Tough Being a Canadian Retailer
By Lisa Readie Mayer
“In 2008, we hadn’t yet caught your cold,” says Canadian retailer Steve Gilboe, comparing the health of his business to the then-ailing U.S. economy. The owner of Patio Palace, with locations in London and Windsor, Ontario, says his business was fairly consistent during the “Great Recession” in the U.S. “But now, as you’re coming out of it, we’ve hit the skids,” he says. “Our dollar has really tanked.”
With 65 grills on display, 1,000 models in inventory, and an experienced and service-oriented staff at each of his two stores, Gilboe says his business has been a “go-to” place for grills in the area for 30 years. Now, however, “Things are a little bit tough.”
Many of his fellow Canadians agree. Economists report the country is officially in a recession after two consecutive quarters of economic decline. Plummeting oil prices, a poor Canadian dollar, manufacturing declines, and a precarious job market in certain regions have contributed to the current economic turmoil, worse in some provinces than others.
The Impact of the Economy
So how have these economic conditions impacted the retail barbecue industry in Canada, estimated at $250 million (according to Weber, citing figures from KeyStat Marketing)?
“The grill category has been flat to declining the last several years in Canada, likely due to economic instability,” says Patricia Larez, vice president Marketing, Weber Canada. One year ago, the company opened its first Canadian office, in Vaughn, Ontario, as a way to strengthen relationships among retailers and consumers and build new business across the country.
Depending on your point of view, the timing has either been awful, or as Weber’s Dale Wytiaz, president of the Americas, sees it, a golden opportunity.
“We couldn’t think of a better country to expand our presence than Canada,” he says. “The establishment of a Canadian headquarters reflects Weber’s long-term investment in Canada.”
Jeff Kozak, national director of Grill Sales, Canada, for Napoleon Grills, says grill sales have been “a little sluggish” in Canada this year. However, he has noticed an interesting phenomenon emerging: While unit sales are down, dollar sales are up. Steven Schroeter, senior vice president Sales and Marketing at Napoleon, pegs that growth at more than 20 percent this year. “Even in a down economy, grill sales remain strong,” he says. “Consumers treat grills as a necessity, like a microwave or stove, where hearth products are more of a luxury.”
Kerry Emberson, co-owner of the 40-year-old Barbecue & Fireplace Centre in St. Catharines, Ontario, has experienced a similar situation.
|Kerry Emberson, co-owner of Barbecue & Fireplace Centre in St. Catharines, Ontario.|
“We had a good year, but since late summer we’ve seen noticeably fewer customers, but they are spending considerably more,” he says. “Unit sales are pretty much flat, but dollar sales are up. Usually the $400 to $700 price point is our sweet spot, but now people are bypassing the mid-level grills and wanting high-end, premium units. They’re spending $1,000 to $1,500 or even $2,000. We’re not doing anything differently or advertising differently. It’s very peculiar.”
Are dollar sales up for some retailers due to the variance between the Canadian and U.S. dollars causing higher prices on grills sold in Canada? “It’s unlikely,” says Kozak. “The dollar variance is about 30 percent; we’re generally seeing a 10- to 15-percent retail price variance on the same unit sold in Canada versus the U.S. It may come into play in 2016, but for now, manufacturers are doing their best to absorb the difference.”
According to Kozak, it helps that the cost of commodities such as copper, oil, plastics and other petroleum-based products used in manufacturing grills has declined recently. “But these are single-digit decreases,” he says, “and not enough to totally close the gap on their own.”
Gilboe says, “Our grill suppliers have already hinted that we should not be surprised to see price increases next year.”
High-end grills may be more insulated from the wavering economy. Kyle Quinn, Sales manager for Coleman & Associates, a distributor for Twin Eagles in eastern Canada, says sales in the premium grill category ($1,000-$2,500 retail price points) have been “extremely strong” with positive growth over 2014. “Consumer confidence is not wavering whatsoever in (our market),” he says. “Our specialty retailers report very productive selling seasons.”
Don Hiebert, of Concorde Distributing, a distributor of Jackson Grills, Twin Eagles, Vermont Castings, and Black Olive Grills in western Canada, says, “Overall, sales are strong, although spring was better than the summer months.” He also notes that, while sales in Alberta have been negatively impacted by the drop in oil prices, other areas in his territory have not experienced those declines.
Another Bright Spot: Solid Fuel
Although Canada remains overwhelmingly partial to gas grills – the latest Weber Canadian GrillWatch Survey shows Canadian grill ownership at 91 percent gas and 21 percent charcoal – that could be changing. “Despite the dismal growth in (overall grill sales) as of late, charcoal has been growing at a very significant rate,” according to Larez. “Canada is underdeveloped (in the use of charcoal) in comparison to our American neighbors, but the charcoal trend is definitely catching on.”
|Bernie Huizing, owner of The Stove Pipe Company.|
Retailer Bernie Huizing, owner of The Stove Pipe Company in Lethbridge, Alberta, says his barbecue sales have been down this year across the board, with one exception: charcoal grills. “Whether this is a fluke, or a result of the food network, or word of mouth from one customer to another, I’m not sure,” he says. “But other years our charcoal sales were almost non-existent, so this has been a bright spot.”
Quinn has noticed a similar trend. “Gas grilling still dominates in Canada, but charcoal grilling and smoking appliances are growing rapidly,” he says. “Premium and specialty grill manufacturers are capitalizing on this (by introducing) designated grill heads and accessory trays. Even with tough competition in the kamado market, retailers are devoting more and more space to this profitable segment.”
Gilboe is one of those retailers. “I have had great success with ceramic smokers,” he says. He carries Big Green Egg and Kamado Joe grills, and about 10 brands of natural lump charcoal, dedicating a large section of the sales floor to their display.
