From left, Open Farm partner Domenic Finelli with Dexter, and co-founders Jacqueline Prehogan with Bella, Isaac Langleben with Duncan and Maddie, and Derek Beigleman with Molly.
When Isaac Langleben and his partners, Jacqueline Prehogan and Derek Beigleman, founded Open Farm in 2013, they agreed the U.S. was the main market they wanted to distribute their ethically-sourced pet food line to.
“We launched in Ontario as a starting point, but pretty quickly we rolled out across Canada and into a whole bunch of markets in the U.S.,” says Mr. Langleben.
The Toronto-based company has always had specific requirements for its pet food production. The objective was “ultra premium pet food.” explains Mr. Langleben, that was ethically sourced and produced from start to finish — or from farm to bowl, as they put it. But, like many Canadian companies, the idea of opening their own manufacturing and distribution plants wasn’t financially viable.
The solution was to team up with partners, throughout Canada and the United States along the supply chain that could make and distribute Open Farm’s specific pet food recipe. The result is that the company was able to remain Canadian owned and operated but gain access to the U.S. market through its manufacturing and distribution partners.
Many Canadian companies, like Open Farm, break into the U.S. market by finding American companies to partner with throughout the supply chain. Not only is this strategy cost-effective for smaller and medium-sized businesses, it also helps manufacturing companies avoid potential tariffs on U.S. imports and other regulatory headaches, according to experts.
“In international business we call that the ‘make-or-buy decision’ … and [it is] perhaps one of the first questions that you should ask yourself as a company if you’re trying to establish a market presence abroad,” explains Kersi Antia, a marketing professor at the Ivey Business School at the University of Western Ontario.
The “make” part refers to a company’s decision to produce the entire product in-house by buying all of the elements of manufacturing and distribution, “but this is a very expensive and a very complex way to go … and many companies are unable to make those kinds of investments,” says Dr. Antia. “Buy,” also referred to as outsourcing, happens when a company contracts out all of these supply-chain elements to other suppliers.
What Open Farm chose to do is a hybrid version of “make-or-buy” and this is one of the common choices for Canadian companies who want to tackle international markets. They contract out certain elements of the value chain but maintain their Canadian ownership. “It usually occurs when you don’t want to, or are unable to, own the whole value chain,” adds Dr. Antia.
By contracting out certain aspects of the supply chain to U.S. partners, Canadian companies may also be able to circumvent certain taxes placed on products imported into the United States from Canada.
“It does an end run around rising tariffs and trade barriers that we’ve been seeing,” he explains. It may also mitigate the risks of the current U.S. administration’s decision-making process. “We’ve been seeing fairly ad hoc decisions being made, in the White House particularly, with tariffs being put on steel, on aluminum, so who’s to say that pet food isn’t next?” He adds: “And that’s the problem: These decisions are so out of the blue that the White House and its occupants have businesses wondering, ‘Are we next in line?’ ”
Having a U.S. partner may also relieve a lot of the regulatory headaches that Canadian exporters may have to endure if they choose to ship their products across the border.
In order to export, Canadian pet food companies must comply with Canadian manufacturing requirements, as well as those from countries to which they export, according to the Pet Food Association of Canada (PFAC).
But that process has become quite labour intensive since the inception of the FDA’s Food Safety Modernization Act (FSMA) in 2011, explains Martha Wilder, executive director of PFAC.
“The most significant change in regards to trade with the U.S. was the implementation of the Food Safety Modernization Act, which is a very significant and onerous set of regulations that affects animal feed, so any Canadian company shipping to the U.S. has to meet those requirements,” says Ms. Wilder.
This has less to do with how pet food is made, and more to do with paperwork, she explains. “The manufacturing process hasn’t changed, but the administration of the manufacturing process has become much more document-oriented than it was in the past.”
Traditionally, the Canadian and U.S. pet food markets have been dominated by multinational companies such as Nestlé’s Purina and Mars’s Royal Canin, but more pet owners want to go the more customized, natural and organic route and that is where Open Farm has found its market.
Today, 80 per cent of Open Farm’s business is in the U.S., but they are open to the possibility of exploring other markets, says Mr. Langleben.
“For now, we’re really focused on our home market in Canada and, of course, in the U.S. market, which is a big market for us,” he says, “but it is a global industry and that’s certainly something that figures into our long-term plan.”