FTI Consumer Industries Snapshot Summary – 2022 Looking Ahead

A brief time-travel back to 2021…

Cast your mind back to 4th February 2021: The ‘South African’ Covid-19 variant was on the rise, but a milestone 10 million Britons had received their first vaccination; consumer-facing businesses held high hopes for a smoother year ahead. Last year’s wrap-up snapshot forecast: a London IPO surge; F&B consolidation; retail space reconfigured towards leisure and community purposes; a partial bounce-back for international travel; and accelerated ESG credentials, prompted by regulations, reconfigured operations post-Brexit, and general stakeholder and consumer demand.

Did these themes stay relevant through 2021? It was by no means the full bounce-back we would have wished for, but many of these predictions rang true. In Christmas Trading Statements through January 2022, management commentary tended to follow a three-fold formula:

1. Pleasant relief: Christmas trading was generally better than expected, including several profit upgrades, against sizeable challenges – not least, supply chain hold-ups, labour shortages, cost inflation, consumer caution in the face of Omicron. Of the 88 consumer-facing companies whose trading updates we summarised, only 15 reported like-for-like or total sales in negative territory (appreciating that many companies disclosed selectively on a two-year basis for obvious reasons). However….
2. Further apprehension: Outlook statements were heavily peppered with caution in the face of continued uncertainty, on the back of earlier profit warnings amidst volatile locked-down trading conditions.
3. Gratitude: Remarks of thanks to colleagues and partners are nothing new in management statements, but many companies highlighted employee rewards amidst a competitive labour-market, announcing pay rises, discretionary bonuses and new roles.

And what to expect of 2022?

How will consumer-facing companies manage acute margin pressures whilst transforming their businesses to serve the savvy post-pandemic consumer, whilst attracting the talent pipeline necessary to deliver a competitive proposition? Read on to see what sector commentators are forecasting…

Shall we carry the cost, or should you?

Today, UK Hospitality warned of an average 11% uptick in prices over the coming months at pubs, bars, restaurants and hotels, following a surge in overheads and anticipation of what the industry body deemed the “five horrors”: increased National Insurance contributions; a rise in the National Living Wage; further withdrawal of Covid support; a peak in inflation; and an end to the moratorium on legal action by creditors [ITV News].  Retailers warning that “2022 is looking to be a tough year shaped by the spectre of inflation” was undoubtably a recurring theme throughout January [Reuters]. Companies including ASOS, Topps Tiles and Whitbread, to name a few, forewarned on higher prices as part of their strategy to offset inflationary costs. Pets at Home on the other hand, said it would target rent reductions, procurement savings and operational efficiencies to keep its customers shielded – a sentiment shared by supermarkets such as Aldi and Lidl who committed to offering customers the best prices. In the coming months we will see how well UK companies fare in a tough inflationary environment and all eyes will be on the next sets of results to understand consumers’ price elasticity.

Pack your bags! Holidays are coming…

Sticking to the theme of consumer spending patterns, households are bracing themselves for difficult months ahead. Looking past the headlines however, it isn’t all doom and gloom. Insights from Panmure Gordon highlight three reasons for cautious optimism: high employment, low household debt and strong saving levels. Analysts at Shore Capital further stressed it is “important to keep a sense of perspective” and issued a reminder that there have previously been “much worse consumer economic metrics”, pointing to the 6% increase in national living wage and the pent-up pandemic savings of many UK households. According to Shore Capital forecasts reported in The Times, much consumer spending post-Covid is earmarked to focus on leisure and travel. Us Brits love our holidays!

In agreement, Panmure Gordon suggest that travel and leisure is “naturally expected to experience the strongest post pandemic rebound in consumer spending”, and this positive sentiment is mirrored by Liberum analysts who remind us of high employment levels, low interest rates and increasing house prices.

