Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue.
Many Canadian entrepreneurs dream of cracking the U.S. market, but Regan Stevenson is already there.
Mr. Stevenson founded Winnipeg-based Sunpeak Foods Inc., which makes multigrain-breaded, free-range chicken products and multigrain samosas, in 2007.
After hooking up with a major food distributor, the company quickly established a Canadian presence by 2009, and then expanded down south in 2010.
Today, Sunpeak sells its Multiwise line in five Canadian provinces and five U.S. states, to retail chains, national distributors and food-service operators. The United States now accounts for under 10 per cent of total sales, says Mr. Stevenson, who wouldn’t disclose more precise figures.
The company’s biggest U.S. retail success has been in California, where Whole Foods Market and other grocers carry its products in almost 30 communities.
Sunpeak’s all-natural, multigrain chicken fingers are a unique product on both sides of the border, says Mr. Stevenson, whose company has about 10 full-time employees. He sees huge upside to further expanding his retail business down south. “If you just look at the California market in the natural foods industry, it’s a lot larger than the entire Canadian market,” he says.
But the company has found the U.S. retail market much tougher and costlier than its Canadian counterpart to penetrate.
“It’s way more aggressive in terms of what you need to give the stores in the U.S.,” Mr. Stevenson says. “In Canada, a lot of times, you can get in through relationships and not really have an upfront cost. And other times you do have this upfront cost, but it’s not nearly as high.”
Some U.S. accounts demand $5,000 to almost $1-million for shelf space, Mr. Stevenson says. And Sunpeak often gets asked for “free fill” – free product to stock shelves the first time. At $100 a case for, say, 30 stores in the Midwest, that could quickly get expensive, Mr. Stevenson explains.
Stateside retailers also expect Sunpeak to pay for local ads and other marketing. “It’s not a percentage of sales; it’s like $20,000 up front,” Mr. Stevenson says.
Then there’s the diversity of the U.S. marketplace: “It’s a bit of a challenge just to understand where your piece is in the puzzle in each different region,” he says.
All of this has left Mr. Stevenson wondering whether he should ease up on the United States, and devote more effort to Canada – where the costs are lower, but so are the potential rewards.
“The big disadvantage is that [someone could replicate our product] in the U.S. market and then that opportunity will close. So time is of the essence,” he says.
The Challenge: Should Sunpeak continue its U.S. expansion – or pull back and focus on Canada?
THE EXPERTS WEIGH IN
Stephen Gardiner, managing director of management consulting, Accenture, Toronto
The Canadian option might be the biggest long-term risk versus expanding in the U.S…If you play out the benefits of accessing an international market, there’s a couple of things that our studies and surveys have shown us…The first is that, in addition to growth and economic opportunity, you get a chance to diversify your customer base. The second is you start to get some scale economies in what you do, which, over time, puts you in a much more resilient position.
[Third,] access to new capabilities and new ideas to continue innovation and provide differentiation in the marketplace is easier across a big market.…As the world continues to globalize, it might actually make them less vulnerable to competition coming the other way across the Canadian border.
The question around the diversity of the U.S. market: We think you can cut it in a different way to look for areas of the U.S. that are relatively similar by using segmentation and other techniques, and really cater hard to those segments, rather than on a purely regional or geographic basis.
David Ian Gray principal, DIG360 Consulting Ltd., Vancouver
I would go back and say, what are their goals? Is it a lifestyle goal? Do they want to go public? Do they want to get bought out? What’s their long-run objective? And if it’s to see how big they can get, you’re going to hit a ceiling in Canada. I don’t know anyone who’s given an opportunity to get a beachhead in the States that has decided they didn’t want to do that.
If their goal is to get to a certain stage and cash out, then accessing capital becomes part of their game plan….What happens in retail is it’s hard to get the first listing. But once you’re inside a Whole Foods and then you start calling on other accounts, those other accounts know that you know how to deliver….They’ve already passed a major hurdle. So I would think if it’s about accessing capital, they would probably find people who would be willing to back them if the business opportunity is as it seems to be.
The easy next step would be, can they broaden their geographic base through Whole Foods? If Whole Foods is liking them, why not get out of California or the West Coast? And then if Whole Foods is reluctant, it would be interesting to hear why that is and use that as key feedback in terms of what they do next.
Suzie Chemel, co-founder, Foxy Originals Inc., Toronto
A lot of Canadian grocery stores love supporting Canadian brands, and Canadians love buying a Canadian product. So I would really expand to the max in Canada before going full-force to the U.S. I do think there is opportunity in Canada, but the opportunity is just so much larger in the U.S. So if they really want to grow their company, they do have to take that next hurdle.
California would, in my opinion, be the hardest state to break into, because everyone who has a company or brand that’s competitive to their company would try California first. And the fact that they’ve had success in California should say a lot for their brand, especially if there are reorders and people are coming back and getting to know it. The other thing is with healthy living products…now is an amazing time to break into the market and build your brand, because they’re just going to get more and more popular.
Breaking in now is probably very important before more competitors come onboard….The challenge now is to build their brand as soon as they can, and keep building on it and expanding as quickly as possible, and reaching out to those customers that will be repeat customers as their growth continues.
THREE THINGS THE COMPANY COULD DO NOW
Conquer the U.S. through customer segmentation
Rather than tackling the diverse country region by region, identify pockets of consumers who are likely to buy its products.
Revisit long-term goals
Define ultimate objectves – going public or getting bought out, for example – which may help make the path forward clearer.
Seek financial backing
To capitalize on opportunity for further U.S. expansion, consider securing funding to help cover the relatively high costs.
Special to The Globe and Mail
Facing a challenge? If your company could use expert help, please contact us at email@example.com
Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT
Our free weekly small-business newsletter is now available. Every Friday a team of editors selects the top picks from our blog posts, features, multimedia and columnists, and delivers them to your inbox. If you have registered for The Globe's website, you cansign up here. Click on the Small Business Briefing checkbox and hit 'save changes.' If you need to register for the site,click here.
Follow us on Twitter: