The Changing Consumer
Coronavirus has accelerated change in the consumer sector. We summarise the key changes, and provide expert legal insight on key issues.
The Changing Consumer
How new buying behaviours could transform businesses
The consumer sector is vital to the health of the UK economy. But it's been hugely impacted during COVID-19.
It’s hard to think of a time when businesses operating in the consumer space have been so heavily impacted.
For a sector that contributes so much to our overall economy, there’s been a great deal of insight and analysis into the trends that are emerging.
One of the reports that caught my eye recently was a white paper by a leading online platform which helps retailers analyse and understand customer behaviour and loyalty.
It found that nine out of 10 retailers thought the COVID-19 pandemic had impacted their customer journey. 40% of grocery retailers have seen an increase in visitors to stores, and 85% have seen an increase in online sales.
Interestingly, it said that three quarters of retailers think the changes made as a result of the pandemic will remain in their organisation in the long term.
This looks increasingly likely, given the government's coronavirus recovery strategy. Despite restrictions easing, the move towards adapting to live with the virus will mean a lot of the adaptations we've made will stay with us.
These significant changes, coupled with the other disruptive force of Brexit which is creating its own set of opportunities and challenges, are the reason for this latest Irwin Mitchell study.
This report compiles much of the developments over the last few months, using research data from the likes of Accenture and McKinsey.
Our deep dive into the sector is overlaid with input from Damon Segal, Co-Founder of The Academy of Chief Marketers, businesses we work with who face these challenges and opportunities, and unique insight from many of our legal experts who operate in the sector.
I hope that you find the report useful. If you have any feedback or questions, please do get in touch.
A summary of the key changes that have affected the sector over the last year.
From different demographics to a shift in ethics, we look at the trends that've emerged over the last 12 months.
Consumer behaviour is constantly evolving, but change over the last 12 months has been unprecedented.
The first national lockdown in March last year forced the closure of all non-essential shops, and encouraged people to limit the number of times they went out for groceries and medicines.
The stores that were allowed to stay open included supermarkets, petrol stations, laundrettes, bike shops, pet shops, hardware stores and banks.
Further national lockdowns over the course of the year, as well as the introduction of the tier system, also heavily impacted the sector.
The result was a shift online.
Within days, supermarket delivery slots had been booked up for coming weeks. Meanwhile, supply chains of high-demand items, such as home workout gear, collapsed under the strain.
It’s a change that’s been coming for well over a decade, but has been significantly accelerated over the last 12 months.
This move will mean that online shopping accounts for £18.9 billion of sales by 2022, according to IGD.
A different demographic
“We experienced a surge in website traffic and online sales, as people couldn’t visit physical shops to make purchases. In addition to our usual customer profiles, we picked up new ones – those who wouldn’t usually choose an online channel in order to make a purchase.”
Voice of the Customer Manager
Historically, the internet has been the realm of younger generations.
In 2019, almost all (99%) of 16- to 44-year-olds were recent internet users, according to ONS research about UK internet users. But for those recently retired, the proportion dropped to 67%, and then to less than half (47%) for those aged 75 and over.
This was reflected in the proportion of people making online purchases. In 2019, 97% of those aged 35 or under had shopped online, compared with just 54% of those aged 65 and over, according to data on online purchasing in Great Britain from Statista.
But the pandemic has shortened this gap. In 2020, the proportion of 25- to 30-year-olds shopping online increased by two percentage points to 99%.
At the same time, the proportion of 65 and overs increased by 11 percentage points to 65%.
Retail spending from the 55 and overs is forecast to account for two-thirds of all retail spending in the next ten years. And much of this will be through digital platforms, as they largely stick with the shift to online spending after restrictions are lifted.
Convenience and price
The Waitrose report reveals that 20% of those surveyed hadn’t considered buying their groceries online before, but 41% made the switch after finding it more convenient. Post-pandemic, it’s anticipated that the 55+ group will stick with their shift to online spending.
