Study: Year-end review of retail sales and competition for market share

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Canada's retailers enjoyed healthy growth rates in all major commodity groups in 2006, and in fact, total sales matched the peak year-over-year gain of the last nine years, according to a new study.

However, retailers, many of whom have been offering increasingly diverse product lines for the past few years, also kept up their fierce competition for the consumer's dollar, even during this good year.

Total retail sales in 2006 increased 6.4% from 2005, identical to the growth rate in 2002, which was the fastest increase since this data series began in 1998. Sales hit $390.6 billion in 2006, the equivalent of $11,974 in spending per Canadian.

The study, published today in the Analysis in Brief series, examined the growth of retail sales by commodity and the competition among retailers for market share, using data from the Quarterly Retail Commodity Survey.

Food stores still dominated sales of food and beverages. However, general merchandise stores fed more Canadians than ever in 2006, drawing valuable market share from supermarkets in the retail sales of food and beverage products.

Food and beverage stores lost ground in the sale of many other commodities in 2006. For example, in the sale of health and personal care products, pharmacies and personal care stores regained in 2006 much of the ground they had lost to food and beverage stores in the last few years.

On the other hand, in the clothing and footwear sector, the market share of general merchandise stores fell about three-quarters of a percentage point during 2006, the equivalent of a $228-million windfall for their competition.

Retail trade activity contributed to the nation's total gross domestic product (GDP). In 2006, the retail sector contributed about 6.0% to GDP. It was the second largest employer in Canada, accounting for 11.0% of total employment, behind the manufacturing sector.

Consumer spending leading contributor to economic growth

Consumer spending was the leading contributor to economic growth in 2006, advancing 4.1%. This growth rate represents the sector's best performance since 1997.

Low interest rates, a strong Canadian dollar, relatively favourable prices for most goods and services, ongoing job creation and a 6.2% increase in disposable income kept consumer confidence levels high in 2006.

Consequently, retail trade, as well as construction, wholesale trade and finance and insurance, were the main sectors contributing to GDP growth in 2006.

The two largest retail trade sectors are food and beverages and automotive, which together account for roughly half of retail sales.

Of every $100 spent in retail stores in 2006, consumers spent about $22 on motor vehicles, parts and services, $22 on food and beverages and $10 on automotive fuels, oils and additives, the three major categories of spending. This compares with only $3 out of every $100 on sporting and leisure goods, and $2 on housewares. Consumers spent about $9 on each of the other commodity categories.

With prices rising again at the pump, consumers likely noticed that they had to continue to budget more on gasoline in 2006. For every $100 spent in retail stores in 2006, consumers spent $3.50 more on automotive fuels, oils and additives than they did in 1998, and $2.50 less on food and beverages.

On a yearly basis, each Canadian spent, on average, $1,144 on automotive fuels, oils and additives, more than double their allocation of $528 only nine years earlier.

Fastest sales gain: hardware, lawn and garden products

Canada's housing boom kept things busy for retailers of building materials in 2006.

In 2006, sales of hardware, lawn and garden products, including lumber and other building materials, posted the fastest growth rate of all commodity groupings. Sales for this group surged 9.9% to $27.3 billion, representing an average of $836 on a per capita basis.

Building and outdoor home suppliers have always dominated in terms of market share in the hardware, lawn and garden products sector. They accounted for over 70% of the market share during the entire period under study despite competition from other retailers.

Between 1998 and 2006, the market share of building and outdoor home suppliers rose from 72.3% to 74.5%. However, the 2006 market share remained virtually unchanged, dropping only a tenth of a percentage point from 2005. Still, this small market share decline between 2005 and 2006 represented an amount of $27 million.

The main losers in this sector were general merchandisers, whose market share fell from 16.1% in 1998 to 14.7% in 2006. This decline occurred mostly in lawn, garden, and patio furniture sales.

General merchandisers feed Canadians more than ever

Food stores still overwhelmingly dominated the sales of food and beverages in 2006. However, general merchandisers have been competing hard with them in the last few years and appear to have made some inroads.

Overall, sales of food and beverages hit a record high $84.3 billion in 2006, up 4.8% from 2005.

Food sales alone, which accounted for almost 73% of this commodity grouping, increased 4.5%, slightly slower than the record pace of 5.1% in 2004.

Each Canadian spent, on average, $1,810 on food in retail stores in 2006, $152 on non-alcoholic beverages, and $527 on alcoholic beverages.

Consumers devoted 7.3% of their disposable income to food purchases in 2006, down one percentage point from 1998.

In 2006, food and beverage stores continued to lose ground to general merchandisers. In 2006 alone, they lost nearly a full percentage point in market share, virtually equivalent to their total loss between 1998 and 2005.

On the other hand, the market share in food and beverage products for general merchandisers rose from 7.4% to 9.6% between 1998 and 2006.

Pharmacies partially regain lost ground in sales of health, personal care products

The trend to diversification in retailing has been evident in the health and personal care products sector in the last few years, with the growing involvement of general merchandisers and food stores in pharmaceutical sales.

Sales of health and personal care products rose 8.1% in 2006 to $33.0 billion, the fastest pace in four years. Retailers registered sales of $21.8 billion in prescription and non-prescription drugs, up 9.5% over 2005.

Between 1998 and 2005, the market share of pharmacies and personal care stores in health and personal care products fell from 70.9% to 66.0%.

However, in 2006, pharmacies and personal care stores partially regained lost ground, as their share rebounded to 67.9% at the expense of food and beverage stores.

General merchandisers, who increased their market share from 13.1% in 1998 to 16.2% in 2005, saw it slip to 15.9% in 2006.

Definitions, data sources and methods: survey number 2008.

The study "Retailers competing for market share: 2006 retail sales in review" is now available online in the Analysis in Brief series (11-621-MWE2007060, free) from the Publications module of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Abdulelah Mohammed (613-951-7719), Distributive Trades Division.