Mar 08 2019
The Canadian economy primarily comprises small companies, with nearly 70.0% of all business counts considered nonemployers. Of the remaining business locations with employees, 98.0% have fewer than 100 people on their payroll, while 56.0% have a staff of fewer than five employees. Combined with nonemployers, 86.4% of all registered businesses have fewer than five people. Despite the preponderance of small-scale operations in the economic landscape, several industries are characterized by giant companies that control an outsize proportion of their markets. Utilities and heavy industrial work such as mining and oil and gas extraction have long been dominated by a few players, but other areas of the economy are similarly within a single company’s grasp, the majority of which are foreign-owned enterprises.
Amid an ongoing transition to e-commerce, numerous brick-and-mortar retailers are struggling to stay afloat. Many of these operators have resorted to aggressive consolidation tactics to maintain the economies of scale that propelled them to the top initially. The Office Supply Stores industry in Canada (IBISWorld report 45321CA) is no exception, with Staples Inc. (Staples)expected to capture 76.8% of industry revenue in 2019. For comparison, when combined with the other two largest operators, the top three players are anticipated to generate 78.2% of industry revenue collectively, and nearly 40.0% of all industry establishments are nonemploying sole proprietors. Staples’ 306 retail outlets account for less than one-quarter of all industry establishment counts, but its superstore format enables the company to generate drastically high sales per location compared with the industry average. Still, Staples closed 25 stores in Canada between 2013 and 2015, and is therefore not immune to trends in the broader retail sector, a fact that is constantly threatening the industry in aggregate, but also its largest operator.
The red carpet is rolled out for Cineplex Inc. (Cineplex), which is expected to hold a 74.2% market share in the Movie Theatres industry in Canada (51213CA) in 2019. Operating only one-quarter of all movie theatres domestically, the company holds an enormous market share due to the high value of each of its locations. Cineplex generates an estimated $9.4 million annually in each of its theatres, which is more than three times the industry average, solidifying its dominance on the big screen. Still, the largest players in the industry have focused on mergers and acquisitions to stay ahead, with Landmark Cinemas, which holds the second-largest market share, acquiring Empire Theatres Limited at the end of 2013 to expand its national presence. Other operators have emphasized independent films to stay ahead, exemplified by Cinemas Guzzo, a major player in Francophone Canada. While high initial costs are required to operate a movie theatre, profit margins exceeding 16.0% encourage economies of scale and supply chain integration, further boosting the market dominance of major players.
Although market share concentration is typically associated with retail and heavy industrial domains, some manufacturers are eyeing for dominance. France-based Essilor International SA (Essilor International) is a global leader in eyewear and has recently cemented its global position through a merger between Essilor SA (Essilor) and Luxottica Group SpA (Luxottica) in2018. Boasting brands such as Ray-ban and Varilux, the newly merged company is projected to control 69.2% of the Glasses and Contact Lens Manufacturing industry in Canada (33911bCA) in 2019. While maintaining only a small portion of total output domestically, Luxottica closed its Canadian operations in 2014 and Essilor held less than 50.0% of the market that year, demonstrating the company’s rapid expansion in recent years. The four largest operators are expected to hold a 74.1% market share collectively, maintaining their dominance through high barriers to entry, which limit industry participation, including research and development costs and intellectual property protections. Plus, competition is high with more than85.0% of domestic demand satisfied solely by imports in 2019, although domestic operators have sought foreign demand in response.
Big companies equal big savings. The Warehouse Clubs and Supercentres industry in Canada (45291CA) extends economies of scale to the individual consumer, necessitating extensive supply chains and logistical efficiency endemic to larger businesses. Accordingly, Costco Wholesale Canada Ltd. (Costco), a leader in North American warehouse clubs, is anticipated to generate 67.4% of industry revenue in 2019 with its 100 warehouses in Canada. Boasting membership renewal rates in excess of 90.0% per its annual filings, Costco has been a longstanding major player in the industry, followed by Walmart Inc., which holds an estimated 23.5% market share. High capital requirements bar newcomers from entering the industry with ripple effects across the retail sector, notably the Supermarkets and Grocery Stores industry in Canada (44511CA). Crucially, the industry’s major players have historically been foreign operators, with domestic expansion being a tentative endeavour. For example, Target Corporation infamously closed all its Canadian operations within two years of entering Canada, demonstrating the difficulty of establishing a supercentre presence even for companies with resources and supply chain efficiencies.
Decidedly capital intensive and competitive on a global plane, the Scheduled Air Transportation industry in Canada (48111CA) is characterized by a high level of market share concentration. Air Canada, which maintains a collective fleet of over 250 aircraft, is projected to capture 64.6% of industry revenue in 2019. Flying high on economies of scale, the industry's top four companies are estimated to control over 85.0% of industry revenue. However, recent pressured profit resulting from a suppression of fuel prices and price-sensitive consumers has contributed to high levels of competition, particularly for lucrative international flights. Heavy regulation has kept industry participation low, but cooling regulatory oversight may further the aforementioned competitive pressures, complicating the national dominance of major players as regional air travel continues to gain altitude.
Industries from concentrate
Healthy competition is the primary catalyst for Canadian economic growth, demonstrated by the prevalence of small operators domestically. As a G7 nation overwhelmingly reliant on a diverse economy of services, industrial activity and natural resources, Canada’s place on a global stage has been increasingly dictated by foreign economic interests, manifest in the dominance of Costco, Staples, Essilor International and Walmart. Economies of scale have long reigned supreme, but the small businesses that are a hallmark of Canadian economic activity have remained resilient despite these multinational players. Nonetheless, situating the binary of small-scale and multinational businesses that constitute the domestic landscape is important to understand the evolving calculus of an increasingly globalized economy.
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