12 minute read 29 Jul 2020
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EY Future Consumer Index: how the COVID-19 pandemic is changing consumer behaviours in Canada

By

EY Canada

Multidisciplinary professional services organization

12 minute read 29 Jul 2020

The first Canadian edition of the EY Future Consumer Index suggests the pandemic is creating new consumer segments in Canada.

COVID-19 has changed people’s habits. From adapting to new ways of working remotely, socializing virtually and buying online, consumer behaviours are shifting.

The pandemic and the impacts of isolation measures have had an effect on consumers like never before. According to The Conference Board of Canada, the Index of Consumer Confidence in Canada fell by 41.0 points in April, the lowest decline ever.1

How have consumer behaviours and preferences changed because of this sudden change and, more important, which ones are temporary and which ones are likely to become fundamental shifts in behaviour? How will expectations from brands change, and what can businesses do to adapt and respond to the new emerging customer segments? To help companies navigate these unprecedented times and guide their efforts in addressing these questions, EY created the EY Future Consumer Index.

The EY Future Consumer Index provides insights on four emerging consumer segments and some actions that brands should consider when responding to these changes. Read our perspective about the global consumer.

This report considers key findings from the first study which involved a survey of 4,859 people tracking consumer sentiment and behaviour across the US, Canada, UK, France and Germany in April 2020. The report also references additional information from external sources which support the implications for businesses that we note at the end.

Now: During COVID-19, Four consumer segments have emerged in Canada

The emerging consumer segmentation suggests that key differentiators centre around sentiment related to the pandemic, expectations about the future and spending habits. Looking at the areas of highest concern for Canadian consumers, respondents prioritized family as the number one concern (91%), followed by access to necessities (85%), freedom (82%), and job and finances (76%).

The way of shopping was ranked as the number one change (87%), followed by the products purchased (70%). Canadians across these segments are more concerned about access to necessities than their jobs or finances, and 70% have changed the products they buy.

In terms of demographic distinctions, the four segments reflect how consumer sentiment deviates between certain factors such as age family structure and employment status:

  • Save and stockpile: These consumers seem more conservative, showing higher concern for their families and the long-term outlook. More than a third (37%) are now spending more on groceries, while most are spending less on clothing (73%) and leisure (80%).
  • Cut deep: This segment of consumers is mostly aged 45 years and older and about 25% have lost their jobs either temporarily or permanently. As a result, the majority (80%) of them are shopping less frequently, with more than half (60%) buying essentials only. In terms of brand perception, 35% believe that brands are far less important in the current climate.
  • Stay calm, carry on: These consumers do not feel directly impacted by the pandemic and are not changing their spending habits. In this segment, 16% are spending more on groceries, which is the lowest compared to the other segments. Similarly, their consumption patterns across clothing and footwear decreased the least compared to the other segments (34%).
  • Hibernate and spend: Mainly those ranging between the ages of 18-44, including millennials and Gen Z, seem to be the most concerned about the impact of the pandemic. They have increased grocery spend the most (57%) spending more compared to the other segments. However, they have also increased spend across clothing (9%) and leisure (29%) the most, with 51% of them highlighting that brands are now more important to them.

 

  

Next: Post COVID-19, Consumer segments could evolve resulting from fundamental behavioral changes

The Index also asked consumers about their views of the future and how they anticipate the pandemic may impact their behaviours as countries prepare for recovery. Most respondents expect that their behaviours are unlikely to go “back to normal.”

The chart below maps how the four segments we have identified now could evolve into five very different behavioral mindsets as Canada transitions into the recovery phase. As an example, the Index currently suggests that over time most consumers in the “save and stockpile” segment are likely to migrate to one of two new segments called “stay frugal” and “cautiously extravagant.”

  • Get to normal – The majority (63%) are above the age of 45. They are mostly indifferent about the future and appear to have the lowest trust in any institution. About 41% responded that they are unlikely to pay a premium for goods and services at all, the highest among all segments, and they are somewhat indifferent about actions taken by brands to mitigate the COVID-19 impacts. They are also the least willing to share their data compared to the rest of the segments.
  • Cautiously extravagant –This segment reports a high level of optimism across all segments despite high recession concerns. Nearly half (47%) of respondents believe that leisure activities will return within weeks to the way they were before COVID-19 and 66% expect to spend more on leisure activities in the long term. More than three quarters (76%) believe the way they travel will return within months to the way it was before the pandemic, with 65% expecting to spend more on their vacation plans. They are the most willing to share their data if it helps find a vaccine or develop treatments.
  • Stay frugal – This segment includes representation from all age groups and remain the most pessimistic about the future. About one third (32%) or more are concerned about how they will travel, access health care, socialize or shop after the pandemic; 67% will likely decrease their spend on vacations, 55% on leisure, and 65% on restaurants. This segment is highly sensitive to price, with 62% responding that luxury has become less important. However, 42% would pay a premium for products made domestically.
  • Keep cutting – Mostly aged 45 and older, these respondents believe more than other segments that it will take a long time to return to the way it was before COVID-19. Approximately three quarters (74%) expect a global recession and 53% are extremely concerned about their jobs and finances. In terms of spending, 57% cited purchasing essentials only and 54% indicated that they will change the products they buy as a result of the pandemic.
  • Back with a bang – This is the smallest group of respondents, mostly aged below 45. Their key concerns about the impact of the pandemic are jobs and finances, as well as their family wellbeing. They are the most optimistic about the future — 50% are spending more on groceries and they consider price as a key factor in determining which items to buy, while 34% are willing to share their data if they are rewarded.