The ability to find deals and easily compare prices is another factor. The Latest Deals app allows users to compare the price of groceries amongst the UK’s leading supermarkets – ASDA, Aldi, Tesco, Sainsbury’s, Iceland, and more. A simple Google search can help find the cheapest non-essentials.
Discount codes and time-limited sales are rife online too, with websites such as Topcashback allowing consumers to benefit from a lower net price.
The Big Four supermarkets are beginning to act on consumer’s price sensitivity. Both Tesco and Sainsbury’s have committed to price matching Aldi.
This ability to price match, combined with online delivery/click and collect set ups, could see the Big Four reclaim ground after years of losing market share to low-cost German retailers Aldi and Lidl. As the population looks for more convenience, Aldi sales grew by just 5.7% between November and the end of January, compared to 12.2% across the whole UK grocery market, according to Kantar.
But post-pandemic, there’s a belief that consumer attitudes towards price will change, particularly in areas that are less price elastic.
Greg Yeoman, Commercial Director at Condor Ferries, said: "We anticipate that consumers will place a greater emphasis on dependability and trust in their travel providers than on value.
"While we should absolutely ensure we give our customers great value, they’ll also need to be certain that we can guarantee them sufficient flexibility to deal with any change in circumstances, such as a COVID-19 outbreak or other unforeseen event."
"I noticed two main changes regarding buyer behaviour during lockdown.
"[Firstly,] sales moved heavily online, with some less-prepared businesses moving fast to build ecommerce offerings… The second change I saw was that brands with a purpose, especially those who focused on doing good, were coming out on top.
"The world’s changing, with or without the pandemic. People have higher values now, and there’s more expectation of brands to meet global needs, not just consumer ones.
"For example, Tesco announced it had removed one billion pieces of plastic from its UK business in just one year, while Apple committed to being carbon neutral by 2030," said Damon Segal, Co-Founder of The Academy of Chief Marketers.
It’s not just how people shop that’s changed. It’s where they’re shopping and what they’re shopping for, too. 61% of consumers have changed stores, brands or the way they shop, according to research into consumer sentiment during coronavirus by McKinsey & Company.
“Purpose has been a strong topic for quite a while, mainly revolving around the environment, but COVID-19 seemed to accelerate the consumers’ perception of businesses that did good. It’s brought these brands into the spotlight, and increased engagement and loyalty."
The Academy of Chief Marketers
The pandemic has seen 60% of consumers purchase more items because they’re environmentally friendly, ethical or sustainable, according to a report from Accenture. The report suggests that 90% will continue to do so once the pandemic is over, as shoppers become increasingly conscious consumers.
Pre-pandemic, the amount of clothes bought was 60% higher than 15 years ago, and items were only kept for half the time.
But sales have plummeted since coronavirus. The closure of leisure and hospitality venues, combined with the increase in home working and introduction of social distancing, means that people feel more content to wear the outfits they already have.
In fact, rather than buying new clothes, there’s been a move to clearing out the old. Preloved and vintage retailer Depop saw web traffic increase by 200% and turnover double.
The $2.4 trillion fashion industry generates 20% of the world’s wastewater, says the UN Environment Programme. But over recent years, a number of sustainable fashion brands have emerged, creating products from organic materials or recycled materials, such as discarded plastic bottles.
On the other hand, existing brands have reconsidered their approach.
Outside of fashion, Brewdog’s committed to a programme which will see it remove twice as much carbon from the atmosphere as it produces.
The craft beer company has invested £2m in carbon offsetting schemes in the UK, Canada and Australia. The brewer has also bought 2,000 acres of Scottish Highland to plant 1 million trees. In total, Brewdog is investing £30m into the initiatives, according to City AM.
A family-owned food business, producing carbon negative products in response to the climate emergency, said: “During the pandemic consumers’ demand for environmentally friendly products increased dramatically. As a company, it’s something we take very seriously.
“Over the last year, we’ve worked hard to achieve B Corp certification, which means we’ve become part of a global movement of businesses using their influence to make the world a better place.
