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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-sea

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