While consumers expect normal life to return, that normal will change

We asked consumers how they expect their behaviours to change when the pandemic is over. Analyzing the responses about potential shifts in consumption patterns, we identified some paradigm shifts that could have important implications for brands.

*Note that numbers may not add up to 100% due to rounding

Most Canadian respondents indicated that they believe shopping will likely rebound within days or weeks (48%) of reopening, followed by leisure activities (46%); however, it is important to note that at the time of the study, the duration of the COVID-19 pandemic was not yet known. Interestingly, 46% of Canadian respondents also highlighted that the pandemic is likely to change the way they shop with 38% reporting they would change the products they buy and 28% claiming they would pay more attention to what they consume and its impact. These responses suggest that brands that want to remain relevant will need to align with these emerging behavioural changes and consumer preferences to serve their customers better and meet their needs.

By contrast, 51% of respondents indicated that travel would likely take months before it goes back to normal and 28% believe it may take years.

Despite efforts to strengthen the health and safety protocols for travellers, including screening for temperature and mandatory face masks, coordination among industry players and their partners (e.g., airport authorities, transportation and hospitality) will be required to collaborate and adopt innovative methods to rebuild consumers’ confidence and enthusiasm for travelling given the exposure risks associated with it.

When asked about financial stability, 46% of respondents reported that it would take years for their finances to return to normal. In a study by Forrester about the impacts of the pandemic on Canadian consumers and finances, 38% indicated that they feel financially stable, but at the same time, 21% feel uncertain about their finances.2

Across segments, 44% of respondents indicated that they worry about external drivers beyond their control that impact their finances. Looking at millennials and Gen Z, 45% of young Canadians reported feeling anxious about their finances, with 41% living paycheque to paycheque. These findings suggest that with tighter wallets, brands are likely going to be competing more fiercely for consumers’ disposable income.

How can brands prepare for what comes next?

Four implications for businesses to consider:

1. Meeting new expectations for long-term value

Evaluate your strategic plans and purpose, considering health, society and environment as more prominent drivers of consumer behaviour.

The EY Future Consumer Index results indicated that while environmental sustainability had taken a back seat during the crisis, it may become an emerging expectation for brands with 38% of Canadians stating sustainability has become more important over the last month and 30% are willing to pay a premium for sustainable products.

Potential responses:

  • Consider revising your purpose as a brand and rebase it towards local and societal needs rather than being centred on global issues. It is important for brands to note that this effort must be perceived as authentic and aligned to their core values. 
  • Recalibrate purpose towards current and emerging consumer values, without ignoring the continued importance of generational factors. 
  • Rebalance your product portfolio and pricing strategies by adjusting the premium placed on the provenance or global origin of a company’s products and services offered with the overarching impact and value delivered to customers and society.
2. Capturing the new consumer data opportunity

Explore new opportunities created as consumers are more willing to share data and perceptions of personal data privacy continue to change.

The EY Future Consumer Index reported that the pandemic is softening the views on data usage. When asked about their perception about sharing personal information as a result of the pandemic, 54% of Canadian respondents answered that they are willing to share their data if it helps with disease prevention and/or control. This suggests an interesting contrast to responses from a study conducted by the Office of the Privacy Commissioner of Canada between 2018 and 2019, where 92% of respondents indicated that despite feeling knowledgeable about their privacy rights, they are concerned about the protection of their privacy (37% were extremely concerned).3

While the effectiveness of stringent government measures including contact tracing and smartphone monitoring is more accepted, factors such as personalization are seen as less important. This trend may offset data protection regulation as consumers adjust to the responsible use of their data and see the benefits. Furthermore, this trend is likely to vary by region. For instance, while in the UK respondents showed the strongest willingness to share data across the board, French respondents are more resistant to share data for any reason other than for disease prevention.

