While many Canadians may be celebrating lower prices at the pump, others are experiencing the downside of lower prices, including job losses and declining spending power. Canada’s Prairies, consisting of Alberta, Saskatchewan and Manitoba, have been especially hard hit by the drop in oil rates and subsequent job losses.
While the Prairies led consumer packaged goods (CPG) growth for the past five years, they’re no longer leading regional growth. In 2015, the Prairies’ growth fell behind the country’s average, with the region experiencing a 3.3% increase in annual sales performance versus 3.4% for Canada overall.
With the drastic increase in Alberta’s unemployment rate from 5% to 7.1% in two years, consumers’ perception of their spending power is shifting. In 2014, 12.4% of those living in Alberta considered themselves free spenders. However, that number has declined to 5.9% in 2016, a decrease of 105,000 households. In turn, those households living comfortably and shopping basics have increased as consumers shift down the spending spectrum.
Taking a deeper dive into Albertans, we found that 24% of residents are directly affected by the oil industry, and 35% say they are worse off than they were a year ago. With consumers’ spending power decreasing, value is becoming a bigger motivator for many in the Prairie province. And consumers are using a variety of ways to save money.
With such sweeping changes to the consumer landscape in Alberta, retailers and manufacturers may be struggling to reach consumers looking to spend less. However, they may need to explore options beyond promotions to entice consumers, as 42% of promotions do not make money and historically the Prairies are not as promotionally driven as the rest of Canada. In the Prairie Provinces, the percent of dollar sales on promotion has only increased by 1% point from 32% to 33% from 2010 to 2015, comparatively national dollar sales on promotion have increased 4% from 32% to 36% during the same period.
Focusing on promotional effectiveness to maximize sales and profit, moving beyond traditional formats to focus on emerging retail channels, and maximizing item assortment to reduce cannibalization are all alternative options for retailers and manufacturers looking to stabilize earnings through the oil industry slump.