Canadian Retailer - Summer 2014 - 25

Confidence on Main Street

Across Canada's regions, confidence is
mixed. The Prairies are growing at a faster
rate than the rest of the country, with migration, better job prospects and more disposable income boosting consumer confidence.
Stagnation among larger provinces like Ontario and Quebec is hurting Canada's overall
performance.
Regardless of the region, however, Main
Street retailers need to keep their eye on how
consumer habits are evolving, says Benjamin Reitzes, a Senior Economist at BMO. He
attributes Canada's stable but stagnant confidence to Canada's healthier financial position during the recession, relative to other
countries. As Canada's economy improves,
so will confidence levels, and retailers want
to make sure they are prepared to capitalize
on the upswing.
"It's important to pay attention to [confidence]. Whether [independents] can do anything about it is doubtful [but] as wages improve, that translates into better sales, better
activity for those retailers."
New research conducted by LoyaltyOne
and Retail Council of Canada (RCC), and
gathered through surveys of independent retailers, shows challenges for Main Street. The
research shows that the key differentiator
between independent retailers and larger retailers for consumers comes down to loyalty
and pricing: consumers shop with independents because they want to support the local
economy, but they turn to large retailers for
low prices. In an era of low confidence, when
consumers base most of their spending decisions on pricing, independent retailers will
have to work doubly hard to attract the dollars of budget-conscious consumers. The research also suggests that when confidence
improves, consumers will be more willing to
spend more freely with independent retailers.
Big squeeze in grocery

Global challenges, in addition to cautious
spending, are squeezing Canadian grocers
on multiple sides.
One of the big areas where grocers are
feeling the squeeze is in fresh produce, meat
and deli. The cost of feeding animals, transporting goods from distant locales and storing these goods is increasing as energy and
transportation costs climb.
Along with rising energy and transpor-

tation costs, some goods, like oranges and
limes, are under attack from disease. The
cost for limes has skyrocketed as flooding in
the lime-growing regions of Mexico exacerbate huanglongbing, a disease that attacks
citrus plants. As limes have become more
expensive-a case of 200 limes has jumped
from $45 to $160 since March-they have become susceptible to another parasite-Mexican drug cartels that have moved in to steal
the green gold.
Canadian retailers must also deal with a
Canadian dollar that has declined in value
and reduced the spending power of Canadian businesses.
Q1 CONSUMER CONFIDENCE HIGHLIGHTS

* Nielsen's consumer confidence index shows that global
consumer confidence in the first quarter of 2014 is the
highest since 2007.
* Confidence in the world's biggest economies is increasing,
with Europe fragile but improving.
* The report indicates great optimism for job opportunities
in the U.S., with more Americans saving money, investing
in stocks, paying off debts and spending money on new
clothes, home improvement projects and new technology.
* Asia-Pacific countries indicate an increase in intentions to
pick up consumption and spend money.
* Canada's consumer confidence is largely unchanged but
surging confidence is pushing other countries higher in
the Nielsen consumer confidence rankings.

"Those are real impacts to the bottom line
for a lot of retailers because those are costs
that are naturally going to go up," says Allison. "As a result, they have to pass those
increases on to the consumer, which means
higher costs at the checkout."
Allison says that, if the pattern laid out in
Nielsen's study persists, grocers will see consumers shift their spending to manage the
rising costs that must eventually hit consumers. Retailers in the grocery category should
prepare to see more consumers travelling
to retailers that offer the lowest prices-as
retailers have seen with the shift in how
customers buy milk-and buying in bulk for
items with a longer life.
Grocers will also see more customers making discretionary trade-offs. As the cost of
steak goes up, trends suggest that consumers
will purchase smaller cuts of meat, or change
the dinner recipe to include a lower cut of meat,
like hamburger instead of steak.

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Canadian Retailer - Summer 2014

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