Few people can tell you exactly what they have for disposable income

July 7, 2023
/ SKUBlog
/ By Susan Sipos

We want to thank the people who commented on last week’s newsletter. It is always great to get your feedback and hear what you think.

This week as Canada celebrated July 1st, we had the new carbon tax implemented across the country. Canadians (in every province except Quebec) now pay an additional .14/litre of gasoline at the pump. In Quebec, the amount is only .10/litre. I tired to understand that part but will let someone else explain it. This significant change in the price of gasoline got us thinking about disposable income. When I was at Loblaw, we used to work hard to understand the disposable income of our consumers and how it impacted their behaviour at the grocery store.

Disposable income is the amount of money people have to spend on goods and services. Most people have expenses they have to pay each month for housing, utilities, taxes and perhaps loan payments. Few people can tell you exactly what they have for disposable income, but they have a good idea. This amount dictates what they buy and how they shop.

The new carbon tax is designed to collect the money at the pump and then climate action credits will be distributed to offset the amounts collected. Whether you agree with the carbon tax or not, it will have an impact on disposable income. People will shop differently because they perceive they are paying more for gas and have less to spend on other things.

Impact on disposable income

According to Statistics Canada, Canadians used 40,000,000,000 litres of gasoline in 2022. This is the most recent year we could find data. The simple math is this will amount to $5,600,000,000 if we use .14 per litre. Quebec is lower, but consumption is likely up so we will say over $5 billion will be paid by Canadians at the pump. This is a huge number and we believe it will impact consumer behaviour.

It is true the climate action credits will be sent back to Canadians, but people will probably use these lump sum amounts differently in their house. For a summary of the carbon tax and the amounts by province and territory you can check out the government of Canada website.

I filled up our car this week and my conclusion was every time I get gas it will be about $10 more. In my mind we need to change our spending habits because we have 2 cars and we have about $20 less to spend each week because we will probably drive the same. I understand the concept is to get us to convert to an electric car or drive less.

Behind closed doors

As I mentioned earlier when I was at Loblaw, we used to spend a lot of time on disposable income. When gas went over $1.00 per litre (the good old days) we were calculating how much it would cost people and how they would reduce their spending in the grocery stores. We would calculate how much less people had to spend and make excuses for our sales being down! Yes, that is what we would have discussed at the ad meeting when we reviewed the sales from the previous week.

Food is one of the most frequent purchases for Canadians and the most obvious choice to change buying habits to make up for the increase in gasoline costs. People have to eat but what they eat can change. This is when we will see people trade down in the category or perhaps switch to private label. Any options will be considered to reduce the grocery bill. This will be more of a challenge than ever, given the recent food inflation we have experienced.

Consider the impact of less disposable income and the carbon tax on your products

You can look at the geography your products are sold in to understand what the change in disposable income will be. It is also helpful to explore your positioning in the category. If your product is a premium in a crowded category, it is possible people will trade down. You might have to work harder than ever to reinforce the value you deliver and encourage people to buy.

If you have been thinking about private label as an option for your business, now might be a good time. In almost every category, consumers will have less expensive options in private label. This might be the best strategy for you to produce these products and keep the tonnage even if it is not in your label.

It is possible you will see increases in your input costs as your suppliers understand the impact of the carbon tax on their business. One more change to explain and hopefully pass on to your customers. We will probably see more food inflation as the impact of the carbon tax is passed on through the value chain.

If you have any comments, you can always send me an email peter@skufood.com or call me at (902) 489-2900.

Peter

Is any news good news?

Not sure what a photo and an ad would cost in the Washington Post but this has to be worth something to Kraft Heinz. The debate about whether to put Heinz Ketchup in the fridge after it is open has reached national media. Not sure it is really news but it does put the product and the picture in front of consumers.

Public relations can be very valuable to your business. You do have to go after it and be ready to respond when they call. Many food and beverage companies have good news stories so consider the options and figure out who will respond.