BCG recently published new research on how financial pressure is reshaping Canadian retail spending by income group and category.
The core finding is that the labels retailers plan around are becoming less reliable guides to which categories hold up. In some major categories, higher-income households spend two to four times as much as lower-income households. In others, spending is close to even.
A few other top findings:
- Household appliances, a large discretionary purchase, show almost no income gap. Pet care, often seen as a basic everyday expense, is heavily skewed toward higher earners, who are more willing to trade up to premium options.
- Looking six months ahead, some balanced categories are starting to split. In dining, lower-income households are pulling back while higher-income spending holds steady. In automotive and beauty, both groups plan to spend more, but higher earners are moving faster.
- Lower-income buyers weigh price and brand trust more heavily. Higher-income buyers place more weight on service and the buying experience, especially for bigger purchases like appliances.
In an interview with Retail Insider, Terence Smith, Senior Director of BCG’s Centre for Canada’s Future and a co-author of the report, discusses the findings.
Question: What is driving the unexpected differences in spending patterns between higher- and lower-income Canadian households, and what does this mean for how retailers segment their customers?
Answer: Much of Canada’s recent consumer growth has been borrowed, sustained by savings, rising asset values, and debt while real incomes lag. As budgets tighten, households are not cutting back in the ways you would expect. They’re holding onto some discretionary spending while pulling back sharply in other areas. The result is an increasingly K-shaped economy where higher- and lower-income households are starting to pull apart, sometimes within the same category.
For retailers, this means the distinctions they previously used to indicate category performance (e.g. essential and discretionary, premium and value) are becoming less reliable indicators of resilience because they no longer can predict who keeps buying. These days, the more useful method is to review each category holistically and understand whether its customer base is holding, narrowing, or becoming more dependent on the households with greater room to spend.
Q: Why are categories such as household appliances showing relatively little difference in spending across income groups, while categories such as pet care are much more skewed toward higher earners?
A: This is exactly where the old distinctions (e.g. essential and discretionary, premium and value) break down. Just to give you an example, household appliances are a large discretionary purchase, yet they show relatively little income divergence. Pet care is often treated as a resilient everyday expense, yet it skews toward higher earners because they are more willing to trade up to premium options.
In some major categories, higher-income households spend two to four times as much as lower-income households, while in others spending is close to even. The takeaway is that today, the label on a category tells you very little about how resilient it is or who is really driving its demand, which is why understanding the divergence within each category is so important.
Q: What do the six-month spending intentions tell us about where financial pressure is likely to show up next, particularly in dining, automotive, and beauty?
A: Spending intentions signal where a category’s customer base may be starting to shift, and they show the divide taking different forms. In dining, lower-income households are pulling back while higher-income households intend to spend more, so the pressure is landing on the more constrained end of the market. In automotive and beauty, both groups expect to spend more, but higher earners are moving faster, which means these categories are leaning increasingly on households with greater room to spend.
The wider point is that some of the most consequential movements are happening in categories that look broadly balanced today. A balanced customer base can offer false reassurance if participation is quietly narrowing underneath it.
Q: How should retailers adapt their pricing, promotions, and product assortments as lower-income consumers become more focused on price and brand trust while higher-income consumers place greater value on service and the shopping experience?
A: Value is the number one factor for every income group as everyone is value-seeking right now. What differs is the form it takes. For some it means higher quality at a higher price, for others a more pared-back offer at a lower price. Price, promotion and assortment all sit inside that, which is why a single plan rarely serves two very different customers well.
As comparison gets easier, pricing and promotional capability has to keep pace no matter who you’re serving. But keeping pace is only half of it. The more valuable work is understanding what each group actually values, whether that’s high volume at a discount, convenient sizes, or samples of new products. Often it’s the same product, priced and promoted differently.
From there it’s a question of matching the proof to the buyer. Reviews, warranties and transparent sourcing close the trust gap for a household that can’t afford to get a big purchase wrong. Installation, concierge and white-glove service are what convert consideration into a sale at the other end. Installation, concierge and white-glove service are what convert consideration into a sale at the other end. The same split applies to loyalty, where cashback and volume rewards land with one group and service upgrades with the other. What it all comes down to is dropping the average consumer as a planning assumption and working cohort by cohort, category by category.
Q: Are these shifts primarily a short-term response to economic pressure, or do you expect they will lead to longer-term changes in how Canadians shop and how retailers approach different income groups?
What the research is clear on is that financial pressure is already changing which retail categories hold up and which do not, and that responding to it takes more than a quick fix. The common thread is a shift away from planning around one average consumer and toward looking at each category separately to see how different income groups are behaving. The retailers who spot these shifts earliest will not just avoid the risk, they will be best placed to grow.
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