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Canadian Statistics

 

What can be learned from Household Spending Data?

 

The Statistics Canada Survey of Household Spending is the only comprehensive Canadian consumer survey that is accessible to new entrepreneurs and small businesses.

There are certainly a number of other more detailed and brand specific databases but all of them are priced for the corporate market. Some charge more than double the entire advertising budget of a small business.

 

How much should you spend on research?

While market data is valuable for assessing market conditions and planning business expansion, it is not prudent or effective to spend your entire advertising budget on research!

The rule of thumb for marketing research budgets in Canada is 3%-4% of your entire advertising budget. On average Canadian Small Businesses spend $5000 on advertising annually and so their research budgets should be in the $150 - $200 range. What can you get for $200? Not much!

It is therefore important for small businesses to spend their limited budgets wisely. Fortunately the Statistics Canada Survey of Household Spending provides an economical way to access consumer spending pattern data. Combined with other easily available market data an entrepreneur can compile a detailed assessment of their local market size and potential.

 

 

How many households make a purchase?

First and foremost the survey provides you with the percentage of households that reported purchasing your product or service. As an example we will assess the market potential for the photographic film and film processing business in Sidney B.C. Both nationally and in B.C., the percentage of households reporting such a purchase has remained relatively stable over the last three years. However in the metropolitan area of Victoria there has been a significant decline in the % of households reporting a purchase.

 

PERCENTAGE OF HOUSEHOLDS REPORTING

  Canada B.C. Victoria CMA
1998 67.6% 74.0% 76.8%
1999 67.6% 75.2% 77.3%
2000 67.9% 73.0% 71.7%

 

Using the Victoria Census Metropolitan Area figures (the most appropriate for Sidney B.C.), we can therefore expect that approximately 71.7% of households in Sidney will make a photographic film and film processing purchase in a year. According to the publication "Canadian Markets" (by the Financial Post), Sidney has 5583 households in 2002. That means that the potential market size in households can be estimated at 4003. The publication "Canadian Markets" is available in many major libraries and business resource centres.

For household estimates covering sub-municipal areas use the latest 2001 Census results: http://geodepot2.statcan.ca/Diss/GeoSearch/index.cfm?lang=E

This FREE online database allows you to search be street name or street intersection and retrieve dwelling counts by geographical areas as small as a Census Dissemination Area (Small area composed of one or more neighbouring blocks, with a population of 400 to 700 persons. ). With this local geographic unit you can determine the number of households in a certain radius.

NB: Make sure you use the help feature to make sure you are getting everything available out of the database.

 

 

How much does each household spend?

In addition to the percentage of households that make a purchase the Survey of Households Spending also tells us how much on average households spend in a year on photographic film and film processing

AVERAGE ANNUAL EXPENDITURE OF ALL HOUSEHOLDS

  Canada B.C. Victoria CMA
1998 $76 $90 $103
1999 $80 $99 $106
2000 $79 $94 $83

This figure represents the average of all households whether they made a purchase or not so be aware it can oftentimes appear a little low. In other words on average every household in Sidney spends $83 a year on film and film processing.

You will note that in addition to the drop in the % of households reporting, there has also been a substantial drop (-19.4% or $20) in the average annual expenditure per household over the last three years. Between 1997 and 2000 the photographic film and film processing market in Victoria has weakened dramatically. If we want to determine the overall the market size for a local area, simple take this average of all households ($83) and multiply it by the total number of households in the market (5,583). The film and photo finishing market in Sidney is therefore estimated at $463,389 ($83 x 5,583) .

 

 

How much do purchasing households spend?

Beyond the average expenditure of all households the Survey allows us to further examine the average expenditure of only those households who reported a purchase.

 

AVERAGE ANNUAL EXPENDITURE OF PURCHASING HOUSEHOLDS

  Canada B.C. Victoria CMA
1998 $112 $122 $134
1999 $118 $132 $138
2000 $116 $129 $116

Therefore the average actual customer in the metropolitan area of Victoria will spend $116 a year on film and film processing. This figure helps us to estimate the number of regular customers we will need for our store to be even viable.

