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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.


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.


By 2031, visible minorities will make one-third of the Canadian population

21


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


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


A new entry is Mini So, a Japanese lifestyle discounter

Food, Home and Apparel displays are functional and elegant


The premium discount entrant featured well-finished school essentials and consumer

electronics for this year’s back-to-school sale


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


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


Make pricing clear: don’t muddle the message in discount

No Frills clear single point pricing with quality products


Ethnic basics: rice, spices and perishables to connect to all shoppers

FoodCo Chalo! format is expanding beyond the original intended shopper


Shelf ready packaging for seasonal rotation: fast presentation with less labor

Walmart’s Back to School


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


Transaction counter is evolving

Embedded POS shelves, self-checkouts, and no-checkouts are making becoming prevalent


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


Some retailers have created a guided path to self-checkouts between impulsive shelves, as

well as mini POS shelves at the transaction counter.


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


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

[email protected]

@kantarconsult

http://www.kriq.com/

mailto:[email protected]

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