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UNDERSTANDING EMERGING SHOPPER
AND RETAIL TRENDS IN CANADA
AMAR SINGH SENIOR ANALYST
MBR Canada October 23 2018
2
Understanding Canada’s Online Retail
The Rules of Effective Grocery
Big Beats in the Retail Landscape
Big Beats in the Retail Landscape Changing Macro Trends and Demographics
3
The Canadian retail landscape is changing
4
TRIP
CATEGORY
RETAILER
BRAND
FORMAT
SHOPPER
Online shopping provides convenience and competitive prices
5
TRIP
CATEGORY
RETAILER
BRAND
FORMAT
SHOPPER
Whereas brick-and-mortal stores are evolving to provide a sensory experience
6
TRIP
CATEGORY
RETAILER
BRAND
FORMAT
SHOPPER
Changing shopper demographics and new economic realities are influencing where and how
Canadians shop
7
TRIP
CATEGORY
RETAILER
BRAND
FORMAT
SHOPPER
Improved/leading average**
Slower/leading average**
Slower/lagging average
British
Columbia
Yukon Northwest
Territories Nunavut
Alberta Manitoba
Ontario
Quebec
New
Brunswick
Prince
Edward
Island
Nova
Scotia
Newfoundland
and Labrador +6.8%
+4.7%
-1.4%
+2.6%
-0.4%
+3.7% -1.1%
+4.7%
+3.4%
+0.8%
+4.5%
+4.5%
-1.4%
Canadian retail sales show moderate growth early in 2018
8 Source: Statistics Canada, Kantar Consulting research and analysis
2018 year-to-date seasonally adjusted brick-and-mortar sales, including gas and auto*
* Year-to-date refers to year-over-year growth through May 2018.
** Average national growth 3.2%. Improved or slower is relative to 2017 annual growth.
Canada
+3.2%
46.0
48.0
50.0
52.0
54.0
56.0
58.0
60.0
62.0
64.0
2014 2015 2016 2017 2018
Source: Bloomberg Nanos
Consumer confidence has been gradually declining since the end of last year amid NAFTA
and trade wars uncertainty
9
Canada consumer confidence
* 2018 YTD through May 2018, while 2017 is for all twelve months. Data is the seasonally-adjusted average each month so data is still comparable.
June 2018:
53.3
Source: Statistics Canada
But Canadians consumers are also hamstrung by interest and debt
10
Growth in household income and credit payments (principal and interest)
Housing affordability has worsened in Victoria and
Vancouver due to soaring house prices in these markets. Policy
interventions at the federal and provincial levels have marginally
dampened the house prices in Toronto, but the cost of home
ownership is still very high. Affordability remains mostly stable in
the rest of Canada.
Interest rate hikes are reducing housing affordability: The
Bank of Canada has gradually increased the short-term interest
rate, resulting in higher mortgage rates for homebuyers. A sharp
decrease in housing prices, should homebuyers fall back, could
threaten existing homeowners who purchased or refinanced at
higher home values.
Long Term: Tough mortgage rules and rising interest rates
can sharply decrease prices and potentially destabilize the
housing market.
The housing market is still hot, particularly in Vancouver, Toronto, and Victoria
Costs are above the historical average in Montreal and Calgary as well.
11 Source: Statistics Canada, RBC Housing Affordability Measures, Kantar Consulting analysis
Housing Affordability Measure*
Ownership costs as % of median household income
0 20 40 60 80 100
Canada
Vancouver
Toronto
Victoria
Montreal
Calgary
Ottawa
Saskatoon
Halifax
Quebec City
Regina
Winnipeg
Edmonton
St. John's
Saint John
Q1 2018
Historical Average
Hot Markets
*The RBC Housing Affordability Measure shows the proportion of median pretax household income required
to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the
average market price for single-family detached homes and condo apartments. The higher the measure,
the potentially less affordable the market. The measure is an indicator of housing imbalance, and does not
represent the ownership costs for most homeowners given that it is based on average home prices and
rates from the most recent quarter, not necessarily when all current homeowners purchased their homes.
Housing Debt
Background:
The ratio of household debt to disposable income decreased in Q4 2017 to it’s
lowest level since Q1 2016. Less borrowing and income gains have helped the
metric. Still, it remains starkly higher than its historical average and that of most
other developed countries.
