The Canadian dollar is hovering at a rate that is hasn’t seen is over ten years. For some in the CPG industry, this has meant an increase in sales as fewer Canadians are heading across the border looking for sales. For others is means a drop in profits because of cross-border transport and other such logistics. CPG is faced with a number of exchange rate impacts – what are they and how is it handling them?
As noted, a weaker loonie is often perceived as a double-edged sword for retailers and manufacturers. At once it makes exports more competitive in the U.S. market, but it also drives up the costs for imported inputs. Also, to the extent that Canada has lost a share of its manufacturing base to the U.S., Mexico and offshore locations, the leverage it gets from a lower dollar is diminished.
When it comes to shoppers, there is also an impact, albeit usually more on the negative side. With imported goods prices higher, products are listed higher, consumers are then asked to pay a higher price tag and some just won’t make the purchase. In fact, history shows that Canadian consumer spending is directly linked to exchange rates. For example, when the dollar was high in the 2002-2008 range, consumers spent more – growth averaged 3.8% per year. However, between 1992-2002, when the exchange rate dropped, that number was only 2.4% per year. Exchange rate impacts are directly related to consumer spending.
The grocery industry is arguably even more vulnerable than other retail sectors, especially those relying heavily on perishables coming from down south. For example, organics may be particularly hard hit because more than 75% are imported. Whereas many retailers can adjust their prices somewhat to offset the cost of a lower exchange rate, the intense competition experienced by all grocery retailers makes it more difficult to do so. Lower-priced goods in the grocery sector don’t have the same wiggle room as those higher priced items, electronics for example. And this means an eventual loss if the loonie drops further – prices will have to go up, but grocers have to be much more careful.
Storesupport can help even when the loonie is low. Contact us today at 1-877-421-5081.