Cross category trends
This year, a brand’s category has often been a decisive factor in the growth or decline in its value. However, macroeconomic factors are driving big changes in the Canadian brand landscape, affecting all or at least multiple categories in the same way. The following cross category trends are largely based on research from BrandZ™ analysts and Kantar’s Canada MONITOR, which tracks and delivers insight on the most critical emerging trends, growth segments, and opportunities in the Canadian marketplace.
Lululemon and Canada Life may have notched the largest percentage gains in brand value, but the next two top growers are Food Basics and Dollarama, while the only newcomer is No Frills. This overperformance of discount retailers is hardly surprising. With unemployment spiking and uncertainty abounding, Canadians are looking for value.
This can be a tricky time for brands. Kantar research has shown that in tough times, consumers are not necessarily looking for the cheapest offering, but for getting the most value for their dollars. Slashing prices may be tempting, but it is not the answer. Consumers faced with continual discounts eventually get the idea that a brand’s products are simply worth less. Instead, it’s a better idea to double down on explaining the value you bring or look to develop new variants or offer products in different sizes.
Discounters face a different dilemma. Flush with a flood of new customers, how do they keep them when the good times eventually return? The answer may be brand building. This year’s data shows that they have some of the lowest Brand Contribution scores of any brands. Any investment improving the brand experience could pay dividends down the road.
Tech prowess rising
There may be no technology brands in the Top 40, but technology is still having a major impact on them. The COVID-19 crisis has spurred many into digital action, and the infrastructure for them to do so was not only already there, but much of it was Canadian. Shopify, for example, is a Canadian B2B brand (and thus not eligible for BrandZ™ rankings) that helps other companies set up e-commerce platforms. During the pandemic, it surpassed RBC to become the most valuable Canadian company.
Canada’s tech sector is also booming. Venture capital investment in the country nearly doubled in 2019 to $6.2 billion. Amazon has recently announced plans to hire 3,500 new workers in Ontario and British Columbia. Canada is particularly proficient in AI and offers a much lower cost of living than in Silicon Valley, along with tech friendly immigration policies that draw people from around the world. As a sign of this, Toronto was ranked #3 of all tech markets in North America for talent according to a survey by a leading real estate services provider.
What does this mean for brands? Options. Canadian consumers have been slow to adopt e-commerce and other digital technologies, but this is changing. They are now spending more time online shopping, using social networks, and connecting with family and friends. Seventy-three percent of Canadians today spend at least 3 to 4 hours online every day, and 80 percent say they keep up to date on current events through social media. Brands that wish to connect with them and meet their rising expectations for excellent experiences will likely be able to find excellent digital talent right in their own backyards. It might not be a bad idea to get started.
Canadian venture capital investment activity, in billions (2015-2019)
The accelerating economic blahs
By a wide range of measures, the COVID-19 crisis could not have come at a worse time for the Canadian economy. Long-term GDP growth rates have struggled to get above 2 percent in the past decade — and this has had a severe impact on household finances. Part of the problem is that workers in Canada, as in many Western countries, have seen real average earnings largely stagnate since the early 1980s. The last two years have seen a modest increase, which is certainly set to be wiped out by the pandemic. Meanwhile, the price of housing, as any Canadian millennial could tell you, has soared to stratospheric levels. Consumer goods have also become more costly.
This has resulted in two unsettling developments that brands need to consider. The first is that household debt has increased substantially. In a country that has long been known for thrift and savings, 25 percent of people over the age of 18 report that they would have to borrow money to cover a $500 emergency. Meanwhile, the wealth gap is widening. The wealthiest 1 percent of Canadians saw an 8.5 percent increase in income from 2016 to 2017. The total for all Canadians was only 2.5 percent. As a result, Canadian income inequality, which was once admirably low, now ranks the country in the middle of the pack globally.
Such developments are for governments, not brands, to address, but they affect nearly every consumer-facing company in every category. The recent reelection of the Liberal government suggests that Canadians continue to favor a progressive tax system. The difficulty lies in convincing the provinces, which often have regulations that favor the rich. As younger generations come into power, this could change.
A challenged generation
Researchers have long known that people who came of age in the Great Depression bore economic scars for the rest of their lives. Not brought up with money to spend, they never developed into big spenders themselves.
Young Canadians who are trying to raise families were already facing tough economic choices, with high housing and rising education costs. And then came COVID-19, which disproportionately affected the young. Fifty-seven percent of people under the age 34 reported that they had already seen an impact on their household income by May 2020, compared with only 39 percent of those between the ages of 35 and 54.
The takeaway? Brands need to reconsider how to make their offerings different enough to meet the expectations of consumers who are likely to have a lifelong reluctance to spend. Now is not the time to continue doing business as usual, but to understand that establishing great connections with young consumers is essential for long-term brand health.