Tighter mortgage-borrowing restrictions by the federal government and provincial
governments, as well as a three quarter percent-point increase in mortgage rates
by the Bank of Canada since last July are aimed to ‘cool down’ the housing market,
and thus contain borrowing.
Retail implications: Negative
• In the short term consumer spending will be dampened by less use of credit and
more saving among households.
• In the long-term, there is a palpable threat of a hard fall in the housing market,
rising mortgage loan delinquencies, and a sharp pull back in consumer confidence.
And the high household debt can potentially destabilize the housing market
12 Source: Statistics Canada, Kantar Consulting analysis
Adjusted retail sales (excluding autos and
fuel) grew 2.5% year-to-date, sharply slower
than annual 2017.
Grocery stores’ growth dampen by softer
food inflation.
Drug store sales posted marginally lower
sales in 2018, following strong growth in the
previous two years.
General Merchandisers have fared better
than the consumables channels in the first 5
months, albeit slower than their 2017 average.
Source: Statistics Canada, Kantar Consulting analysis
The declining consumer confidence has dampened the sales of consumables
Topline growth is more subdued after excluding sharply rising prices at gasoline stations
13
Canada’s Brick-and-Mortar Retail Sales*
Year-to-Date Percent Change, Seasonally Adjusted
4.4%
2.0%
14.3%
0.3%
5.2%
3.1% 4.3%
5.2%
2.5%
-0.9% -0.3%
2.4%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Retail Less Autos & Fuel
Grocery Stores
Drug & HBC Stores
General Merchandise**
2016 2017 2018 YTD
Consumer spend has also declined, particularly on durables, autos, and home furnishings
14 Source: Statistics Canada, Kantar Consulting analysis
Goods vs. Services
• Total household spending has softened versus 2017.
• Canadians spending on autos and durable goods in the first
3 months has weakened compared to FY 2017.
• Spending on services has accelerated in early 2018 and leads
the spending average.
Leading Categories
• Consumers spent more of their disposable income on pet products,
food services, and healthcare goods in 2018.
• Once, high-flying auto sales slumped in Q1.
Goods Detail
• Food and beverage at home growth has been resilient
despite softer inflation.
• Clothing and footwear category growth kept a moderate pace in Q1.
• Home furnishings & appliances were a weak spot in Q1 2018.
*YTD ended Q1 2018
Canada Household Category Spending Trends
3.3% 5.3%
3.0% 3.2% 4.6%
7.1%
3.3% 4.1% 4.0%
2.6% 3.4% 4.4%
Total spending (includes fuel & autos)
Durable goods (less autos)
Nondurable goods (less fuel goods)
Services
2016 2017 2018 YTD
5.9% 6.1% 7.1% 8.1% 5.8% 5.8%
7.6% 9.0%
5.0% 5.7% 7.8%
2.5%
Pharmaceutical & medical goods
Food services Pet products Autos
3.4%
6.5%
2.4%
4.8%
2.8%
5.6%
2.7%
4.8% 3.5%
4.5% 3.0% 2.2%
Food & beverages at home
Personal care & beauty
Clothing & footwear
Home furnishings & appliances
Total retail sales on a non-seasonally adjusted basis
are growing 3.6% year-to-date.
Online sales that include only retailers operating in
Canada grew almost 14.5% in the first five months of
2018 vs. the same period last year. Overall, online sales
are 2.8% of total retail sales, up 0.3 percent-point versus
the same period last year.
Brick-and-mortar sales growth (+3.3%) is 0.3 PPT
slower due to online penetration
Source: Statistics Canada, Kantar Consulting analysis
However, online sales growth continues to surge versus brick-and-mortar sales
15
* 2018 YTD through May 2018
** Total retail includes auto mobiles and gasoline. Not comparable to other measures of total retail sales in this report because it
is not seasonally adjusted
*** Online is eCommerce sales from specialty online and the online sales of retailers which also have brick-and-mortar stores. It
only includes online sales among Canadian retailers and excludes cross-border orders.
