A lot has changed in the five years since German food giant, Dr. Oetker, chose London, Ont. as the home of its first frozen pizza plant in North America.
The plant opened in January this year just after some other big multinational food processors – Heinz and Kellogg – said they were pulling out of southern Ontario.
The big multinationals’ departure raised concerns about the global competitiveness of Ontario’s food manufacturing sector.
But Oetker stuck to its guns.
“Why London? It’s the obvious question. I asked myself the same question when I heard about those closures,” August Oetker, head of one of Europe’s largest family-owned companies, said in a telephone interview Tuesday.
Oetker said the firm looked on both sides of the border. But a rising Canadian dollar, increased sales and generous government incentives – about 20 per cent of the $100 million invested in the new plant came from the federal and Ontario governments – all made London attractive, he said.
It was also home. The German food processor had been in Canada for 50 years, starting with its baking and pudding products. London is close to local suppliers and markets, he added. And being a private family owned business means it can be more patient than publicly traded firms with outside investors.
Oetker, who was in London for the official opening of the plant, is the fourth generation in his family to run the food manufacturer. His great grandfather, a pharmacist by the same name, started out making baking powder.
Frozen pizza is now the company’s biggest seller. Its Dr. Oetker Ristorante brand is the market leader in Germany.
“Once you have eaten one of our pizzas, you’ll know why,” Oetker said. “It’s a crisp base and lots of stuff on top. Not necessarily comparable to the American-made product, which has a lot of dough.”
Oetker began importing pizzas into Canada from Germany about eight years ago and now has 25 per cent of the market. The company’s annual sales in Canada last year were $160 million, with pizza contributing about 80 per cent of the revenue.
The plant opening is the first piece of good news for London’s manufacturing sector in some time, food industry insiders said..
Last November, Kellogg Canada Ltd. announced it was closing its London, Ont. cereal plant with a loss of 550 jobs. H. J. Heinz Co. said it would close its Leamington ketchup plant at a cost of 740 jobs.
“We’ve lost our manufacturing base gigantically,” said Bob Martin, president of local 154G of the Bakery, Confectionery, Tobacco Workers and Grain Millers. The union represents Kellogg workers.
The opening of a new plant like Oetker’s is “absolutely a step in the right direction,” Martin said. “Whenever you open a brand new facility, you figure they’re here for the long haul, or you hope they are, anyways.”
The plant opened with one production line, but can accommodate a second and also double in size if market conditions warrant, Oetker said. So far, 75 employees have been hired. But it could expand up to 1,000 in three to four years’ time, Oetker said.
A lot will depend on the U.S. market, where competition has intensified since Nestle bought Kraft’s frozen pizza business, he said.
Oetker isn’t the only company that’s chosen to set up shop in Ontario.
Canada’s food processors weathered the recession far better than other kinds of manufacturers, said David Sparling, an agri-food policy expert and professor at the University of Western Ontario.
Although 143 plants closed their doors between 2006 and 2014, another 130 opened or expanded, according to The Changing Face of Food Manufacturing in Canada, a report co-authored by Sparling and Sydney LeGrow of The Lawrence National Centre for Policy and Management.
Closings peaked in 2007, with the rise of the Canada dollar. But by 2010, openings and expansions had overtaken closings.
Ontario, the largest food manufacturing region in Canada, bore the brunt of the restructuring. But in the end, the net impact on jobs was slightly positive.
“We’re seeing a number of European companies open their North American operations in Canada,” Sparling said. “They’re much more comfortable locating in Ontario or Quebec than they are in the southern U.S. Culturally, it’s a better fit.”
Ontario has among the lowest tax rates in North America, a manufacturing capable workforce, plenty of land and good transportation networks, Sparling added.
“A lot of times we get focused on the bad news,” said Steve Peters, executive director of the Alliance of Ontario Food Processors. “There’s tremendous opportunity in this sector.”
Food manufacturing faces many of the same challenges as other sectors, including a higher Canadian dollar, rising energy costs and increased competition among retailers that make it difficult to pass along cost increases, Sparling said.
Now that the global economy is recovering and the Canadian dollar has declined, food manufacturing has an opportunity to become a “powerhouse industry” for Canada, Sparling said.