Being squeaky clean and green is no longer a ‘nice to have’…

ESG is creating a new frontier for businesses, and especially for those in the consumer-facing industries, with continued pressure from consumers, regulators, investors and governments expecting businesses to not only to commit to sustainable and fair practices but build these into their operations and evidence progress against goals. As of April this year, large UK registered companies will have to disclose climate-related financial information, aligned with the Task Force on Climate-Related Financial Disclosures framework [Gov.uk]. This week, New Look was one of the latest consumer firms to update its sustainability strategy with the goal of becoming a “climate positive” business by 2040 [Edie]. Despite the rise of the ESG agenda with research suggesting customer loyalty hinges on brand values (according to Global Data, two fifths of consumers say they will boycott a brand that doesn’t align with their values [Retail Week]), global research conducted by KPMG highlighted a hard-to-shift “action gap”; consumers claim to be environmentally conscious but rank ESG considerations relatively low on the list of their purchasing considerations. Does this indicate that “the majority of consumers are still prioritising factors such as price, choice and convenience”? Only time will tell, but retail entrepreneur Ian Middleton, states that “…every retailer will need to genuinely embrace green principles if they are going to survive”. [Retail Week]

Digital continues to thrive..

Companies enhanced their digital capabilities during the pandemic and this trend is expected to continue. Businesses are investing heavily in technology to harness the demand for online retail, as well as evolving consumer expectations. As widely reported by publications including the Financial Times, FTSE 100 company Ocado recently unveiled a range of innovations, from lighter robots to automated grocery selection apparatus, competing with rapid delivery start-ups. Moving away from warehouses and towards HQs, digital strategies will continue to be integrated into business models with KPMG suggesting that “interacting with the consumer digitally will continue to be a huge theme in 2022.” Meanwhile, Linda Ellett of KPMG UK, says that “retailers have been getting smarter at driving more immersive experiences for their customers”, such as introducing robotics to guide customers around the shop floor and creating a more personalised approach. We expect more UK companies to report on their innovative creations and digital successes throughout the year, both behind the scenes and in front of consumers.

But don’t forget the human touch

Retail Week aptly summarised that “the era of Covid-forgiveness is over and retail must put service at the top of the agenda.” There is no doubt that the pandemic disruption has provided retailers with an opportunity to completely reimagine the future of shopping, as “consumers expect to be able to resolve any potential issues quickly and easily with a choice of platforms, including online chat, phone or email” according to Kyle Monk, Director of Insights and Analytics at TalkDesk. Recent Salesforce research identifies self-service channels such as chatbots, instant messaging and social media as the “most popular ways to engage customer service” [Forbes].  However, Jo Causon, CEO of the Institute for Customer Services, also stresses the importance of face-to-face communication: “being able to talk to a human when you need to talk to a human is paramount”, providing for different types of buyers. According to the ICS, great customer service matters because it remains a “lead indicator” of an organisation’s performance. If businesses want to retain their customers, they will need to modify their service offerings to suit the new consumer of 2022. [Retail Sector]

On the topic of people – competition for the right talent remains a pressing sector issue. Speaking to The Times, James Reed, chairman of the recruitment group Reed recently remarked that the “balance of power” has shifted “very significantly” in favour of workers and this will remain the case “for the foreseeable”. Customer service, hospitality, catering and retail were all mentioned amongst the sectors with the highest rises in job vacancies in January, partly as firms are “reluctant to offer remote and flexible working”.

Stand-out stats

65/80: The number of companies in our Christmas Trading snapshot that issued a positive like-for-like or total sales performance for the reported period over the Golden Quarter.

196: The number of Supply Chain headlines published in relation to consumer businesses during the Christmas Trading reporting season; a 308% increase on the comparable period in the prior year (2021: 48). [Factiva keyword search, “Supply Chain”, UK Nationals, Industry: Consumer Goods or Leisure/Arts/Hospitality, 03.01.22 – 29.01.22 vs. 04.01.21 – 28.01.21]

280: The volume of sector headlines from the trading update season that related to colleagues or employees; an uptick of 9.4% year-on-year (2021: 256). [Factiva keyword search, UK Nationals, “Colleagues” or “Employees”, Industry: Consumer Goods or Leisure/Arts/Hospitality,  03.01.22 – 29.01.22 vs. 04.01.21 – 28.01.21]

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].