Less than a year after they started selling their Eatable alcohol-infused popcorn in Canada, entrepreneurs Charlene and Vince Li decided it was time to give Americans a taste.
However, getting their product across the border wasn’t easy, even though the United States is the world’s biggest popcorn market. The couple became quickly enmeshed in shipping, currency, tax and regulatory challenges as they prepared to launch online sales in the United States in December.
The obstacles faced by Toronto-based Eatable Foods Inc. are similar to those faced by most Canadian small business owners with big ambitions – and offer a window into how to crack the world’s largest economy.
Study import rules and shipping options
The top piece of advice Ms. Li has for other Canadian companies seeking to enter the U.S. market is to do your homework.
“We were reading as much as possible, attending seminars that are focused on the topics of import and export, having conversations with retailers, distributors and marketers that have experience bringing over other brands,” Ms. Li says.
The biggest challenge Eatable faced was shipping, which can be expensive when it involves crossing borders. It can also be a struggle for small businesses to compete with the growing number of U.S. retailers now offering free shipping and Amazon’s two-day or even same-day shipping options.
“You constantly have to compete against really low domestic shipping costs within the U.S.,” Ms. Li says.
She looked at using companies that sell space in shipping containers, hoping to find an inexpensive way to get her products across the border. However, many of those companies don’t allow food to be shipped through their service.
Instead, Eatable turned to national courier companies and shopped around for the best corporate rates. Eatable also increased the minimum amount that U.S. customers would need to spend to earn free shipping to encourage people to spend more, helping Eatable offset higher costs.
Getting a good grasp on shipping regulations is also important, says Mr. Li, who adds the United States has “clamped down” on which products can easily cross the border. Sometimes additional paperwork is necessary, or products must be registered, to provide border services advance notice of what to expect. Courier services can usually help with customs clearances, the couple says.
Packaging is also a consideration when shipping south of the border, Mr. Li says. He learned that adding air inside Eatable bags keeps the product from getting crushed, while heat-resistant packaging prevents many perishable items from spoiling, even on long journeys to U.S. customers. Depending on the product, labels will also have to adhere to U.S. standards. For example, every item shipped to the United States has to be labelled with its country of origin. Some food items must include nutrition labels, but there are exemptions for small businesses with annual gross sales of $500,000 or less.
Consider incorporating the business
Beyond logistics, the couple recommends Canadian business owners eyeing the United States consult with financial professionals about incorporation – a process separating a company’s assets and income from its owners and investors – that can often make cross-border transactions more efficient.
Incorporation can also have other advantages, such as lower taxes for corporations in Canada as well as legal protections. However, incorporating can also be costly to set up and lead to higher accounting and legal fees each year.
“The last thing you want is to make all these sales in the U.S. and then somehow find out at the end of the year that there are certain withholding taxes you have to pay on your income,” says Ms. Li, who previously worked in the finance sector in Boston.
When she and Mr. Li did the math, they decided incorporation was a good idea, but that isn’t always the case for small business owners selling into the United States, says Scott Bagby, a senior adviser at Torontoʼs MaRS technology and science incubator who has helped companies such as Skype and Rdio with international expansions.
Small businesses operating in Canada that ship only finished products to the United States won’t always find it worthwhile to incorporate, Mr. Bagby says. However, companies that want to hire workers or open an office in the United States will need to incorporate and get business licences, as well as deal with U.S. employment law and U.S. taxes, he says.
Learning about American taste buds
So far, the Lis say their expansion to the United States has produced a steady stream of online orders and taught them a lot about U.S. taste buds. U.S. customers, for example, tend to prefer Eatable’s peanut butter and jelly and merlot-flavoured popcorn, while Canadians clamour for their scotch whisky-infused caramel offering.
Despite being “well received” by the U.S. market, Ms. Li says Eatable still has plenty of work to do to become a household name.
“It’s really hard to convert people online to try something they are looking at on a computer screen,” she says. “Food is definitely one of those things people need to see, touch, smell and sample before they buy it.”
The Lis believe they’ll see further success in the United States by getting the brand into brick-and-mortar retailers, hosting sampling events at grocery stores and appearing at sponsored events.
“It’s going to be a challenge, but it’s part of our long-term strategy,” Ms. Li says. “We just need to get the products to more people over there.”