Sticky Times (Taylor's Version)
Sticky Netflix, sticky inflation, a swiftie-averted recession, Big Grocery declared uncompetitive, Big Bread pays up, WOW resurrects as Play, Orcas begin earnest revolution against all of humanity.
Hi there!
We’re back - albeit temporarily. Next week we’ll be on hiatus with the Canada Day long weekend. The forecast is for rain - but that’s ok - we’ve got a lot of stuff to catch up on after our visit last week to the Canadian Small Business Expo in Toronto. It was great to meet all of you, and we’re happy you stopped by to chat! TBH there wasn’t much news last week beyond failed Russian coups, failed Logitech-driven submarines and the lack of Canadian Eras tour dates - so it was nice to talk SMB with you all instead. For those new to The huuman Layer…I can only apologize in advance.
Anyway, this week we’re closely watching the inflation rate (again) - the hyper-harbinger for rate rises, lending pain and savings good-times. As we mentioned in our comprehensive ‘where are we now’ forecast review, we drastically underestimated the volatility of the inflation rate this year. We don’t feel too bad about it tho - because the Bank of Canada did the same thing, hence the current scramble to control it with punitive, scrappy rate rises. No-one saw the soaring labour rates and renumeration rises coming, and it certainly threw a wrench in every economists models post-plague. The good news is (at least at time of writing) the inflation rate has slowed significantly (after the recent BOC rate rise) to 3.4%. This is a pretty big drop from the 4.4% in April, and this sharp downward trend is hopefully going to unlock some better lending rates in the mid-term. Don’t expect Tiff Macklem to suddenly appear and wave his magic rate-reduction wand quite yet - we’re expecting a wait-and-see policy from the BOC. That’s because there’s bad news too. Bad news?! Well, of course there’s bad news. Grocery prices remain stubbornly high at 9%, down from 9.1% in April. Rents are still too damn high - up 5.6% this year so far. Mortgage interest - as you’d expect with high BOC rates - are up to an eye-watering 29.9%.
So living is really expensive, but the headline inflation is dropping. Why? It’s mainly due to Gasoline. With supply lines stabilizing and the market getting resigned to the general insanity in Russia, Gas prices are down 18% from this time last year.
Low Gas prices. High living costs. It’s a weird duality and it’s causing enough sticky inflation for the BOC to face another tricky call. Should they add .25% to the rate? Or should they wait it out and hope the background inflation cools it’s boots enough to offset the Gas price fluctuation? Time will tell, but we’re not expecting a reduction in rates anytime soon - in fact the best we can probably hope for is things remaining just as they are - and a cheaper payment at the pump in time for summer road trips.
Or, y’know, it might not be about any of this crazy economics stuff - and it might all be down to Taylor Swift.
BTW - did you know you can reply to this email? We always read the responses and welcome feedback. Let us know what you like, what you don’t and what you’d like to see more of in the future!
If you find this report useful, why not share it with the other small business owners in your network? They’ll join hundreds of subscribers in accessing the best Small Business insights in Canada - for free!
News 🗞️
More airline news…again
We’re strongly considering a new newsletter dedicated to Canadian airline drama. So… remember WOW Air? If you do remember WOW Air, it might be because you were stranded somewhere vague. WOW shuttered itself abruptly in 2019 and left thousands of passengers scrabbling for a Holiday Inn in some out-of-town industrial estate with zero notice. While the Icelandic discount airline WOW is certifiably dead and buried, another Icelandic discount airline has now been reborn like Lazarus - which is just how nature works in 2023. All hail Play Air! Play will be flying from ‘Toronto’ (i.e Hamilton) to 26 European destinations and booking is open now (though who knows how long for). Expect no wifi, no free baggage, no magazines, no refreshments and a confusing 1hr Uber beyond the comfort of the GTA. Play launches just in time for the ‘why are all my friends on holiday in Europe and how can they afford that’ season. Link
Grocery competition is non-competitive
The Canadian Competition Bureau has concluded after a months-long probe what every Canadian already knew - Canada’s grocery business is controlled by too few large players. It also concluded that the Government needs to step in to create an assisted environment to incubate new SMBs in the grocery space to drive down prices. Don’t expect an overnight drop in your grocery bill - this is going to take months if not years to show an effect. But we’re all for transparent pricing, independent small business support, supportive SMB federal policies and better commercial property zoning. Link
And finally…
Petro-Can gets hacked. Link
Bread-price-fixing case concludes with $50M admission. Link
Condoms = Napalm + Funerals. A true marketing challenge. Link
Stay out of the damn ocean. Link
The Data Room 🤖
The Data Room has gone a bit rogue this week while we were away in Toronto, increasing their crystal collection. Probably because they were unable to share our Netflix password.
