FTI Consumer Industries Snapshot: Christmas Trading Summary & 2023 Look Ahead

The January trading update season threw us a lot of surprises this year. Many assumed that December would be difficult for retailers, but it appears that consumers really wanted to have a proper old-fashioned Christmas with presents galore, after having had this unceremoniously taken away for the past two years. The grocers set the tone at the start of January, reporting better than expected figures, closely followed by several high street stalwarts and online players. Despite this positivity, a key question remains; how much was paid for in cash and how much on credit? Many of the finance-related charities are fearing that consumers can’t afford their Christmas splurge, particularly when facing the highest energy bills and interest rates in a generation.

The pubs and restaurant trade deserved a full Christmas party schedule in 2022 but sadly the strikes across the transport networks halted these plans. Inflation has also hit the sector hard across every element of the business model, whether it be rates, wages, bills or sourcing availability. Pubs are closing at a record rate and many managers are changing shift patterns and even closing on certain days to reduce costs.

So, what does this mean for consumer-facing businesses in the year ahead, when it comes to capturing hearts, minds, and wallet-share? We put this million-dollar question to our team heads, Alex Beagley and Josie Corbett…

View from the FTI Floor

Alex Beagley – Co-Head of Consumer Industries

“Looking ahead in 2023, there is already chatter that interest rates might have peaked, having only been raised yesterday. The markets are certainly getting more confident and the availability of two year mortgage deals at better rates than their three or five year counterparts are evident across the comparison sites. This level of confidence will improve consumer spending appetites but there is still a real lag effect, with many consumers on low fixed rates which are yet to come up for renewal.

What will business media be looking at in 2023? There is no doubt that all consumer businesses will have their margin performance scrutinised through the year, alongside their ability to generate cash and pay down any debt. Refinancing debt is going to remain expensive for the foreseeable future so balance sheet strength is going to be a key to success. We have already seen some businesses with debt-laden balance sheets hit the wall in 2023 and sadly, others will inevitably follow. Those in stronger positions are already talking about M&A opportunities and it will be interesting to see how this plays out through the year, particularly how any deals are financed. Assets have been acquired and brands will live on under different ownership. Will we see any new consumer businesses coming to market in 2023? It would be a brave person to place that bet but who knows what a post-summer world looks like. Let’s hope the year is better than 2022 for us all.”

Josie Corbett – Co-Head of Consumer Industries

“The golden quarter has shown us that customers want it all; value, convenience, a positive impact – and all the while they wish to be delighted with enviable experiences to enjoy and share, on and offline. Value remains most important as consumers seek to get the most for their money in this ferocious economic storm. Convenience appeals because they are time poor and need an easy and frictionless shopping experience. And – they want an engaging and dynamic experience to boot.

Businesses themselves are going to need to take the lead in building a brand that can make a positive impact on the world – as well as a healthy bottom line. Defining, embodying and leading with a positive purpose is key here. Deployed properly, corporate purpose has been shown to drive innovation, employee engagement, and brand loyalty. This requires a forward-looking lens, investment and organisational shift, and that can sound impossible while navigating the choppy sector waters of near-term pressures. Understandably, many will hope to weather the storm prioritising price, convenience and experience. The real winners however, will be those who embody their values and seek to make a positive impact on the world. One thing’s for certain; the economic storm lingers, and the purpose vs. profit debate will continue to rage.”

Big Reads: The Year Ahead

2023 Predictions: A UK Retail Rollercoaster – Forbes

Retail expert and commentator Natalie Berg gave an optimistic long-term view on the retail sector in a piece in Forbes this week. Following on from the “permacrisis” of 2022, there may be some further short term difficulties despite a relatively strong Christmas period, albeit with soft comparatives following the Omicron outbreak in December 2021. Consumer sentiment is likely to remain impacted due to inflationary pressures, while retailers themselves are also having to cope with inflation and energy price rises as well as other issues as the new year begins.