“This has required us to completely re-evaluate every element of our supply chain and business to meet high ethical standards. We’re proud to have achieved this standard, and to have become Britain’s first carbon negative company in our field.”
And it’s not just the products that have been important, but the way that businesses treat staff as well.
In early March 2020, California-based ethical clothing producer Patagonia closed down all of its operations to protect its staff from the virus, including its direct online sales.
Rather than face criticism from frustrated customers, it received messages of support on social media: “Thank you for putting employees first unlike other companies. Your motto is great and I’m forever going to be a customer of this great brand,” tweeted @ajixxi.
Local businesses have been able to benefit from this mindset shift. Their shorter supply chains usually equate to a lower carbon footprint, while spending in these businesses keeps cash in circulation locally.
These businesses have stepped in where large corporates have been unable to.
They’ve shown that they care about their communities, and have introduced additional services to demonstrate this, such as carrying out home deliveries to support those who are shielding.
Once the pandemic is over, local businesses can expect to see their hard work repaid with loyalty from their community.
We believe that a greater number of customers will continue to shop online, now they’ve become comfortable with the experience and the benefits.
We believe that many people will choose to use businesses who offer a high level of customer service, and who can provide more of a consultative buying experience.
We also believe that consumers will choose to work with businesses who are ethical and have sound policies in place regarding environmental matters. This is a point of differentiation from other retailers and an area in which we will continue to invest.
Voice of the Customer Manager
Our expert insight
"We now know that global recovery will be dependent on a government strategy aimed at allowing us to live with COVID-19, as opposed to eliminating it.
"As a result, it's inevitable that the widespread consumer behaviour changes we've all witnessed during the pandemic will underpin how the market functions in the long term. And for B2C businesses, the increase in e-commerce and online activity can't be ignored.
"More than ever before, businesses must ensure their ad-tech, IT, and logistics strategies and infrastructures are robust enough to cope with surges in demand, and are agile enough to react to opportunities quickly.
"Some businesses will take these operations in house, but most will rely on expert third-party IT consultants and logistics suppliers. Contracts with these suppliers are crucial – we're already seeing board level involvement in their negotiation, and an increase in technology-related litigation where they've gone wrong.
"The prioritisation of convenience and certainty (or brand trust) above price is also another factor to take into account.
"In the hospitality and leisure sector, particularly the travel and events subsectors, consumer rights to refunds have crippled many businesses during the pandemic.
"That pressure is unlikely to disappear, as consumers look to demand guaranteed cancellation and postponement options beyond their statutory rights. This will affect cash flow, and mean that businesses need carefully drafted Ts&Cs that balance additional, attractive customer rights with contractual protection for the business which doesn't fall foul of Consumer Rights legislation.
"Lastly, opportunities will arise from accelerated demand for products, services and overarching brands focused on ethical business, both in terms of the environment and communities.
"Reputations in these areas are hard won, but easily lost in this age of social media. To succeed, businesses must embrace hard-won standards and rigorous audit processes, both imposed on themselves and by third party agencies, such as Beta Corps, whose profile is growing exponentially.
"This isn't easy. It involves detailed consideration of supply chains and people practices, and agreeing contractual mechanisms which protect innocent parties from reputational and other damage if key practices fail in a wider supply chain. Businesses also need strong crisis reaction plans – the window to act and remedy a problem before a brand suffers severe damage can be very small.
"In summary, the changes we've seen all relate to consumers seeking certainty in an age of increasing uncertainty. As we emerge from the pandemic, those levels of uncertainty will fall, but not by much, relative to the past. Businesses too crave certainty, and they can achieve this by focusing on their business relationships. With clarity and certainty in these contracts and agreements, businesses can accommodate future risk and plan for success."
Senior Associate, Commercial
Adapting and Overcoming
Some consumer businesses have been quick to embrace changes and pivot their offering.
Adapting and Overcoming
Across all age groups, 61% of consumers have adopted or tried new shopping habits during the pandemic, according to McKinsey & Company.
Of these, 83% of people who’ve tried a new digital shopping method intend to continue using it.
