attempting to associate their food products with popular health-oriented brands in order to tap into the trend toward healthier eating. Quick ServiceQuick service category growth will be driven by "quick-casual" or "fast-casual" formats within this overall category. Such restaurants offer full-service quality food in a quick-service format with a greater variety of menu offerings than fast-food outlets.
Full ServiceWith the gap in price between dining at home and dining out gradually decreasing and consumers enjoying increased disposable incomes, people are taking more opportunities to diversify their food palette with the convenience of personalized service. Full service restaurants are also exploring new culinary techniques to satisfy the consumer demand for fresh, authentic and unique food choices.
Food Service and TourismThe travel and leisure industry has rebounded quickly in the Pacific Southwest region since the economic recession in 2001. This region accounts for nearly 45% of the total travel market share for the nation. The trends at resorts, hotels and conference centers echo the overall food trends at restaurants as consumers are looking for smaller portions, quick, healthy, and fresh foods that do not sacrifice unique taste.
Non-Commercial SectorIn 2005, according to US Census Bureau numbers, national non-commercial food sales stood at US$55 billion dollars (including employee, educational, hospital and club restaurant services). The non-commercial food service sector has shown slow growth as it continues to adjust to changing food demands and stricter food regulations among other factors. Changing customer eating habits have strongly affected this sector, as employees are demanding that workplaces provide quick, healthy and fresh food choices. Note: All food products in schools must be domestically produced. The United States Department of Agriculture forbids foreign countries to export food products to United States schools (kindergarten to grade 12). Colleges and UniversitiesPost-secondary food service providers are becoming increasingly sensitive to college student demands for authentic ethnic foods, vegan/vegetarian foods, healthy options, and organic/sustainable foods. Campus convenience stores are becoming "hybrid" operations that offer partially prepared meals and flexible lifestyle menus, and create a selection of food service outlets on each campus, and more flexible meal plans.
HospitalsThe aging baby boomer population has increased demand for quality healthcare services, including food service. The buffet-style food service is now taking on more of a bistro, quick and casual feel.
NICHE MARKETSDemand for menu expansion in many Pacific Southwest restaurants reflects the growing cultural diversity of the area. Currently worth US$75 billion, the American ethnic food market has grown from US$53 billion in 2002. The composition of the ethnic food market by cuisine and sales breaks down into three major categories: Hispanic, African American, and Asian American foods. Dishes from different ethnicities make their way into mainstream consumption patterns of sophisticated American consumers. Consumer preferences are changing the face of the restaurant industry and Canadian exporters have demonstrated the ability to deliver many products that are in demand in the Pacific Southwest region. New restaurants and menus are incorporating food themes such as:
HispanicOver the last ten years, the Hispanic population in the United States has grown significantly, and no where is this more obvious than in the Pacific Southwest. Two years ago US Hispanics spent US$581 billion on goods and services. Today, their purchase power has risen to US$700 billion, and is projected to reach US$1 trillion by 2010. The Hispanic consumer segment is the largest growing ethnic minority in the United States, making up approximately 13% of the population and the largest ethnic food market in the country. This consumer segment is particularly important to note in the Pacific Southwest region, as most states within the region are characterized by higher than national average Hispanic population rates. By 2012, it is estimated that this segment will account for nearly one out of every five Americans, with an estimated 50 million Hispanics living in the United States. This Hispanic food market includes products from the 27 Latin American countries, Spain and Portugal. Nuevo Latino cuisine is Latin dishes made with an American twist. Some recent product trends include ceviche, curtido, pupusas, paella, fabada, tapas, slow-roasting dishes, dulce de lèche, tres lèches, plaintains, cherimoya fruit, pico de gallo, and Mateus wines. Popular flavours also include lemon Cajun, chipotle, mesquite, and chimichuri.
CONSUMER CHARACTERISTICSGrowth within the Pacific Southwest food service sector is spurred by consumer lifestyle trends. As the average consumer faces time pressures, the accommodating option to visit a food service establishment is often used. It is estimated that approximately 7% of all household expenditures is focused on the purchase of food and non alcoholic beverages, of which a substantial portion is allocated to purchases relating to away-from-home eating.
CONSUMER BEHAVIOUR - FOOD SPENDING, EATING HABITS AND TRENDSIn general, consumers in the Pacific Southwest are inclined to experiment during their dining experiences, although consumer interest appears to be concentrated in products that offer nutrition, convenience and quality. Customers in this area will generally pay more for a dining experience that incorporates nutritional and quality components. Interestingly, food spending, eating habits and trends are pointing towards a very palpable competitor to the restaurant and food service industry; this competitor is the US supermarket. Supermarkets of today infringe on the food service consumer base. US supermarkets are now in direct competition with the food service industry, they have ventured into home meal replacements (HMRs) in an attempt to build on the 21% of the takeaway food market they now hold, compared with restaurants which hold 22% of the market. Some supermarkets have begun to install drive through windows to improve accessibility, convenience and to better compete with the restaurant industry. Fresh, healthy, made-to-order sandwich counters in grocery stores are also providing competition for the take-out restaurant industry.