Canadian retail sales: Total, online, and in store
Year-to-date growth, Non-seasonally adjusted, 2018 YTD*
3.6%
14.5%
3.3%
Total retail** Online*** Brick-and-mortar
Source: Kantar Consulting, KRIQ
Online and discount channel will likely gain prominence should rising interest rates
squeeze household spending
16
-2%
0%
2%
4%
6%
8%
10%
12%
14%
$- $5 $10 $15 $20 $25 $30 $35 $40 $45
Kantar: Retail Channel Tracked Sales (Canada)
Sale
s C
AG
R (
2017
-2022E
)
Channel sales volume, CND billions (2017e)
Online
Club
Discounter
Convenience
Mass
Drug Hypermarket Category specialists
Supermarkets
Kantar Retail © 2017 Source: Kantar Consulting
Canadian shoppers are also changing and retailers are responding with new banners
Foundational Shifts/Truths
17
AGEING
RETAIL IMMIGRATION
NEW BANNERS
Canada’s population is ageing, and for the first time in the country’s history, there are more
seniors than children under the age of 15 years…by 2030 almost 25% of Canada will be over 65
Source: Statistics Canada 18
16.7% 16.6%
14.8%
16.9%
2011 2016
15 years and under 65 years and older
Population Trends by Age and Sex, 2016 Census of Population
Wellwise by Shoppers Drug Mart is a new banner focused on inspiring and empowering
Canada’s ageing population
Source: Kantar Consulting 19
Compartmentalization
The sections are clearly labelled and differentiated within the store, each addressing a specific product need.
In-store maneuverability is optimized for the ageing shopper
The wide gaps between shelves make in-store navigation easier, especially for those who use mobility devices.
Source: Kantar Consulting 20
South Asians will be the largest visible minority group with
28% of the visible minority population.
The Chinese share could decline from 24% to 21% because
Chinese women have one of the lowest fertility rates in Canada.
Also Chinese are more likely to emigrate from Canada.
Both Canada's Black and Filipino populations could double
in size by 2031.
The Arab and West Asian groups have the fastest
population growth among all groups and are
expected to triple their size.
Source: Statistics Canada
By 2031, visible minorities will make one-third of the Canadian population
21
Source: Statistics Canada
Immigration used to be a local factor, now genuinely
nationwide as Alberta, Manitoba and Saskatchewan
increase share of new arrivals
22
Recent immigrants’ are immigrants
who first got their landed immigrant or
permanent status in the 5 years prior
to a given census.
“ Source: Statistics Canada
And while the downturn in the oil and
gas economy in the last year has
surely slowed some growth since the
census, economic immigration
remains the dominant motive in
attracting newcomers.
“ Source: Statistics Canada
We’re looking for people to fill gaps in
the labour market. “ WILKINSON
Source: Store website
Retailers are introducing new banners to focus on new Canadians
24
Chalo! FreshCo provides a wide selection of South Asian and mainstream consumables in the GTA
Source: Kantar Consulting
CONCLUSIONS Canadian retail landscape is changing. Brick-and-mortar retailers are focused on sensory
experiences, whereas online purchases are driven by convenience and low prices.
The Canadian consumer confidence has declined since January 2018 due to trade tariffs and
NAFTA uncertainties but the recently negotiated USMCA should boost consumer confidence.
Rising interest rates and tighter borrowing regulations will dampen retail spending.
Canada remains one of the most diverse societies in the world, and that diversity is moving from
being a regional to a national marketing phenomenon.
Population is ageing and creating new retail opportunities.
Big Beats in the Retail Landscape
IMPLICATIONS Partner with retailers to cross-promote your publication with new Canadians and seniors on
digital platforms and flyers.
Advertise your publication via in-store signage and shelf blades to increase awareness and
engagement.