From B2B to B2C
The sudden switch to online shopping overwhelmed a number of large, established ecommerce businesses.
This presented opportunities for other businesses able to greater meet consumer demand. Some were even able to rapidly change their business models if restrictions had decimated demand from their usual route to market.
Damon Segal, Co-Founder of The Academy of Chief Marketers, noted this change in manufacturers and wholesalers to the hospitality industry.
“Many wholesale wine and drinks business became focused on direct consumer trade,” said Damon.
“This came as Google trends showed a 100% increase in online searches from the week Sunday 15 – Saturday 21 March to Sunday 22 – Saturday 28 March. This area seemed to explode over the first lockdown.”
Tesco responded well to meet the demands of customers that wanted to switch to home delivery or click and collect, and those that wanted to continue to shop in store.
The UK’s largest supermarket chain increased their delivery capacity from 600,000 to 1.5 million. They also introduced measures to combat the spread of COVID-19 in stores to ensure customers can feel safe when doing their essential shop.
The grocery giant also introduced measures to combat the spread of COVID-19 in its stores, ensuring customers could feel safe when visiting in person. This encouraged shoppers to continue physically doing their essential shop, freeing up delivery slots for those forced to shield, those having to self-isolate, and key workers.
But this hasn’t been the case for all businesses.
Case study: Spinlock
Spinlock, a seller of high-quality products for sailing and water sports, retails B2C through its website and B2B to an international distribution network.
CEO Chris Hill said: “While our website traffic increased in line with the change in trends, our B2C sales went down and our B2B sales went up.
“I think this reflected an overall increase in consumer’s demand for reliability and convenience from retailers. In this situation, consumers were using our website to gather information on our products and brand, but using our distributors, who were often more local to them, to buy our products. This meant they could benefit from quicker delivery.
“Our distributors could then purchase stock further in advance and more pro-actively so they should meet any sudden increase in demand.”
Embracing new and existing technologies has also been key to businesses adapting to coronavirus restrictions. For consumer-facing businesses, this has probably been most evident in the leisure and hospitality industry.
Pubs, bars and restaurants were quick to turn to apps and webpages as a means to adhere to social distancing measures and limit consumer interactions with staff. This technology allowed consumers to browse menus, place orders and complete payments using their phones.
The driver behind this was the two-decade-old QR code. Historically the barcode-like image has been used in supply chains because of its ability to store a large amount of information. But the pandemic has seen it progress into consumer-facing environments.
Camera phones now double up as QR scanners, allowing consumers to pay a bill or check-in to a venue as part of the NHS track and trace.
Outside the UK, the QR code is being used in bricks and mortar retail environments too. Businesses such as H&M have been allowing passers-by to purchase items by browsing a shop window and completing the purchase using a QR code, according to the BBC.
Advertising and the use of data
With people forced to stay at home for large parts of 2020 and into 2021, it’s no surprise that screen time increased.
People in the UK spent 40% of their day watching TV and streaming video services on other devices, according to research into surging screen time from Ofcom. This was in addition to scrolling on social media, browsing the web, and performing other online activities.
The use of digitally enabled contact channels, such as apps, social media, email and messenger services, has increased by 10% during the pandemic, according to KPMG’s consumer trends report.
Consumer businesses need to use data to improve their offerings. Data issues are complex, and most large brands collect tonnes of data that they’re not effectively using to enhance their customers’ experience. I think data management should take a less-is-more attitude.
The Academy of Chief Marketers
Online advertising has been growing for a number of years. The shift from TV to other devices is the result of a change in the way content is consumed.
Brands have been quick to adapt to this, using social platforms and influencers as a way of targeting and engaging with consumers. They’ve worked hard to understand their audiences, and provide content, products and services that interest them.
This is supported by the findings from KPMG’s COVID-19 pulse survey. 45% of survey respondents predicted that digital channels will be their main way of connecting with brands in future.
Spinlock is just one company that’s shifted its marketing focus online during the pandemic.
