Global Retail   //   March 2, 2023

‘Shiny object syndrome’: Why Canadian CPG startups are inching toward U.S. grocery stores

Canadian startups in the consumer-packaged goods industry are hauling their products across the border and onto the shelves of U.S. grocery stores.

“There’s a shiny object syndrome,” said John Bonnell, co-founder and CEO of a plant-based food company headquartered in Toronto called Wholly Veggie. “In Canada, we have really four core retailers. The U.S. is massive.”

Wholly Veggie is one of several Canadian CPG startups that have been aggressively expanding their presence in grocery stores throughout the country. The company started being available in 200 Target locations in 2019 and raised investor capital to support its U.S. venture. Now, the company is available in 5,000 grocery stores across the U.S., including Walmart, Whole Foods, Wegmans and Sprouts Farmers Market.  

Apart from the scale and spending power of American shoppers, entering the U.S. is attractive for Canadian CPG brands because transporting goods is much less complicated there than in other markets. The sheer size of the U.S. also allows brands to find an audience for their niche products. Much like Wholly Veggie, Canadian startups like tinned fish brand Scout and experimental vinegar brand Acid League have also been establishing partnerships with grocers in the U.S.

National U.S. grocers also bring in significantly more sales than Canadian retailers. Loblaw Cos Ltd, one of the biggest Canadian retailers, reported fourth quarter revenue of 14.01 billion Canadian Dollars ($10.30 billion). In comparison, Target brought in $31.4 billion in the fourth quarter, while Walmart brought in $164 billion.

“It’s just more brand equity [and] brand recognition,” said Mary Lou Gardner, associate partner for CPG, retail and logistics at Infosys Consulting. “Things can explode very quickly in the U.S. and then it just opens the doors to potentially more global distribution.”

Canadian startups take on the U.S. market

Indeed, by having a U.S. presence, startups can benefit from shopping trends among American shoppers. 

Wholly Veggie benefitted from the rise of the frozen category during the pandemic. The company said its business had doubled from 2019 to 2020 when the pandemic pushed people to stock up their pantries with frozen goods. Wholly Veggie’s Bonnel said in the last 12 months the company grew by 20%.

Thanks to its entry in the U.S., 60% of Wholly Veggie’s sales now come from the U.S., while 40% of its sales come from Canada. “We’re now focused on what are the other ways that we can get our product into the hands of people, not necessarily in the store,” Bonnel said. “We’ve looked at comedy clubs, we’ve looked at different health and wellness-focused areas that are in the same geography as our stores.”

The tinned fish trend that exploded on TikTok in recent years has boosted the sales of Toronto-based canned seafood company Scout. The company’s retail sales grew 200% for the fourth quarter compared to the third quarter of the previous year. Thanks to its performance, its initial regional partnership with Whole Foods turned into a national one.

“Now that we have that two years of success we’ve grown, we are going to continue our foray into conventional grocery, into club, into foodservice channels,” Adam Bent, CEO and co-founder of Scout, previously told Modern Retail. Apart from Whole Foods, Scout will launch products at grocery stores like H-E-B and Meijer this year. Scout expects its products to be available at around 4,000 doors this year.   

Acid League, a Canadian startup specializing in acid-based products like vinegar, sauces and condiments, has made its products available at several retailers, including Whole Foods, Publix and Wegmans. In an Instagram post last week, Acid League announced that it will be in 160 The Fresh Market stores across six states, including Florida, Tennessee and Georgia. Meanwhile, Montreal-based functional chocolate brand Mid-Day Squares, is currently available at Target and The Fresh Market, among other retailers. To gain hype around its Target launch, Mid-Day Squares launched a contest in October where people can win prizes by posting about the company.

Infosys Consulting’s Gardner said that, compared to other markets, the U.S. is much more densely populated. She said this presents an opportunity for brands to broaden their reach. 

“You don’t have that same density across all of Canada,” she said. “It allows you to reach more target groups faster, and then figure out who really is going to be [the] demographic that your brand is going to resonate with.”

U.S. grocers are also becoming more interested in adding CPG startups to their shelves. While startups can benefit from the exposure grocers provide, these large retailers are adding startups to their assortment to attract new customers.

Despite the size of the U.S., Gardner warns that these startups are still competing in a crowded space. She added that these startups can start out by distributing products in the Northern parts of the U.S. before scaling to avoid straining their supply chain capabilities. For example, Scout started selling in northeastern Whole Foods stores before expanding nationwide.

In Wholly Veggie’s case, it now plans to turn its focus on certain regions like the midwest and the northeast — partly because it is much harder to stand out in congested markets like California without spending “big dollars,” Bonnel said. The company is also using alternative channels like QVC to boost its brand recognition. On “a really good airing,” Bonnel said it can make $40,000 to $60,000 in extra sales on the channel. 

“There’s a lot of great Canadian companies that expanded down to the U.S. and it is because they see the opportunity,” he said. “It all comes down to [whether] the brand has the tools and the dollars to support it.”