This year’s Golden Quarter saw some mixed results for consumer businesses. While trading may have outperformed expectations for a few, across the board we saw a slight downturn in performance. These categorised by a few trends:
While Christmas and celebrations remained important, we saw smaller family gatherings, fewer presents as a result and more sensible spending, consumers “played it safe”. That translated to more disciplined spending in general, with shoppers being more conscious about what they bought, despite still opting for ‘selective treats’. We saw cut backs in areas such as toys, sports equipment, watches and jewellery. And shoppers were more cautious on pet gifting.
But grocery and hospitality grew its share of wallet over the period, as consumers prioritised eating and celebrating. Volumes may have been below pre-pandemic levels, but many retailers reported strong sales of premium ranges - particularly those that got execution right - as people looked to treat and trade up, and others managed inflation and temptation with promotion and store choice. Elsewhere, some hospitality operators, particularly more premium and trusted restaurant brands, were able to toast a strong end to the year for the second consecutive year as a welcome relief.
As consumers looked to spend less across the board, they defaulted to brands they considered reliable or promised quality - whether for food, gifts or experience. Inevitably, that led more people to larger, trusted brands and made it challenging for smaller businesses, new entrants and independents. While good news for many of our beloved and established retailers, it was less positive news for some value retailers, as shoppers looked to avoid temptation.
Given the trend toward considered consumption, winning formulas combined brand relevance, value for money, scale, and multi-channel offerings. The real success stories this year kept customers close, running effective and far-reaching advertising campaigns and encouraging people to prioritise (and spend on) quality.
Watch the recording of our Retail Briefing 2024 for more detail on how the consumer markets sector performed across the Golden Quarter. We also explore the economic, political and consumer outlook for the year ahead - including a focus on emerging technologies and GenAI - and look at what these trends might mean for the market, retailers and consumers in 2024 and beyond.
There will be opportunities for success in 2024. Despite a slow start to the year with some non-food retailers using promotional levers to entice shoppers, positive indicators such as falling inflation, interest rates drops and improving consumer confidence hint at a better second half of the year.
- Cost of living - the worst should be over
- Falling inflation and (hopefully) interest rates
- High employment, real wage growth
- National Insurance and other Budget giveaways
- Spending intentions better than last year
- Inflation falling... but not negative
- More fixed rate mortgages ending; rent inflation
- Employment levels peaked, higher job insecurity
- Polarisation between affluent/less affluent and young/old
- Anaemic spending forecasts
Our January Consumer Sentiment Survey has seen sentiment bounce back after stalling in the summer. In a somewhat surprising and significant improvement (to -4), it is now more positive than the long-run average. In fact, it is now the best score since September 2021, continuing a trend in the right direction that started in Autumn 2022.
Household finances have seen a small improvement again, with one in three having money left for luxuries and savings and only 8% telling us they are either struggling or in trouble. Older and wealthier consumers, in particular, are less affected by the cost-of-living crisis, with the majority of over 65s telling us they believe their finances are healthy. A third of all adults now believe they have healthy finances.
But even with wages now rising faster than prices and inflation affecting fewer people this year - only 48% are expecting to spend less because of the rising costs of everyday products (v 57% last) - discretionary spending categories will remain squeezed. Our survey suggests that consumers are more optimistic than this time last year, with a marked improvement across all categories. Priorities are likely to continue to be food, pets, holidays and children, as going out, big ticket items and eating out all feel the pinch.
Overall, we’re expecting a more normalised - if slightly subdued - year ahead, with less impact from inflation, less variation in retailer performance between different product categories, and less variation between instore and online. Winners will be the ones that can stimulate demand and find those pockets of consumer resilience such as the wealthier, younger and older demographics. That will see retailers look to ensure they are wherever their customers want them to be, as well as explore new routes to market, foster partnerships and consider M&A to fill proposition and capability gaps. Leading retailers will also look to build resilience into operations and supply chains and harness emerging technologies to improve efficiencies, empower workforces and find new ways to deliver growth.
Encouragely, PwC UK’s CEO Survey shows leaders looking to move away from a focus on cost-out and towards driving growth. In fact, 78% tell us their growth strategy is driving transformation in their organisation.
To secure long-term viability and growth, businesses are planning to use transactions - whether M&A, divestments, joint ventures or refinancing – as a crucial transformation factor, from enabling faster tech adoption to accelerating decarbonisation or adding new skills to the workforce. Our latest Value Creation research reveals over half (56%) of senior executives see transactions as the best way to keep up with market developments and overcome challenges.
Across consumer markets, there appears to be cautious optimism for an uptick in M&A in 2024, provided macroeconomic conditions hold steady.
“While M&A in consumer markets may take longer to recover, it remains a powerful—and, indeed, essential—lever to transform, accelerate growth and give companies a competitive edge as they face tomorrow’s challenges.”
Hervé Roesch, Global Consumer Markets Deals Leader, Partner, PwC UK
Yet transformative transactions aren’t always easy to get right. While most say their experience of using transactions to create value has been positive, around one in five failed to meet expectations.
By aligning target transactions with a bold vision, leaders can create a path to long-term viability and growth through deals that support the organisations ambitions and create value through enabling tech ambitions, accelerating decarbonisation, improving workforce skills and capabilities, or more. Companies and leaders can take some simple steps to be prepare for what’s ahead:
After the biggest drop in over two years, consumer sentiment has reached 2024’s lowest level. While economic indicators remain strong, with inflation stable, real wages increasing and more interest cuts likely, this hasn’t translated into optimism among consumers.
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Global FDD Leader and Retail, Consumer and Leisure Specialist, PwC United Kingdom
Tel: +44 (0)7802 882562