Understanding Canada’s Online Retail The Fastest Growing Channel
26
Source: Kantar Consulting CommerceScope (Canada)
60% of Canadians are already eShoppers and the share of online retail is expected to grow
rapidly
27
Share of Retail Online & eShopper Penetration
2017
6%
Share of Retail Online
61%
eShopper Percentage of Population
21% CAGR 2017– 2022
Media and general merchandise dominate online purchases
Source: Kantar Consulting, Digital CommerceScope, 2017
62%
52%
41%
27% 26%
16% 13%
11%
7% 5%
0%
10%
20%
30%
40%
50%
60%
70%
Media Apparel & Home Goods
Consumer Electronics
Health & Beauty Care
Toy & Sporting Goods
Household Essentials
Home Improvement & Auto Supplies
Shelf Stable Grocery
Baby Perishable Grocery
Proportion of category purchasers who have purchased the following categories online (among past year online purchasers)
28
Amazon is a dominant force among online purchasers as ship-to-home and in-store pick up
become mainstream and subscriptions and curbside pickup gain steam
Source: Digital CommerceScope, 2017
Proportion who have bought from the retailer’s
website in the past year (among past year online purchasers)
16%
16%
23%
23%
69%
0% 20% 40% 60% 80%
Bestbuy.ca
Amazon.com
Ebay.ca
Walmart.ca
Amazon.ca
Proportion who used the following fulfillment methods (among past year online purchasers)
16%
17%
18%
45%
88%
0% 20% 40% 60% 80% 100%
Surprise Subscription
Cubside Pickup
Auto-Replenishment Subscription
Inside store pickup
Ship to home
29
The online giant is trying to create an ecosystem with the acquisition of Whole Foods
Gives capabilities and credibility to Amazon’s consumables offer
Source: Kantar Retail, July 2018 30
Whole Food stores
in Canada also
displayed Prime Day
promotions
Amazon.ca featured a banner ad on Prime
Day 2018 to reinforce its integration with
Whole Foods
Amazon.ca promoted products by 365, Whole Food’s
private label
And offering brands an opportunity to expand their multi-channel capabilities
Source: Amazon.ca, Prime Day (June 16-17, 2018)
Grocery, personal care, and health care brands offer
coupons and advertised their key SKUs
+
Amazon’s AI allows brands to cross-promote and
bundle products with relevant product categories
Canadian retailers are also developing omnichannel capabilities
Source: Kantar Consulting (2017 shopper data) 32
11% 10% 13%
50% 30% 26%
27%
15%
0%
10%
20%
30%
40%
50%
60%
70%
Pick-up At Store Pick-up at a Designated Site
Online Grocery Delivery
Buy Online, Ship To Home
Reach of Online Services for Grocery & HBC
Used Interested in Trying
Click & Collect Delivery
‒ Loblaws, Zehrs, Real Canadian Superstore and
Wholesale Club
‒ Pay online or at the store, $30 minimum
‒ Service fee of $3 - $5; 20k + SKUs
‒ 200 stores by end of 2017, adding 1+ store a day in 2018
‒ Launched Dec. 2017
‒ Starting in Toronto & Vancouver, expected rollout
‒ Loblaws, T&T, RCSS
‒ Up to 30k items, delivery in as fast as 1 hour
‒ Partnered with Instacart
Loblaws offers both home delivery and click-and-collect services
Source: Kantar Consulting, company presentation and reports
“We continue to scale our four ecommerce businesses
giving Canadians more beauty, apparel, pharmacy and food
products by mail, personal delivery and our rapidly
expanding Click & Collect business.” – Galen Weston, Feb 2018
33
Instacart: the home delivery service is only available in big cities
34 Source: Kantar Consulting, Loblaws website
Instacart will pick groceries for you and deliver it to your doorstep
Loblaw’s PC Express Service has a wider reach versus Instacart
35 Source: Kantar Consulting, Loblaws website
PC Express Explained
Source: Kantar Consulting, company websites
Loblaw is expanding digital partnerships for shopper empowerment and convenience across
all banners
36
Shoppers Drug Mart — My prescriptions Beauty Boutique by Shoppers has the largest online beauty collection
in Canada
Stepping-up delivery and the interface:
Sobeys online grocery shopping business will be built on
the Ocado Smart Platform
Front-end web site functionality supported with Ocado’s
‘web shop’ and mobile grocery ordering applications
Fulfilment centre in the Greater Toronto Area, which is
expected to be completed within 2 years
Routing management technology to optimize delivery
truck efficiency, customer service excellence
This marks Ocado’s first move into Canada; it’s already
partnered with Morrisons (since 2016)
Sobeys has partnered with Ocado
37
Home Delivery Pick Up Mail Delivery
Walmart has made significant investments to develop omnichannel capabilities
38 Source: Kantar Retail analysis, research, company website
Source: Kantar Consulting
CONCLUSIONS Most Canadians are online shoppers, and the share of retail online is expected to grow over the
next five years.
Amazon is the leading online retailer, and focusing on expanding its physical presence with the
acquisition of Whole Foods.
Media and general merchandising are the two most shopped categories.
Canadian grocery retailers and mass merchandisers are investing and expanding their last mile
fulfilment services.
