Controlling costs to create competitive advantage

Fuller Landau team • October 12, 2017

Consolidation in the grocery industry and the advent of large retailers such as Walmart and Shoppers Drug Mart carrying food products is changing the face of grocery retail in Canada. Suppliers face intense pressure on their prices. The larger the grocer, the greater the demands, which can include retroactive price discounts and a freeze on price increases. While there are challenges facing suppliers to large national grocers, there also are opportunities for suppliers willing to adapt to this new reality.

Driving efficiencies has become absolutely critical in today’s lowest-price-wins marketplace. Suppliers in the food and beverage industry must continuously improve their processes, which often requires investing in new technology and capital equipment. Canadian businesses lag behind their U.S. counterparts on this front and it leaves the door open for more efficient U.S. competitors to steal market share. With that in mind, it is more important than ever for Canadian suppliers to think long term and ensure their equipment is allowing them to optimize processes, maintain profitability, and stay competitive.

Anyone living in the GTA is well aware of the rising real estate costs, both in the residential and commercial/industrial market. Many businesses that operate out of the GTA are incurring these higher costs, which impact the margins they are earning from running their businesses. It is not unreasonable to pay $75.00 to $90.00 PSF to build an industrial structure in the GTA, which means you can expect to pay between $150.00 to $165.00 PSF for a new building. This doesn’t include the associated planning and city permit process which is onerous and costly.

As a result, many companies have elected to relocate to areas outside of the GTA, which boast more affordable housing opportunities, reasonable land prices, solid supply chain and logistics solutions, a qualified labour force, and close proximity to local Canadian and US customers. Business owners in the food and beverage industry may find that the cost savings of moving out of the GTA outweigh the additional transportation costs of continuing to supply GTA customers.

The Niagara Region, as an example, has experienced a renaissance in both the residential and industrial sectors. Housing prices are more affordable compared to Toronto prices and in many cases, almost half of typical GTA house prices.

Many businesses that have already made the move to areas such as Niagara are realizing that this is another key opportunity for mid-market suppliers, due to the proximity and accessibility of the US border and the massive US market. Exporting to foreign markets is an opportunity for Canadian businesses to expand their customer base and grow faster.

A supplier that is well managed, well-capitalized, and has the ability to access financing at historically low rates should consider making an acquisition. In this way, expanded sales volumes will compensate for lower prices and the business can continue to grow.

While the current environment poses challenges for suppliers in the food and beverage industry, there are also many opportunities for those who seek them out. Decreasing operating costs, including real estate costs, expanding into new markets, and possibly growing your business, are just some opportunities for business owners to consider. The reality is that the retailer demands and expects low prices. Businesses must think strategically and adapt to realize the margins needed to survive and thrive.


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