Potential responses:

  • Consider how increased consumer positivity around sharing data will create opportunities for new business models. It may well accelerate the demand we already see for greater product traceability, creating an environment in which consumers and companies operate with total transparency. 
  • Prepare to work closely with governments on sharing data for societal good.
  • Plan for different approaches to capturing and managing consumer data by geography to manage different regulatory and market nuances.
  • Invest in data capture and analytics but recognize that trust will play a part in defining data use. Building trust through responsible usage and making evident how data will be used will go a long way.

How EY can help

Data protection and privacy

EY data protection and privacy services help organizations stay up-to-date with leading services in data security and data privacy, as well as complying with regulation in a constantly evolving threat environment and regulatory landscape.

Commercial Transformation

EY’s Commercial Transformation offering can help your organization reignite growth while optimizing sales and marketing investments and returns, enabled by realistic and implementable growth strategy, advanced commercial analytics and differentiated capability deployment.

3. Developing marketing and sales strategies to be “where the consumer is”

Review or develop an omnichannel strategy, as the switch to online will become entrenched into consumer behaviour.

The EY Future Consumer Index reported that most respondents are visiting stores less often (73%), while 70% are shopping less frequently now. As the Canadian economy reopens, the growth of online shopping will vary by segment, but there is consensus that shopping will return to normal within months (94%). Brands that embrace online as part of their channel strategy will likely perceive a faster recovery than those that wait and protect themselves should a second wave of the pandemic transpire.

Potential responses:

  • Develop online capabilities to prepare for a longer-term shift but anticipate that the degree of long-term change remains unclear.
  • Take a scenario planning approach for your reopening strategy to anticipate different plausible futures. Anticipate longer-term volatility beyond the outbreak in which there could be other lockdowns coming. 
  • Use different channels to drive the relevant customer value proposition across the journey of interacting with the product/service, showcasing the experience where the consumer is and help them take the next best action.

How EY can help

Customer engagement

In today’s world of empowered customers, competitive advantage shifts from being purely competing over product and price to building trust.

Growth strategy

Attaining sustained and profitable growth is imperative but difficult to achieve. Growth strategy is at the core of what EY-Parthenon does.

4. Shifting to a resilient and nimble operating model

Redesign the enterprise operating model, embracing business agility to cater to evolving consumer needs and respond to emerging trends.

Successful companies have been able to adapt to dynamic shifts in consumer behaviour before and during the pandemic. This approach is more complex — identifying behaviours that will stick and accordingly changing business models, planning for business continuity, and ensuring that employees feel healthy while managing the crisis. As part of the responses to these challenges, the enterprise will require a decentralized decision-making model that empowers prioritization and a “test and learn” approach.

Potential responses:

  • Leverage emerging technology to a embed next-gen employee experience that is integrated and empowered.
  • The shift to a “human + machine” environment will require new jobs and skills, new ways of working, further drawing the need for a cross-functional, data-driven organizational design.
  • Think of your customer interacting with your product/service as an ecosystem of value streams — an agile mindset and “on-demand, intelligent” workforce will help drive long-lasting customer loyalty and organizational benefit.

How EY can help

Digital strategy and transformation

We help companies thrive in the Transformative Age by refreshing themselves constantly, experimenting with new ideas and scaling successes.

Intelligent automation consulting services

We can help you implement a holistic view of automation, process and service improvement.

About EY

EY is a global leader in assurance, tax, strategy, transaction and consulting services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication.

Summary

COVID-19 has changed people’s habits. From adapting to new ways of working remotely, socializing virtually and buying online, consumer behaviours are shifting.

The pandemic and the impacts of isolation measures have had an effect on consumers like never before. According to The Conference Board of Canada, the Index of Consumer Confidence in Canada fell by 41.0 points in April, the lowest decline ever.

How have consumer behaviours and preferences changed because of this sudden change and, more important, which ones are temporary and which ones are likely to become fundamental shifts in behaviour? How will expectations from brands change, and what can businesses do to adapt and respond to the new emerging customer segments? To help companies navigate these unprecedented times and guide their efforts in addressing these questions, EY created the EY Future Consumer Index.

This article was co-authored by:

  • Lokesh Chaudhry, EY Canada – Partner, Tax and National Leader, Consumer Sector
  • Rodger So, EY Canada – Partner, Western Canada Consumer and Technology Leader
  • Glenn Parkinson, EY Canada Consulting – National Leader, Business Transformation
  • Anthony Rjeily, EY Canada Consulting – National Leader, Digital Transformation and Innovation
  • Carlos Leal, Senior Manager, Business Transformation
  • Sulagna Gupta, Manager, Digital Transformation and Innovation

   

About this article

By

EY Canada

Multidisciplinary professional services organization