In the Consumer Products (CP) sector, businesses are dealing with a perfect storm: rocketing inflation, rising energy costs and continued supply chain disruption. With consumers now carefully watching their wallets, the path towards Christmas and into 2023 is going to be bumpy. Latest figures from the British Retail Consortium and bank surveys show that British consumer spending lags well behind inflation, adding to concerns about an impending recession.
The AlixPartners Disruption Index reported that CP companies enjoyed a resurgence in revenues and margins in 2021. However, the party is over and companies that successfully navigated the pandemic are now having to rapidly respond to this challenging macro-economic context, competing for market share while continuing to delight their customers and meet their obligations on sustainability, with Net Zero goals to be submitted in 2023.
Despite this gloomy outlook, businesses need to keep a clear head and balance short-term interventions (price, product) with continued investment in retaining top talent, leveraging technology to drive operational efficiencies, and protecting brand value in the market. A 'race to the bottom' on price is going to have limited benefit in the mid-term – particularly as the power dynamic between CPG and retailers is starting to shift, as suppliers increasingly have more leverage.
Consumer behaviour is also changing, as households explore new ways to cut costs in anticipation of a tough winter; fears about energy bills, the cost of food and possible shortages of staple products such as pasta are dampening confidence. This will particularly impact discretionary spending on consumer electronics, makeup and accessories.
On a positive note, the current situation has become a catalyst for more sustainable choices. As well as the shift towards investment in alternative energy and electronic vehicles, consumers are seeking cheaper options, such as buying 'wonky' vegetables, to help keep their weekly grocery bills down. These changes in behaviours are likely to stick and contribute to a shift towards more environmentally friendly habits.
Businesses that are perceived to be helping consumers through the downturn and sticking to their sustainability commitments will emerge as winners in the long term: this requires syncing ambition with outcomes across the entire CP value chain. For the moment, though, having a clear plan to address cost base and build in supply chain resilience will be mission-critical.