Carman Allison, Director, Shopper & Industry Insights, Nielsen Canada

The recession was a wake up call to a new conscientious consumer, where spare cash is low and prices are high. Three key trends are defining the new Canadian consumer marketplace:

1. Tepid Consumer Confidence
2. Rising Prices
3. The Quest for Value

Back in the Game or Still on the Sidelines?

The latest results from the first quarter Nielsen Global Online Survey show that global consumer confidence is starting to improve, albeit slowly, with a two-point index rise from fourth quarter to a score of 92. Canadian consumers followed this trend, increasing three points and bouncing back to a score of 102 – the level reported in the first half of last year. Fueling the increase in confidence are two factors: Canadians are feeling more optimistic about job prospects/personal finances and the strength of the Canadian dollar, which has sheltered consumers from the impact of rising global food prices.

However, the threat of increasing inflation and interest rates has prompted just over half (51%) of Canadian consumers to believe they are still in a recession. According to the Nielsen survey, one in four (26%) Canadian consumers have no discretionary income and rising food and gas prices is a major concern – both of which have increased substantially since last year.

Gas prices have increased 30 percent in the past year to reach a new high of $1.41 per litre ($5.33 per U.S. gallon). The increase in gas is costing the average household an additional $71 per month. In fact, when gas prices exceed $1.75 per litre, the monthly gas bill could exceed the grocery bill. Additionally, the rising cost of commodities is fuelling price increases within the top 100 categories. The most affected categories include coffee (+19%), bacon (+17%) and sugar (+11%).

As household budgets continue to get the squeeze, consumers are looking for ways to save. Top saving activities include:

• 70% only buy when on sale
• 52% use coupons
• 37% buy larger value packs
• • 34% shop at value retailers
• • 33% stock up when on promotion
• • 27% shop close to home
• • 18% buy smaller sizes (lower unit cost)

The Quest for Value

Discount retailers are gaining share in all regions of Canada, capturing over one-third (37%) of grocery and drug category sales – an increase of four percent over the previous year. And while loyalty to the discount channel is increasing among all income groups, higher income households spend the most. The greatest annual dollar outlay at discount stores comes from households that earn between $70-100K, spending $2,520 per year. Biggest share of wallet spenders comes from households earning $20-30K per year, where 34 percent of their annual budget goes to discount retailers.

Same Game, New Rules

While Canadians remain largely optimistic, rising food and gas prices continue to put pressure on consumers. In order to adapt to the value consumers, retailers and manufacturers need to:

• Manage a blend of long- and short-term perspectives – while consumers are ready to increase spending on non-essentials, value will be a key motivator for consumers and food will be a key motivator across channels.
• Maintain sustainable pricing strategies for growth – As consumers continue to be affected by inflationary pressures, promotions need to continue, but with higher promoted prices.
• Be creative with options when taking price increases – Consider new size formats to meet the consumers need for value and spend control.