 

 

How many customer households do you need for your business to be viable?

If we look at the Performance Plus database at the Industry Canada web site (http://www.sme.ic.gc.ca/) we see that the most profitable small business Camera and Photographic Supply Stores fall into the $102,000 - $259,000 range. This means that to earn $180,000 (average of revenue range) in revenue ($11,000 profit), we need 1551 regular customers annually. (Total Revenue ($180,000) / Average Annual Customer Expenditure ($116))

You can then compare this figure with the number of purchasing households in your market and the number of competitors currently servicing them. Continuing with our Sidney example we know from the above calculation that there are potentially 4,003 (All households (5,583) x % reporting a purchase (71.7%)) households that purchase film and film processing services in this market.

We now need to look at the revenue sizes of our competitors. By using a business directory such as InfoCanada (http://www.infousa.com) which provides sales-range estimates of specific businesses we can get an idea of the market share of our competitors. Please see BR Newsletter Vol 4 No 10 (http://www.gdsourcing.ca/newsletter/newsletter4-10.htm#art1) for more details on counting competitors with this database.

We find that there are two businesses in Sidney with photo-finishing as a primary or secondary line of business. One has a revenue size of $30,000 to $500,000 while the other has a revenue size of $500,000 to $1 million. Using the average annual expenditure of $116 their potential combined market coverage is between 4,568 (($30,000 + $500,000)/ $116) and 12,931 (($500,000 + $1 million)/ $116) households.

Of course the above calculation is somewhat deceptive in the case of film and photo finishing because both businesses have more than photo finishing as a source of revenue (e.g. camera equipment sales, frames, other photographic supplies etc.). Other expenditure categories included in the Survey of Household Spending match business types more closely allowing for this calculation to be more representative (e.g. hair grooming, childcare etc.).

Despite the over-estimation of market coverage, it still appears that this market is currently well served. This does not necessarily mean that a new business is not viable but it does suggest that a new start-up will face strong competition and market challenges.

 

 

What we know so far:

Film & film processing market in Sidney B.C.

Number of Households in Market: 5583

Number of Purchasing Households: 4003 (71.7%)

Estimated Market Size (value): $463,389

Market Growth in households (1997-2000): drop of 5.1% of households rpt

Market Growth in Average Annual Expenditure (1997-2000): -19.4%

Number of Regular Customers needed to earn $180,000: 1551

Number of primary competitors: 2

Percentage of market under-served: likely 0%

Please note: all of these figures are not meant as exact numbers. They cannot be taken as such because they are based on averages and estimates. However they can be used as a quick and inexpensive test of market viability and opportunity.

If your market is located outside on a major metropolitan area, use the most appropriate provincial averages.

 

 

What is the income profile of your best customers?

Beyond an overall market profile, the Survey of Household Spending can also reveal more information on the best customers in your market. First of all it allows for segmentation by income quintile. A quintile is arrived at by dividing all households into 5 equal income groupings.

So for example in B.C. each quintile has 303,410 households. The annual income ranges of each quintile are as follows:

 

Quintile Income Range
Lowest Less than $20,400
Second $20,400 - $36,300
Third $36,300 - $55,320
Fourth $55,320 - $81,000
Highest Over $81,000

Data for average household expenditures on films and film processing and the percentage of households reporting a purchase is available for each quintile at a provincial level:

 

Quintile Average Expenditure % Reporting
Lowest $30 43.8%
Second $59 65.6%
Third $90 78.9%
Fourth $131 88.8%
Highest $160 87.8%

Clearly for this particular expenditure category income is a very influential factor as to whether or not households make a purchase and how much on average they spend. Nearly 9 out of 10 households with income over $81,000 purchased film and film processing with the average expenditure for this income range being $160 a year or more than one and a half times that of the average household in B.C.