Understanding Canada’s Online Retail
IMPLICATIONS Leverage online retailers’ artificial intelligence capabilities to cross-promote your publication(s)
with relevant products and categories. E.g. product bundle ideas.
Increase exposure at the checkout page.
Develop and grow your digital presence.
Collaborate with retailers to promote your publication and digital platform with featured
merchandise.
The Rules of Effective Grocery Emerging Brick-and-Mortal Retail Trends
40
Loyalty: shifting from Airmiles has evolved into the app and click-and-collect era
Reinforcing the branding and convenience via digital devices linked to existing loyalty programs
Source: Kantar Consulting, Corporate Sites 41
Fresh and prepared food: better signage, lighting and presentation
Metro has found a more casual approach to a strong shopper requirement
Source: Kantar Consulting Store Visits 42
Theatre: the store as a stage for experiences
Sobeys and Loblaws have long competed here
Source: Kantar Consulting Store Tours 43
Beer: seize the opportunity
Will craft, imports, or local standard triumph in the near markets?
Source: Kantar Consulting Store Tours and CBC 44
Discount does not mean sloppy: clean, neat, and organized
Food Basics example shows the clean lines of presentation despite a price image
Source: Kantar Consulting Store Visits 45
A new entry is Mini So, a Japanese lifestyle discounter
Food, Home and Apparel displays are functional and elegant
Source: Kantar Consulting Store Tours 46
The premium discount entrant featured well-finished school essentials and consumer
electronics for this year’s back-to-school sale
Source: Kantar Consulting 47
Premium-looking earphones were sold at CAD12.99 and
CAD16.99. Differentiating school supply assortments and packages were neatly organized
and displayed.
Innovation is not limited to the big names: smaller neighborhood excellence
Longo’s has long illustrated the principle that to compete is to show the best
Source: Kantar Consulting Store Visits 48
Lighting and a sense of drama: branding with lights, colors and textures
Loblaw has long shown how to create a vibrant space combining materials and energy
Source: Kantar Consulting Store Visits 49
Make pricing clear: don’t muddle the message in discount
No Frills clear single point pricing with quality products
Source: Kantar Consulting Store Visits 50
Ethnic basics: rice, spices and perishables to connect to all shoppers
FoodCo Chalo! format is expanding beyond the original intended shopper
Source: Kantar Consulting Store Visits 51
Shelf ready packaging for seasonal rotation: fast presentation with less labor
Walmart’s Back to School
Source: Kantar Consulting Store Tours 52
Online and fulfillment: making it work profitably
Click & Collect slowly takes on more of the market
Source: Kantar Consulting, Corporate Sites 53
Loblaws continues to move steadily into the click and collect market
Rapidly expanding beyond inner neighborhoods
Source: Kantar Consulting Store Tours 54
Transaction counter is evolving
Embedded POS shelves, self-checkouts, and no-checkouts are making becoming prevalent
Source: Kantar Consulting Store Tours 55
Embedded No-checkout (Amazon Go - USA) Self-checkout
… which is forcing traditional impulse categories to island displays and endcaps, closer to the
front of the store
Source: Kantar Consulting Store Tours 56
Some retailers have created a guided path to self-checkouts between impulsive shelves, as
well as mini POS shelves at the transaction counter.
Source: Kantar Consulting Store Tours 57
Canadians trust news from tradition print media and consume it to stay informed
Source: Vividata \ Kantar Summer 2018 Study 58
Trust in News Sources Used
Source: Kantar Consulting
CONCLUSIONS Retailers focus on clean, neat and organized stores with strong value statements via innovation
and merchandising
Stores feature a broad portfolio of products with a major percentage as own label
Almost all Canadians are within easy access to a discount store
Retailers offer a range of products with pricing reinforced to drive good value perceptions
Frictionless transaction points are changing the shelving of impulsive merchandising
The Rules of Effective Grocery
IMPLICATIONS Create new impulse merchandising experiences by improving engagement and in-store
visibility.
Invest in display shelves and endcaps near transaction counters.
Product placement in high-traffic areas and complementary departments should drive
incremental sales.
60
For further information please refer to
www.KRIQ.com
Contact:
Amar Singh
Senior Analyst
M: +1 (647) 625 2596
amar.singh@kantarconsulting.com
@kantarconsult
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