Canada - Country Commercial Guide
Distribution & Sales Channels

Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.

Last published date: 2021-08-21

Overview

Most sales to Canadian companies are handled through relatively short marketing channels; in many cases, products move directly from manufacturer to end user. This is particularly true for industrial products. 90% or more of prospective customers for industrial products are in or near two or three major cities. Canada’s consumer goods market is more widely dispersed than its industrial market. From a regional perspective, the country may be divided geographically into distinct markets, plus the territories, defined as follows: Ontario, Québec, the West, Atlantic Canada, and Northern Canada.

Commercial Service offices in Canada can assist U.S. firms in locating qualified potential partners through customized matchmaking programs, such as an International Partner Search, Gold Key Service or Single Company Promotion. For additional information, visit the Commercial Service Canada webpage on Services for U.S. Companies.

Using an Agent to Sell U.S. Products and Services

Although large industrial equipment is usually purchased directly by end users, nearly all smaller equipment, goods and related services, and industrial supplies are imported by wholesalers, exclusive distributors, or manufacturers’ sales subsidiaries. U.S. firms have historically appointed manufacturers’ agents to call on potential customers to develop the market. Most sales agents expect to work on a two-tier commission basis. Agents receive a lower commission for contract shipments and a higher rate when purchases are made from the local agent’s own stocks.

Consumer goods are usually purchased directly by Canadian wholesalers, department stores, mail-order houses, chain stores, purchasing cooperatives, and single-line retailers. Many of these groups have their own purchasing agents in the United States to whom you can market directly. Manufacturers’ agents can also play a role in consumer goods sales.

Establishing an Office

U.S. companies can establish a representative office or branch offices, set up a sole proprietorship or partnership, or incorporate a wholly owned subsidiary or joint venture in Canada. Corporations can be public or private, and incorporated federally or under the laws of a province. For additional information, visit the Government of Canada’s Corporations Canada website.

Private or public corporations incorporated federally under the Canada Corporations Act may operate nationally or in several provinces. Provincial and territorial legislation requires you to register your corporation in each province and territory in which it will conduct business. For more information, visit the Government of Canada’s Corporations Canada Provincial and Territorial Registrar and the Justice Laws website.

While incorporating your federal corporation online, you can at the same time register your corporation in the provinces of Ontario, Nova Scotia, Saskatchewan, Newfoundland, and Labrador. Registration fees are minimal and vary by province. For more information, visit the Government of Canada’s Corporations Canada Provincial Registration of Federal Business Corporations information page.

Corporations incorporated in Québec must adopt a corporate name in French under Section 63 of Québec’s Charter of the French Language.

Extra-provincial corporations registered in Québec must supply a French version of their corporate name. Firms considering establishing operations in Québec should contact the Office Québécois de La Langue Française (Québec Office of the French Language) that helps companies comply with Québec’s language laws.

Franchising

Canada has the 2nd largest franchise industry in the world behind the United States and is home to over 1,200 franchise brands, totaling over 75,000 units. An increasingly growing sector, franchising is responsible for the opening of over 4,300 new outlets each year with, on average, $1 of every $5 spent on goods or services at a franchise. The Canadian Franchise Association reports that franchising contributes over 5% of Canada’s GDP and accounts for 1.5 million jobs with one in ten employed in a franchise business. The hospitality industry is the largest single sector, accounting for almost 40% of franchises. Challenges for U.S. businesses wanting to franchise operations remain tied to the varying regulatory environment across provinces.

Due to its proximity, Canada is the first destination for U.S. franchises looking to expand internationally and has a sizable U.S. franchise presence with over 500 of the largest U.S. franchisors who have introduced their franchise systems to Canada. In fact, 49 of the top 100 franchise brands (by unit) are US-owned concepts operating in the food & beverage, retail, hotel and real estate businesses. The success of American brands is due primarily to brand familiarity and market potential at low risks, particularly low geographic and cultural distance risks. The top 10 U.S. franchisors by unit include: Subway, McDonald’s, Circle K, Jan-Pro, A&W Food Services, Remax, Jani-King, Dairy Queen, and KFC.