“This category keeps customers coming back for more charcoal and gives us the chance to talk to them about other things. It’s a huge movement and the momentum seems unstoppable. It’s been fun for us because we can get animated about it.”
Emberson shares the enthusiasm for the charcoal-fueled grills, smokers and kamados he carries, including Broil King Keg, Kamado Joe, Weber Smokey Mountain Cookers, and other brands. “We are especially thrilled with the success of our kamados,” he says. “We’re seeing much more interest in charcoal.
“Ten years ago, I couldn’t give it away,” he says of charcoal fuel. “Now I carry five different kinds and sell 10 skids, and every year it’s a little more. We’re still far behind the U.S. in charcoal grilling and smoking, but thanks to TV, our customers are more aware and want to try it.”
His one disappointment in solid-fuel appliances is pizza ovens. “I’ve given the category my all for five years and I display eight models on the floor, but it just hasn’t taken off. I think the product is too expensive. I can sell someone a kamado for less and it’s much more versatile. The category was a big investment with high risk, and a very big disappointment.”
|Don Hiebert, of Concorde Distributing.|
While charcoal is an undeniable trend, Hiebert says interest in charcoal is weak among his dealers in western Canada. “Gas is still number one here,” he says, noting that infrared, particularly in sideburner applications, is catching on.
Quinn agrees. “If a manufacturer doesn’t offer an infrared burner as standard or as an option in their gas grills, they have fallen behind their competitors,” he says. “More consumers demand an infrared burner and they’re not buying a grill without one.”
The verdict may be overwhelmingly positive regarding charcoal, but the decision is split regarding the Outdoor Room trend in Canada.
“We have seen significant growth in the Outdoor Room,” says Kozak. He credits the introduction of outdoor kitchen components at ‘mass-premium’ price points for helping to make the Outdoor Room attainable for more people and growing the concept.
“I don’t see any correlation between a perceived ‘struggling’ economy and its effect on the growth of the Outdoor Room category,” says Quinn. “Canadians love the outdoors and want to maximize what is a six-month season in many geographic regions. Outdoor kitchens and fire features are growing in popularity each year.
“I think there is a distinct difference in the mentality of a consumer interested in a grill or smoker on a freestanding cart, and one interested in an outdoor kitchen for their home or cottage. The latter will find a way to build their Outdoor Room based on their available space and budget.”
Hiebert also sees the outdoor kitchen market growing in his region. “Home construction with outdoor kitchens has been stronger this season,” he says.
For Huizing, the category is sparking inquiries, but so far, not much business. “Interest in outdoor entertainment areas and gas fireplaces is very slowly creeping up this way,” he says. “The weather in summer 2014 was very wet, so people didn’t want to be outside and I think that memory prevented them from wanting to invest in outdoor spaces in 2015. Hopefully, the good weather this year will be good for business next year.”
Like Huizing, Gilboe wonders if the shorter Canadian outdoor living season prevents his Outdoor Room business from taking off. “It’s been disappointing,” he says. “We’re not hitting any critical mass with outdoor kitchens. At this point, it’s a matter of how much space do I want to devote to something that’s not bringing in a decent return on investment?”
With Huizing’s store only an hour’s drive to the U.S., he has noted an increase in customers crossing the border to buy grills cheaper in America. Although he didn’t raise prices in 2015, it was not enough to prevent cross-border sales.
Kozak doesn’t see this becoming a major issue; he notes that goods purchased in the U.S. and brought back to Canada are subject to taxes and, depending on where they are made, possibly duty, as well. “In addition, every dollar charged on a credit card in the U.S., appears as $1.31 (at the time of this interview) on the bill,” he explains, “so these realities help keep cross-border shopping to a minimum.”
|Weber Grill Academy.|
|Patricia Larez, vice president of Marketing, Weber Canada.|
Some retailers say that is not the case in their experience. “If a grill sells for $899 retail in the U.S. and I have to sell it for $1,250 here, our customers can justify it on the basis that they’re buying from a trusted local retailer who offers assembly, delivery and service, and even recycles the old grill,” says Gilboe. “But when I have to sell it at $1,800 – and that’s sometimes the case – they say, ‘I’ll just drive to Michigan for it.’ It’s a big problem.
“It’s not easy to be a retailer in Canada,” he continues. “There are different challenges than in the U.S. due to all the taxes and surcharges. It really cuts into margins. I think we are entitled to more than 18 percent margins, but with many products, that’s all the market will bear. We try to really be very careful about what we carry and try to focus on the lines that make our customers happy but allow us to make a bit more money.”
Barbecuing and grilling fever is high in Canada, interest in the Outdoor Room is growing, and both are expected to increase. Experts credit the numerous grilling and barbecuing shows for igniting a passion for outdoor cooking among Canadian consumers. In addition, homegrown barbecue celebrities, such as Ted Reader and pitmaster Danielle Dimovski, are raising Canada’s street cred in the competition circuit and on TV.
Weber’s newly launched Weber Grill Academy, the first cooking school in Canada devoted to gas and charcoal grilling and smoking, has been met with enthusiasm and sold-out classes. And retailers nationwide are following the U.S. lead and focusing on products and techniques that excite customers, and help differentiate them from Big Box stores.
Kozak believes the economic outlook is positive for the Canadian grill market. “We think the economy will hold up and the greatest impact will be confined to the oil-producing regions,” he says. “Unemployment rates are fairly steady, inflation is at an all-time low, home values are still appreciating, and home starts are creeping back up.
“Plus, this past July was the hottest month on record, so that makes people want to get outdoors,” he adds. “We think the future looks bright.”