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Bangs, bucks and tipping points

Canadians are shopping like they're still knee-deep in the recession. Be careful how you respond.

Show of hands: how many of you think Canada is still in a recession? OK, you can put your hands down, thank you. Any guesses how many hands would be raised if I asked all of Canada? Nielsen’s latest Global Consumer Confi dence Index shows that 54% of Canadians think we’re still in a recession.

Of course, if you read the newspapers, the recession is offi cially over and economic recovery is more or less underway. But that shouldn’t matter to you. What should matter is that your customers still have recession on the brain. This perception is the new reality and it’s aff ecting how consumers shop for groceries, how they look for value and how they stretch a dollar.

In the last few months many people across the world have accepted there are no quick fixes to the persistent economic issues we face today. In Canada, we remain especially cautious when it comes to opening our wallets. At Nielsen, we regularly survey consumers and they’ve told us a few important things you should be aware of. Specifi cally:

* They are increasingly worried about jobs. Four in 10 Canadians surveyed say that job prospects over the next 12 months are “not good” or “bad.” That’s up from 35% in the second quarter of this year.

* Their concern has extended to grocery bills. To save on household expenses, Canadians are spending less on groceries. Forty-nine per cent spent less on consumer packaged goods this past year, and 30% say they will continue to be frugal.

* Discretionary spending is not an option. Twenty-two per cent of Canadians (higher than the global average of 14%) say they have no spare cash. Canadians are buying more essentials, with meat, beverages, produce and dairy leading unit sales growth. (The key takeaway here: we’re not eating less; just spending less.)

Yet numbers are only part of the story. Consumers have also told Nielsen what they are doing in response to the economy. And we’re seeing this behaviour confirmed in our observations of the industry. Take my point above that Canadians are eating as much as always, but spending less. How can that be possible? Simple: they are devoting more of their grocery spend to discount retailers. Nationally, discount grocers are capturing more than one-third of grocery and drug category sales–up 4% compared to 1% for conventional retailers.

“Bang for the buck” is the new consumer mantra, with shoppers buying on promotion at record levels. An astonishing 31% of retail sales scanned at the checkout were pricecut items. That’s up five percentage points since the start of the recession.

Retailers are aggressively feature pricing, using a high-low strategy to convert consumers into shoppers. However, we may be reaching a tipping point where promotional price discounts are too low, resulting in softened sales growth. It means we are not selling enough incremental units to make up for the lower price points.

It is important for you as retailers to use sustainable pricing and promotions to win over the consumer in this slow recovery. But it’s not the only card you can play. For many consumers, one-stop shopping– knowing that their favourite products are in stock–is important. So, too, is quality, specifi cally in fresh items.

Retailers as well as manufacturers in premium and discretionary brand segments will need to innovate and work harder to diff erentiate. And retailers: don’t forget that your own private label brands are excellent avenues to set you apart in today’s promotion-heavy environment.

Carman Allison is director of industry insights at The Nielsen Company in Toronto. www.ca.nielsen.com

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