Franchising is an attractive low-risk method of exporting because it requires minimal investment by the franchisor and is an effective way to increase brand recognition, while expanding both customer base and distribution channels. The sector covers almost 50 different sectors of the economy, including hospitality, automotive and health care. Ontario leads the rest of the country in franchising with 56% of franchises headquartered in Ontario (primarily in the Greater Toronto Area), and 65% of all franchise outlets operating in Ontario. In the restaurant sector, 35% of all sales are from franchise operations, while 45% of retail sales are from franchise operations.

Franchising in Canada, much like in any other country, requires long-term commitment. Franchisors must dedicate the necessary human and financial capital, patience, and time for their concept to succeed in the Canadian market. The preferred franchising model is through the incorporation of a Canadian subsidiary, which creates a local physical presence for the franchisor. Foreign franchisors may also enter the Canadian market by franchising directly from their country without the creation of a permanent establishment in Canada.

In terms of Québec, first entry into the market should be facilitated by entering into a master franchise agreement, an area developer agreement, or an area representative agreement with parties thoroughly familiar with the Québec market and economy.

One of the major obstacles facing U.S. franchisors is the varying franchise legislation that exists across Canada. Canada divides legislative power between the federal and provincial levels of government. At present, the Canadian federal government has no federal franchise laws, however there is federal legislation related to franchising that franchisors should monitor.

In terms of provincial legislation, six provinces, Alberta, British Columbia, Manitoba, Ontario, New Brunswick, and Prince Edward Island, have enacted franchise disclosure legislation. The province of Québec is a civil law jurisdiction, and while it has no franchise-specific legislation, the Civil Code of Québec and the Charter of the French Language both apply to franchising. Additionally, unlike the other provinces, Québec does not have a mandatory disclosure requirement, i.e., a franchisor does not have to provide a Franchise Disclosure Document at any time prior to the signing of the franchise agreement.

Direct Marketing

In general, direct marketing techniques that succeed in the United States are also effective in reaching Canadian audiences. Tapping into this market can be as easy as placing an advertisement in a magazine or on the internet.

To learn more, visit the websites of these industry organizations: The Canadian Marketing Association and DM Magazine. Both are widely considered to be leading sources of information about direct marketing in Canada.

Joint Ventures & Licensing

The Canadian legal system imposes few restrictions on joint ventures or licensing. Some joint ventures require approval from the Government of Canada under the Investment Canada Act. For most new ventures, foreign investors need only notify the Canadian government of their investment. Foreign licensors do not require registration or public disclosure.

Express Delivery

Canada has many of the same express delivery providers as the United States. U.S. Government statistics show that nearly 2 billion of goods and services cross the Canada-U.S. border each day. With this volume of trade, express delivery providers are an experienced and reliable means of cross-border shipping. Transit time for express services between most major U.S. and Canadian cities range from overnight to three days. Transit time may be longer if the goods being transported require additional processing at customs (import/export clearances). It is important to clearly define the goods being shipped. In addition to private delivery companies, Canada has a robust and reliable federal mailing system, Canada Post. Additional information can be found on the following websites:

  • Canada Post
  • Canada Border Services Agency (CBSA) Information on Service Providers and Importing Commercial Goods

On March 10, 2016, the United States Customs and Border Protection (CBP) raised the value of the de minimis exemption from US$200 to US$800 for goods shipped from Canada to U.S. buyers. This exemption applies to a shipment of merchandise imported by one person on one day that generally may be imported free of duties and taxes. The US$800 rate set by the United States CBP is among the highest allowable thresholds in the world. Under USMCA, the de minimis threshold was increased from C$20 to C$40, or about US$32, for goods shipped from the United States to Canadian buyers. Canada also agreed under USMCA to provide duty free shipments up to C$150, or about US$107.

Due Diligence

Canadian businesses have a strong reputation for business ethics. Nonetheless, before signing a major contract or entering a long-term partnership agreement in Canada, U.S. exporters should perform appropriate due diligence on their business partners and agents. The Commercial Service offers an International Company Profile (ICP) service that conducts routine background checks on Canadian companies. For information on the ICP, please contact Commercial Specialist Mehdi Azeriah at mehdi.azeriah@trade.gov.