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Canada Consumer Trends, Q2 2017

July 6th, 2017

 

High levels of health & wellness consciousness shape consumer, regulatory trends

Attitudes about health and well-being are currently central to Canadian consumption patterns. The idea of “healthy” food has shifted in recent years away from simply meaning low in calories, fat or sugar, to also focus on nutrition, production process, and ingredients. According to senior food & nutrition analyst Beatriz de Llano, the clean label movement had a noticeable impact on snack bars, spreads and cheese, baked goods and breakfast cereals in 2016.  This prompted operators to follow different strategies to adapt to consumer’s demands such as revamping their formulation with vegetable juices and extracts.  In some cases, certain colourings had to be removed as no appropriate natural colorant or flavours could be found.  Partly due to a growing group of older consumers, Canadians increasingly seek not just to treat but to prevent health issues, with implications for sales of consumer health products. Vitamins and dietary supplements see strong growth, says beauty & fashion associate Evelyn Rodriguez, with increased personalization to fit the specific health needs and preferences. While still in early stages, the Canadian government is weighing greater oversight of dietary supplements as consumers increasingly turn to these products.

Another category that faces greater government scrutiny is soft drinks. Several provinces are considering new taxes on sugary beverages including carbonates, with the Northwest Territories seemingly the most likely to add taxes in the intermediate future. The possible taxes are in line with a global trend towards taxes on sugary drinks, with similar taxes implemented in Mexico and South Africa in recent years. Euromonitor International drinks expert Mark Strobel expects such a tax to have a greater impact in Canada, given higher levels of health and wellness consciousness in Canada, and the fact that Canadian consumers are already trending away from carbonates.

Sears Canada bankruptcy representative of broader shifts in Canadian retail

Sears Canada filed for bankruptcy protection in the second quarter of 2017, highlighting the struggles faced by established, store-based retailers in North America. Sears Canada has faced financial challenges in recent years, compounded by slow e-commerce efforts and products that have not resonated with consumers. Further, the polarization of retail characterized by heavy investment from economy and luxury banners have taken share from Sears on both sides of the price spectrum.

Canadian store-based retailers do not yet see the same pressure from e-commerce players that retailers in the US do, but best in class brands should be paying attention to the lessons from Sears Canada’s struggles and efforts to revive the business. Strategies taken by Sears Canada to evolve the company include developing a clear product positioning, developing a corresponding pricing strategy (in this case, an off-price component), and making e-commerce central to the business (at eTail Canada, Sears Canada CEO described the reinvented brand as “digitally native”).

NAFTA renegotiation, housing market two potential risks to an otherwise stable outlook

The outlook for Canadian consumer spending in 2017 remains stable. The Bank of Canada’s April 2017 Monetary Policy Report estimates GDP growth for 2017 of 2.6%, significantly higher than the 1.4% growth recorded in 2016. Exchange rates and inflation are also projected to remain stable in the near-term. Two factors present a potential risk to this outlook: the renegotiation of NAFTA, and Canada’s real estate market. NAFTA negotiations can begin as soon as 16 August and it is unclear how long it will take for Canada, Mexico, and the US to reach a new agreement, but changes to the existing agreement have the potential to cause changes in the Canadian economy. Reflecting this potential, Gandalf Group’s June 2017 Canadian C-Suite Survey found “implications of politics on trade and trade agreements” to be the top concern of Canadian business executives, with nearly 90% of respondents either somewhat or very worried about that factor.

A second potential risk to the stable outlook of the Canadian economy is rising consumer debt, particularly in the form of mortgages. Vancouver, Toronto, and Ottawa have all enacted or are evaluating changes to real estate policies to attempt to slow growth of housing prices and limited real estate speculation. Statistics Canada reports that consumer debt at the end of 2016 was equal to 167% of consumer income, which would have negative impacts for overall consumer spending in the event of a housing market correction.

 

Beatriz de Llano, Evelyn Rodriguez, Mark Strobel, and Fatima Linares also contributed to this article.

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Amanda Bourlier

Amanda Bourlier is a services and payments analyst at Euromonitor International, conducting competitive intelligence studies and analyzing sectors including retailing, tourism, and consumer finance in North America.  A graduate of the University of Michigan, her professional interests include international strategy and the effect of politics on business environments and consumers.

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