Health and WellnessHealth and sustainability continue to dominate consumption trends, causing restaurant owners to shift their starchy menus to leaner, protein-based dishes. The demand for vegetables, chicken, meats, fish, antipasto meats, cheese and olive oil continue to increase rapidly as people attempt to improve and maintain healthy, low-carbohydrate diets. Personalization and ServicePersonalization and quality food service are deciding factors in consumer choices. The demand for individual solutions will increase brand loyalty. Restaurants that offer separate weekday and weekend selections will meet the needs of consumers who need practical solutions on weekdays and who prefer premium quality dining on weekends. At-Home Meal SolutionsRestaurant quality is the new trend in at-home meals. Chef or restaurant-branded products imply credibility. Consumers are looking for ingredients and home meal replacements to replicate the experience of dining out. Families are the most time conscious consumers and need ways to alleviate time pressured stress. Food service establishments are responding via their efforts to extend their business into easy to carry away take away meal options. COMPETITIVE ENVIRONMENTCanada 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 United States. This has given Canadian food a distinct advantage over international competitors; however, Canadian exporters will face intense competition from small to medium-sized local and national food manufacturers that typically operate on a regional level. There is also the presence of large multinational manufacturers who entered the Pacific Southwest market through acquiring smaller producers. INTERNATIONAL COMPETITIONThe top countries exporting agri-food and seafood into the United States are Canada, Mexico, Chile, France, Italy and China. The main imports originating from these countries are as follows.
CANADIAN POSITIONCanadian companies will find several opportunities in the Pacific Southwest food service sector. However, the consistently changing demographics and consumer demands in this region make it wise for exporters to conduct thorough consumer analysis and utilize Canadian government support provided domestically and housed within the region to guide and assist market penetration and expansion.
FOOD DISTRIBUTIONThe Pacific Southwest region houses numerous distribution centres for some of the largest food distributors in North America. To arrange distribution in the Pacific Southwest, 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. 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. SYSCO, with sales of US$28 billion, is the largest food distributor in the United States. It is estimated that food service distribution was a US$207 billion dollar industry in North America in 2005, a value expected to climb by $5-10 billion in 2006. A list of major US food distributors and potential business contacts follows at the end of this document, it is not a complete list of all potential food distributors within the US, or those with a specific presence in the Pacific Southwest region - for more market specific distributor information it is suggested that Canadian agri-food exporters contact the Canadian Consulate General in Los Angeles, CA (key contact information below). EXPORT LOGISTICSThe US market is vast, complex and highly competitive, and can be intimidating to enter, but thousands of Canadian enterprises - small, medium, and large - have been very successful south of the border. The "Exporting to the US" guide from Exportsource is an excellent tool to answer specific logistical questions. This guide contains the basic information that is common to all exporting, as well as emphasising the practical side of doing business in the United States. This guide will explore:
Exporting to the US - Exportsource.ca When companies are further along in the export planning process, they should contact the Canadian Consulate General in Los Angeles, which actively promotes Canadian products and provides general market planning assistance. The consulate provides companies with lists of contacts (brokers, distributors and retailers), and assists Canadian exporters with advertising and promotion plans. Regulations and procedures for Canadian exporters are also available. Numerous programs have been established between Canadian and US Governments to facilitate trade. Exporters should research and familiarize themselves with programs such as Free and Secure Trade (FAST) - 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). For detailed information on Canada-US bilateral trade programs, the various considerations a Canadian food exporter should consider and research before entering the market, and of course the appropriate websites and contact information to which exporters should direct their attention and concerns, please consult the US Market Access section of the ATS website at www.ats.agr.gc.ca/us/access_us_e.htm. Major Foodservice Distributors in the USThe following are some of, but not all of the major foodservice distributors in the US. Again, it is recommended that Canadian agri-food exporters contact the Canadian Consulate General in Los Angeles, CA. for assistance in identifying the best possible business connection/link for your organization in this vast market. Sysco Corporation: SYSCO has sales and service relationships with approximately
390,000 customers in the foodservice industry. US Foodservice: US Foodservice is one of the leading broad line foodservice distributors in the United States, with yearly revenues exceeding $18 billion. www.usfoodservice.com MBM Corporation: One of the largest privately owned food service distributors in the nation (252) 985-7200. Performance Food Group: Performance Food Group (PFG) is one of the nation's largest foodservice distributors, delivering more than 66,000 foodservice items to approximately 44,000 customers from every kind of eatery coast to coast. www.pfgc.com The Martin-Brower Co.: Martin-Brower has been in the food service industry since 1934. www.mbhires.com McLane Company Inc.: McLane Foodservice supplies the industry's leading quick-service restaurant chains with everything they need to run their businesses. www.mclaneco.com Vistar Corp.: A full-line food distribution choice specializing in the areas of Italian, Pizza, Vending, Office Coffee etc; with 40 distribution centers and numerous cash and carries located throughout the country. www.vistarvsa.com Golden State Foods Corp.: Golden State Foods is a diversified, $2 billion manufacturer and distributor in the foodservice industry with corporate headquarters in Irvine California. www.goldenstatefoods.com Dot Foods: The foodservice channel provides fresh-prepared meals to both commercial and institutional foodservice operators including restaurants, hotels, hospitals, nursing homes, schools, military installations, airlines and prisons. www.dotfoods.com/foodservice.html Shamrock Foods Co.: Nationally ranked foodservice distributor headquartered in Phoenix; Shamrock sends refrigerated trucks to 9 other states from distribution centers in Phoenix and Commerce City (Denver) Colorado. www.shamrockfoodservice.com PROMOTIONAL EVENTSTrade 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 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 US market. For more information, contact the Agri-food Trade Service regional office nearest to you www.ats.agr.gc.ca/region/home-e.htm. 32nd Winter Fancy Food Show - San Francisco 2007 N.G.A. Annual Convention & Organizer: Natural Foods Expo West Organizer: 9th Spring Fancy Food Show - Chicago 53rd Summer Fancy Food Show - New York Organizer: KEY CONTACT INFORMATIONThe Consulate General of Canada, Los AngelesStreet Address: Mr. Carl Light The Consulate General of Canada, San Francisco Street Address: Tel: (415) 834-3180 Ms. Mary-Jane Ginsberg
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