Netflix is Bigger than Astrology
Turns out Emily in Paris is a bigger factor in peoples lives than Virgo going retrograde in Leo (on July 22nd for those who care) and Avatar (already streaming exclusively on Disney+ for those who care).
Canadians have always been ahead of the curve when it comes to being cashed in on for utilities and entertainment, but Netflix has the U.S. in rank and file now that they’re also part of the password sharing crackdown.
At the end of last month Netflix broke the news to Americans that subscriptions would only stay active if devices were predominantly used in the same household, and this had many thinking it was a sign that Netflix’s financials would end up looking darker than an episode of Black Mirror.
Turns out that Netflix must have taken notes on some M. Night Shyamalan movies because we ended up getting a twist ending: their subscriptions shot up 102% from their previous 60 day average. In fact, Netflix saw the largest amount of daily subscriptions in the whole 4.5 years that data tracking has been available for subscription numbers.
Netflix is killing it up north, too. More than 40% of Canadians were subscribed to the platform in 2022, that’s about 10% higher than the amount of us who subscribe to the tenets of astrology. Canadians will reportedly spend 5.3 billion dollars on subscription video services in 2023, and that’s up 55% from 3.4 billion in 2022, when you adjust for currency values that’s almost enough for James Cameron to make 9 more Avatar movies (no-one tell him).
We all know that part of Netflix’s “stickiness” is due to their original content, and they’ve been paying out the nose for it. In 2022 Netflix spent almost $17 billion globally on OC, that’s about half of their $31.6 billion annual revenue. 44% of their revenue was generated within North America, and it’s also where they’re charging their highest rates; the average revenue per user has shot up 40% from 2018 to 2022, going from $11.28 up to $15.86 USD.
Mercury must be in the opposite of retrograde for Netflix because it’s looking like they’ve landed themselves in a pretty cushy spot and they’ll continue crashing on our couch for the foreseeable future.
Market at-a-glance 📈
BOC Indicators (Link):
BOC Prime Rate: 6.95%
BOC Unemployment Rate: 5.0%
BOC CPI Inflation Rate: 4.4%
BOC $USD Exchange Rate (Link):
Low: 1.3151 CAD [0.7604 USD]
Average: 1.3187 CAD [0.7583 USD]
High: 1.3241 CAD [0.7552 USD]
Best GIC Rates (Link):
1-year GIC: 5.20%
3-year GIC: 5.16%
5-year GIC: 5.00%
Best 5Y Mortgage Rates (Link):
Variable: 5.65%
Fixed: 4.84%
Prime Rates (Link):
TD Bank: 6.95%
BMO: 6.95%
RBC: 6.95%
Scotiabank: 6.95%
CIBC: 6.95%
National Bank: 6.95%
CRA Canadian Pension Plan Rate: 5.95%
CRA Employment Insurance Rate: 1.63%
CRA Minimum Wage per Province: Link
BEST PART OF THE NEWSLETTER TODAY WAS "The Data Room has gone a bit rogue this week while we were away in Toronto, increasing their crystal collection. Probably because they were unable to share our Netflix password." omg HAHAHA SO GOOD.