You will find for nearly every expenditure category that households with higher income spend more. The key piece of information you are looking for is the discrepancy between the 5 quintiles as well as the market share by value and number of households. For film and film processing there is a very significant jump in the % reporting as well as average expenditure between the 3rd and 4th/5th quintiles. (e.g. $90 vs. $131/$160 & 78.9% vs 88.8%/87.8%)

This discrepancy is further reflected in income quintile market share by value:

Quintile

Market Share (value)

Lowest 5.8%
Second 11.7%
Third 20.1%
Fourth 26.1%
Highest 36.3%

E.g. for every dollar spent on film and film processing, 36.3 cents are from households in the highest quintile income range.

The market share in number of households is as follows:

Quintile

Market Share (households)

Lowest 10.6%
Second 17.6%
Third 22.1%
Fourth 23.8%
Highest 25.9%

E.g. for every 100 households that purchase film and film processing, one quarter (25.9%) are from the highest quintile income range.

Keep in mind that a quintile divides all households into 5 equal groupings. Therefore for a product such a groceries the household market share is 20% for all quintile groupings because all households report groceries as a purchase.

 

 

What is your local market potential - PART 1

You now want to compare this data to the demographics of your market. Current household income data can be challenging to find. 2001 Census data will not be fully released until the end of 2003 so for the time being 1996 Census figures are the best we have available.

Looking at the data for Sidney it is clear that households tend towards the bottom three quintile ranges. This suggests that the income resources of this market are too thin to support another film and film processing firm .

# OF HOUSEHOLDS IN SIDNEY B.C. - 1996 CENSUS

Less than $20,000 1055 (21.2%)
$20,000 - $40,000 1505 (30.2%)
$40,000 - $60,000 1205 (24.2%)
$60,000 - $80,000 640  (12.9%)
$80,000 plus 575  (11.5%)

You can locate 1996 Census data in most major libraries. Some municipal web sites also have data online. In B.C., detailed community profiles are available at the B.C. Stats web site: http://www.bcstats.gov.bc.ca/DATA/CEN96/C96INDEX.HTM

Ideally you want your local market to have a higher than average representation in the best income quintiles for your product/service.

Remember the overall provincial standard is that each income quintile has the same number of households. The bottom three quintiles should therefore represent 60% of the market. However in Sidney they represent 75.6%

Put another way, according to the market share table above, 49.7% of the total number of the film & film processing households are in the top two income quintiles, yet in Sidney, these quintiles represent only 24.4% of households.

Of course before we make too many conclusions from 1996 Census data we need to assess more current income levels in Sidney.

The Financial Post publication Canadian Markets does not provide household income range data, however it does indicate average household income. In 2002 it is estimated that the average household income in Sidney is $47,500. The provincial average is $55,000.

According to the 1996 Census the average household income in Sidney was $45,001 while for B.C. it was $50,667. The income resources of Sidney have not strengthened significantly since the 1996 Census.

In fact while the provincial average household income grew by 8%, Sidney lagged behind at 5% growth. We should therefore not anticipate that income conditions of this market have improved since 1996.

 

 

What is the household profile of your best customers?

In addition to income data, the Survey of Household Spending provides household type segmentation. This is yet another tool to help identify your best customers and estimate local market potential.

The value and number of households market share for film & film processing breaks down as follows:

 

Household Type Market Share (value) Market Share (households)
Husband-Wife Family with Children 45.1% 39.9%
Husband-Wife Family without Children 23.4% 24.6%
One Person Households 11.6% 14.6%
Lone Parent Households 7.4% 9.1%
Other 6.5% 6.2%

Clearly (and not surprisingly) husband-wife families with children control the highest market share both in value and sheer numbers of households. 45.1 cents of every dollar spent on film and film processing is by a husband-wife with children household.

They also represent 39.9% of all customers. In fact 83.8% of husband-wife with children households reporting a photographic film & film processing expenditure in 2000. On average they spent $110 per year ($131 per household actually reporting a purchase).