Nevertheless, the retail sector remains resilient and there is optimism as stores are increasingly popular again after they have adapted to suit new customer expectations following the digital transformation which was accelerated by the COVID-19 pandemic. Technology will continue to grow and change the retail experience, but e-commerce is losing popularity and changing as shoppers continue to return to stores.

Pubs Survived the Pandemic, But Now the Selloff Is Starting: Bloomberg

Pubs across the UK have been struggling as of late – from losing ground during the pandemic, to the current soaring energy prices, continuous labour shortages and customer habits shifting with some opting for a tipple at home, the industry is in crisis. So, what next?

For many establishments, the challenges are too sobering and over 4,800 licensed premises closed last year according to this month’s AlixPartners CGA Hospitality Market Monitor. The number of failing businesses is accelerating at a faster pace than during the pandemic, says Emma McClarkin, Chief Executive of the Beer and Pub Association.

As such, British chains including JD Wetherspoon Plc are trying to sell some of their pubs, due to higher beer and food costs from their suppliers which has led to the price of beer rising from £2.30 in 2008 to £3.95 last year. James Watt, co-founder and CEO of BrewDog Plc denounced that “if beer prices were rising at the same pace as energy, a pint could cost as much as £27.50.”

Big business is in for a rough earnings season: The Economist 

It may seem the New Year is presenting us with glimmers of optimism on the global economy, what with China reopening and central banks moving to bring inflation under control – but we are not out of the weeds yet, warns The Economist. This article provides a word of caution to the CEOs thinking otherwise, alongside citing a Bernstein analyst who believes the “earnings season is going to be the confessional event”, implying greater interest – and scrutiny – on quarterly results.

Looking at the latest numbers from big business in America, the article predicts this earnings season will not be smooth sailing, particularly for companies in the consumer sector. Profits are expected to falter for many – and those with bottom lines not in the red will “be the exception rather than the rule this year”.

Weak demand due to customers reining in spending on discretionary items and focusing more than ever on bargains and discounts will be, unsurprisingly, a dominant theme this year – putting the spotlight on costs which are bound to look excessive. The markets will be taking special interest in how companies lay out their plans for the year ahead; and it’s expected that many will be deferring significant expenditures until later.

Stand-out statistics

41/47: The proportion of retailers who reported year-on-year upticks in like-for-like Christmas trading sales, as detailed by Retail Week’s Golden Quarter benchmarking table [Retail Week].

6^th: As The Daily Telegraph’s Oliver Gill tweeted, “for all the doom & gloom about the high street, retail only makes sixth spot on the @BegbiesTRNGroup hit list,” ranking volumes of companies in significant financial distress across different sectors. Bars and Restaurants ranked lower, at 10 ^th [ Twitter].

57.3%: The annual increase in company insolvencies in 2022, according to the Insolvency Service; marking the highest number since 2009 and a 75% increase on 2020. Insolvencies in the retail industry were up a considerably lower 15% [ Drapers].

2021 vs 2022: Rail Strike, Strong Festive Retail, and Cost of Living ranked as key words and phrases in Christmas Trading media coverage this January – with the latter totting up 714 mentions. Last year, the key phrases of Pre-Pandemic, Office, and Consumer Confidence reflected a very different market backdrop. : Rail Strike, Strong Festive Retail, and Cost of Living ranked as key words and phrases in Christmas Trading media coverage this January – with the latter totting up 714 mentions. Last year, the key phrases of Pre-Pandemic, Office, and Consumer Confidence reflected a very different market backdrop. [FTI analysis via Factiva, searching “Christmas Trading”, Major UK Business Outlets, Retail/Consumer Goods/Leisure/Hospitality sector news, 1^st-31 ^st January (2023 vs 2022)].

What do you think? 

We hope you find FTI Consumer Industries Snapshots helpful. If you have any ideas or questions or would like to recommend that a colleague joins our mailing list, we’d love to hear from you. Please do get in touch at [email protected].