The past couple of years have been particularly tough for UK consumer industries.

Lockdowns have passed but now the cost-of-living crisis is impacting discretionary spend and town centres are having to learn to adjust to hybrid working patterns and changing consumer behaviours. Train and postal strikes have also hampered the industry’s attempts to profit from the festive period, for some, the most profitable time of year. 

UKHospitality estimates its members lost £1.5bn of business in December 2022 alone, while Alix Partners reports that business closures hit 18 per day in the final quarter of 2022, up from an average of 13 since the first UK lockdown in 2020. 

In retail, the Office of National Statistics figures show that sales volumes were down 5.7% in the final quarter of 2022, compared with the same period the year before. Sales value was up 4.5% but that was only due to raging inflation. 

Our research, based on a survey of businesses in the sector as well as interviews with industry leaders, highlights that there are many challenges facing consumer industries but those that value their staff and manage costs will be future fit.

David Scott, our Head of Retail and Leisure, comments: “Businesses face the reality of cash flow pressure from additional Covid support loan repayments, and with increased industrial action impacting the sector’s ability to trade plus the cost of living crisis, they are being hit really hard.

“Businesses will need to devise new ways of dealing with changing consumer behaviours and how we all prioritise where we spend our money.”

It is clear from our research that sustainability is not just an environmental issue, it is also about financial survival. Some 80% of consumer industries businesses identify the ability to manage financial risks as a main quality of a sustainable business, compared with just 65% on average across all sectors (see chart below).

Many businesses are focusing on surviving the cost-of-living crisis, but that does not mean they are failing to consider environmental sustainability. In fact, 72% now consider their suppliers’ carbon transition plans as an important relationship choice  – up from a cross-industry average of 56%.

David believes that those businesses balancing managing rising cost while also trying to reduce carbon footprints are doing everything they can to future-proof their companies.

“For many, sustainability today is all about survival and managing the financial risk they’re facing,” he says. “However, they know consumers would rather buy from a business with green credentials and they are taking reducing their environmental impact very seriously, and they’re working with their supply chains to achieve it.”

If there is one silver lining from the current cost of living crisis, high energy prices are making renewable energy, such as solar panels, more attractive. While it may cost hundreds of thousands of pounds, the payback is shifting from 15 years to around 6. 

This could account for why cost factors are far outweighing environmental concern in the adoption of green energy solutions – our research shows that only 2% of consumer industries businesses have invested because of environmental issues, whereas 62% say their decision to invest was guided by cost considerations.

The balance between environmental and financial sustainability has certainly been the strategy for Marco Mendes, co-founder of MJMK, the group which has set up several restaurant chains, including Casa do Frango.

“Sustainability is about survival, but environmental sustainability is incredibly important too. There's no single-use plastic in any of our sites and a lot of our energy comes from renewables.”

Marco understands there are only so many additional costs that can be borne by the customer. He has used the company’s long-standing relationship with food suppliers to negotiate costs to mitigate the impact of rising inflation. With prices rising and margins being squeezed, both sides agreed previous arrangements had to be reworked. 

Having these tough conversations is crucial for any business in the industry that wants to be fit for the future, Marco explains. “Sustainability, in the financial sense, is more about being as robust as possible.

“You need a fool proof, robust business model that can weather the pressures of double-digit inflation and higher interest rates. The good news is if you can achieve resilience in your business model now, you'll be able to do better when things are better.”

• Consider solar panels, as high energy costs mean the payback period is now much shorter.
• Avoiding single use plastics is a clear public statement of a company’s commitment to the environment.
• Boost your own carbon reduction measures by prioritising supply chain partners who are also taking action.
• Have a conversation with suppliers and landlords to secure costs that curtail inflationary pressure. The promise of a long-term relationship may help.

The sector is facing a major challenge in both attracting and retaining skilled staff. Businesses have tried to recover from the impact of successive lockdowns, but they are finding that people who left the sector have found careers elsewhere. Brexit has also impacted the number of staff able to travel from the EU to take up roles.

The net effect was summed up in a recent report by UKHospitality and the British Beer and Pub Association, which estimated staff shortages had cost the industry £21bn.

This was shown in our survey, where respondents in the consumer industries identify the pre-existing staff shortage issue as getting worse. Some 44% agree that winning new talent is becoming an increasing challenge, compared with 36% across all sectors.

While many businesses in the sector are offering pay rises, it is unlikely that all are able to match inflation. Many are relying on purpose, and simply making their staff feel valued, as a means of attracting and retaining staff. 

In our survey, 40% of consumer industries respondents reveal they think being purpose-led avoids staff leaving for a small pay rise elsewhere. Additionally, nearly half (48%) say a purpose-led business culture is an important pillar of a sustainable company.

While Marco has raised his staff’s pay, he is also noticing the importance of values in attracting and retaining motivated staff. For a young company, this cannot extend to expensive gym memberships or private medical schemes. However, it is there for all to see in how the business treats its people.

“We’re finding more and more staff are prioritising elements other than remuneration, such as their welfare and how they're treated.

“We have an acronym, called ‘TRIP’, which stands for: Teamwork, Responsibility, Integrity and Passion. We live by these values and we are finding that people genuinely buy into them. That obviously has a bearing on their decision to stay with us.”

• Make sure your business has purpose-led values, which are communicated to staff.
• Treating staff well and making them feel valued is not only the right thing to do, but it also prevents people leaving for a small pay rise elsewhere.
• Consider employee extras such as subsidising staff travel or offering subsidised canteens.

The value of digitisation to both run companies more efficiently and launch new services was clear during the pandemic. Those retailers and food and beverage companies that could pivot to sell their wares online were able to build new revenue lines. 

The story emerging from our survey is mixed. On one hand, 98% of consumer industries companies confirm they have invested in digitisation, however, when it comes to future intentions, 42% say they have no plan for further investment.

This could lead to problems further down the line for businesses that believe digitisation can ever be considered as finalised, says David. “It’s not a single investment, you have to reinvest on a regular basis. The pandemic educated us all to be more comfortable interacting with companies online. 

“Regardless of the demographic of your consumer it’s important to maintain investment. An omnichannel approach, combining digital with bricks and mortar, is important. The clothing, home, food and electricals sub-sectors have embraced digital and, in recent years, have seen the highest growth from this channel.”

Digitisation must be seen as constant and not just a one-off expense.

Appeal to all age groups when it comes to your digital offering. It is not just the young that are confident using online services.

Explore how digitisation can open new revenue streams beyond bricks and mortar. Ecommerce now extends to cook-at-home pizzas from restaurants and cocktail bars posting customers ingredients.

Consider whether your company could use digitisation to set up a direct to consumer (D2C) business, such as a subscription element.

The consumer industries understand that to be fit for the future they must redouble efforts to offer staff a caring, supportive environment to hire and retain talent as well as be adept at managing inflationary pressure in their businesses.

Despite it being a difficult period for businesses, David believes they will come back stronger. “This sector has some of the most talented and resilient people you’ll ever meet. They are flexible in how they deal with the current challenges – it’s an incredible industry and I’m very proud to be part of it.”