 

 

What is your local market potential - PART 2

Using the 1996 Census we find that the households make up of Sidney is as follows:

Household Type # of households % of all households
Husband-Wife Family with Children 1008 20.3%
Husband-Wife Family without Children 1807 36.3%
One Person Households & Other 1813 36.4%
Lone Parent Households 350 7.0%

Again the Sidney market segmentation does not encourage the opening of a new film & film processing business.

The Financial Post publication "Canadian Markets" does not estimate the number of husband-wife families with children in 2002 but it does indicate the average number of sons/daughters at home: 0.7. This figure is identical to Census average in 1996. Therefore there is no reason to assume there has been an increase in the husband-wife with children segmentation.

In addition to a lack of husband-wife families with children, Sidney also has a high percentage of singles senior households. In fact in 1996, 19.8% of all households in the community had a senior living alone. While there are many product/service categories which are frequently used by seniors, the Survey of Households Spending reveals that photographic film and film processing is not one of them.

In 2000, only 29% of one person senior households reporting making such a purchase with an average annual expenditure of $18. Husband-wife senior households reported higher purchase levels (61.2% reporting a purchase with a $49 average annual expenditure) however they are still far below the Victoria metropolitan area average (71.7% reporting a purchase with $83 average expenditure).

In 1996, seniors represented 31% of the population of Sidney. In 2002, "Canadian Markets" estimates that this figure has dropped to 26.5%. While this suggests an improvement in film and film processing market conditions, the lack of increase in the presence of children is not encouraging. (NB: age segmentation is limited to seniors and non-seniors in the Survey of Household Spending.)

When we look further at the PSYTE psycho-demographic categories in the "Canadian Markets" publication we find that our suspicion of an older, average to lower income market is confirmed. The following categories segment the population of Sidney in 2002:

Nesters and Young Homesteaders: (30.8% of Sidney population)

Old singles and couples, some younger couples and small families. Older neighbourhoods in towns and smaller cities outside of Quebec. Dwellings are mixed row housing and low-rise, single-detached. Mostly rented.

High-rise Sunsets: (18.3% of Sidney population)

Older households, empty nesters and retired, living in high-quality, high-rise apartments on arterial roads in larger urban areas across Canada. A good proportion are singles.

Old Leafy Towns: (16.0% of Sidney population)

Established stable neighbourhoods of older, single-detached, owned dwellings in the nicer residential areas of towns and townships. Maintainer age has a strong skew to 55+. Education and occupational status are quite mixed. Younger families with children are starting to move in.

Small City Elite (16.0% of Sidney population)

Small, traditional families and older couples headed by middle-aged, well-educated managerial/executive maintainers. Children are typically over 6.

Aging Erudites: (14.5% of Sidney population)

Older, well-educated singles, couples and small families. Managerial and upscale white collar occupations. Single-detached and other predominantly '50s dwellings; 68% owned; 10% apartments. Mortgages are small. These people soak up culture.

Aged Pensioners: (4.5% of Sidney population)

Largely very old singles, some couples, renting small apartments, flats and other dwellings in in-town areas of small and medium-sized Canadian cities.

 

 

Conclusion

While a market certainly exists for photographic film and film processing in Sydney B.C. it appears that there is not a great deal of potential for a new business to open. The two existing businesses can clearly cover market demand. The age of the population, lack of husband-wife families with children and the community’s financial resources do not encourage a new start-up in this market.

The only opportunity would be if there was a great deal of market dissatisfaction with both competitors. Even then considering that the overall market has dropped between 1997 and 2000 both in average expenditure and % of households reporting caution would be strongly advised.

As you can see from the above example, the Survey of Household Spending is a wealth of information. Once it is compared with existing data such as that provided by the 1996 Census and the Financial Post publication "Canadian Markets" (both of which are available in most major libraries) a detailed assessment of local market potential can be made.

 

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