Grey market products continue to make their way onto Canadian shelves
Grey market products continue to plague the Canadian convenience store supply chain and shelves, even as the industry continues its efforts to curb such products from coming into Canada.
Grey market products are defined as products that are genuine but cannot be sold in Canada because they do not comply with Canadian regulations involving the ingredients used in their manufacture and their amounts, as well they lack the correct packaging and labeling requirements for products to be sold in Canada.
It is a problem that has been going on for a while, according to many industry veterans and experts.
In 2018, the Ontario Court of Appeal upheld a lower court ruling which leveled a hefty cost award against an applicant and two Toronto companies for breaching an earlier settlement whereby they would cease to import and distribute Mars-trademarked products, such as Mars, Snickers and M&Ms, that they had brought in from the United States and then proceeded to sell here.
And in August of this year, the Canadian Food Inspection Agency (CFIA) issued a recall of certain Monster Energy products in Canada that were discovered to be grey market due to their caffeine contents not meeting Canadian regulations and their lack of bilingual labeling: The energy drinks were not meant to be sold in Canada.
Monster Energy issued a statement saying that Monster Energy has an exclusive sales and distribution relationship with Coca-Cola Canada Bottling Limited and that as a producer of the popular Monster energy drinks “it takes compliance very seriously and specifically formulates and labels all products for sale and distribution in Canada to comply with Canadian requirements, including regulatory limitations on caffeine (which other countries may not share) and bilingual labeling requirements. In addition, all Monster energy drinks for the Canadian market have been authorized for sale by Health Canada . . . Monster suspects that this product was formulated and labeled to meet the regulatory requirements of another country and was not intended for Canada, but nonetheless ended up in the possession of a third-party, unknown to Monster, that is named in the recall notice. It is likely that the products were trans-shipped from a country outside of Canada.”
How big of a problem is the grey market
One of the challenges in tackling grey market goods is trying to get a handle on both how big it is and on the ways such products get into Canada.
Chuck Arcand, corporate director of Canadian marketing with Core-Mark in Canada, one of the largest distributors to the convenience retail industry in North America, says, “we have done some ‘guesstimates’ and we are estimating in certain pockets—Vancouver, Toronto and the greater metropolitan areas—the grey market items are in independent stores.”
And what does come into Canada is not coming in through established distributors. “As a publicly traded company, Core-Mark follows all the rules, and we do our best not to bring grey market products into the marketplace,” he says. “There are several distributors that we know of that currently sell these types of products and during in-store tours we conduct, we can see an increasing number of SKUs and much more shelf allocation to this type of product.”
Economics and customer desire
Dave Bryans, CEO of the Ontario Convenience Stores Association (OCSA), says that there are quite a number of these smaller distributors who are bringing product into Canada, and the reason is that many desire some of the products they see when travelling in the United States or overseas. That creates an incentive for some c-store operators to turn a blind eye to such products getting onto their shelves, if in the end, it’s giving customers what they say they want.
Jeff Brownlee, vice-president, communications and stakeholder relations with the Convenience Industry Council of Canada (CICC) adds that other economic factors are also in play. He points to studies on consumer economic sentiment amongst Canadians showing a good number are worried about the cost of food and rising inflation, as well as overall economic uncertainty amongst consumers. So, a grey market product like a chocolate bar or snack—especially one with a unique flavour and one not normally available in Canada—can be tempting if it is being sold at the same price or less to those same or similar product that are meant to be sold in Canada.
“These types of products are coming in because they are unique,” Arcand adds. “They have not been offered to the market before, for example, novelty candies and chocolates, and energy drinks. You always want innovation that will drive your market.”
The downside to grey market
One sentiment that is often heard from consumers—and likely from a few retailers—is what is the harm in these products, especially if it is for products that consumers desire?
For one, having grey market products on shelves can bring reputational harm to one’s c-store operation. Brownlee says that c-stores are not just businesses, but are also members of the larger community they operate in. As such, c-stores have a corporate responsibility to provide goods to the community that are meant to be sold to Canadians.
And while products from other countries are not necessarily unsafe, Canada has specific rules and regulations that products such as chocolates, candies and drinks must follow to be sold here.
“Sometimes, retailers do not understand these products can hurt their sales,” Arcand says. “While the product might be less or it may be a new product for the market, they may unknowingly do harm to their customers. For example, if an energy drink has a milligram of caffeine too high compared to what is allowed in Canada. Maybe there are peanuts in a product and there are other ingredients in Canada that we call out in our ingredient declarations for allergy purposes—not just peanuts, but sesame, as just one example, which are not called out in the U.S.”
In Canada as well, there are strict manufacturing rules and regulations to prevent peanut contamination, and packaging must state clearly that the product was manufactured in a peanut-free and nut-free environment. That is not the case for grey market products, so a chocolate imported from the U.S., for example, that is like one sold in Canada may not necessarily have been made in the same way and may not have to declare on the packaging that it may have encountered nuts. That is a potential danger for someone who has a nut allergy.
“In order for vendors and manufacturers to offer a product legally in Canada, it has to be compliant, meaning it has to have the correct nutritional decks and follow correct Health Canada guidelines,” Arcand says. He continues adding that Core-Mark has very stringent processes in place when bringing on new vendors, such as explaining to them the regulations for Canadian-compliant packaging and assisting them in understanding all the regulations. “When a vendor works with Core-Mark, they know they are working with a company that has all its i’s dotted and t’s crossed when it comes to compliance in Canada.”
When the recall was issued for the grey market Monster Energy drinks, the Canadian Beverage Association sent out a statement outlining the regulation governing how much caffeine can be in an energy drink: “CBA members abide by an unwavering commitment to adhere to the regulations for CEDs by Health Canada and CFIA. All products manufactured and distributed by CBA members, including those that contain caffeine, are labelled in full compliance with Health Canada requirements, are formulated for the Canadian market, and are not impacted by this recall. Health Canada has capped the caffeine in energy drinks at 400 mg per litre and 180 mg per single-serving container. This means the typical energy drink (250 – 500 ml) contains 80 to 180 mg of caffeine. This is about half the caffeine in a similar-sized cup of coffeehouse coffee. All energy drinks sold in Canada must fall within these parameters.”
And there are financial risks for c-store operators. For instance, if a c-store retailer sells a product that is not approved for sale in Canada, the retailer will not be able to receive credit for the product from the Canadian manufacturer should that product be stale dated or damaged.
Another risk is that if a grey market product is pulled or recalled upon discovery, the retailer is likely not going to get their money back from the person from whom they purchased it from.
While many in the convenience industry in Canada express frustration with grey market products and all work diligently with their partners to keep them out of their supply and distribution chains—with many helping manufacturers to understand Canada’s regulatory and labeling requirements for bringing their products to Canada—they all said more could be done by government. All wished to see the Canadian Food Inspection Agency be given the resources needed to identify such products and keep them out.
As CICC’s Brownlee says, there is no ‘silver bullet’ that will stop the problem overnight. “We work with our membership to educate everybody. We are working with governments and decision makers, but there has to be more checks in the system right at the point of entry. That is why we have called for more resources—both financial and labour—for border checks. And we have called upon the federal government to do a study to see how prevalent it is.”