CEO Chris Hill said: “We’re a sponsor and equipment provider to the Americas Cup team. We undertook the project, not only to raise the profile of the team, but because of its online presence, and surrounding activities like education.
“We’re also working with YouTube channel called PlanetSail. The channel has gained a large following due to its insight and opinion on competitive sailing. We’re sponsoring it’s Americas Cup coverage of the Americas Cup.”
Our expert insight
"Many brands are recognising the influential power of influencer marketing campaigns. This shift in marketing focus appears to be a trend that will continue to dominate the advertising landscape for the foreseeable future, even in place of traditional advertising methods.
"87% of shoppers are inspired by an influencer to make a purchase; a statistic that indicates the likely return on investment, according to Rakuten Marketing.
"Since the start of the pandemic, retailers that have quickly adapted and pivoted to 'the new normal' have reaped the benefits of being able to readily respond to changing consumer demands through this channel.
"They've leveraged some of the by-products of the lockdown restrictions and government guidance to stay home, such as:
- The heightened use of devices
- The enhanced reliance on online shopping
- The increased use of social media platforms to virtually stay connected.
"To achieve a successful partnership, brands will need to identify the right type of influencer, and make sure appropriate contractual obligations and restrictions are in place. This offers both parties sufficient protection from regulatory sanctions.
"There are financial and reputational risks if the relationship turns sour, or if the influencer acts beyond their instructions. There's scope for the business to be liable for any misleading content posted.
"In such cases, financial penalties may be incurred for either party’s failure to comply with the strict advertising rules and regulations that prohibit deceptive marketing practices.
"It's clear that communication is key when it comes to influencer marketing, and if both parties get it right, it can have a profound impact on brands and influencers alike."
Senior Associate, Commercial
And its not just the medium that’s changed for marketers.
With consumers responding to more digital advertising and buying products and services online, consumer businesses are catching more data than ever before.
Behavioural artificial intelligence company Scaled Insights has researched the adult’s thoughts and behaviours during COVID-19.
President Dr Stuart Flint, who is also associate professor of psychology at the University of Leeds, discovered two distinctive groups:
- A positive group: more trusting, adventurous and happy
- A negative group: more stressed, depressed and aggressive.
The research found that the second group had exercised less, were sleeping worse, and had changed their diet more. This resulted in lower wellbeing.
He said: “These two groups exist within each commonly defined demographic group, regardless of, for instance, geography or age.
“Different strategies are required [by brands] to optimally engage with them. Businesses will only get so far using demographic-related data and strategies to target consumers. They need to factor in different psychological responses within each group.”
These shifts present both opportunities and challenges.
Our expert insight
“One of the key principles of GDPR is data minimisation. It means that whenever a business collects personal data it needs to think about whether it actually needs it. You can’t collect personal data ‘just in case.’ Any use of personal data needs to be limited to what is necessary.
"Businesses sourced systems quickly at the beginning of the pandemic to help support their change to online. This meant that there wasn’t always time to carry out assessments of how the system collected and processed personal data, and the impact upon the privacy rights of consumers.
"Whenever a new system is bought, which results in a high risk to a person’s privacy rights, a data protection impact assessment should be done to assess the risk, and what can be done to minimise it. If this hasn’t been done, the Information Commissioner’s Office is encouraging businesses to take a step back now and consider whether they need to do an assessment.
"Businesses should also understand where the personal data of their consumers is being processed.
“This includes looking at where personal data is hosted under a cloud solution or where support services are provided from. If there’s an export of personal data from the UK to overseas or vice versa (which covers accessing the personal data as well as outright transfer), then they need to think about whether data export rules under GDPR are being complied with.
“In the summer of 2020, the Schrems II decision meant that businesses had to look again at the safeguards applied to personal data when it’s exported. And Brexit has put the export of personal data from the EEA to the UK under the spotlight.
“The Trade and Cooperation Agreement provides that personal data can continue to flow from the EEA to the UK for four to six months from the end of the transition period. In that time, the UK’s seeking an adequacy decision from the EU so that personal data can continue to be sent to the UK. If this isn’t granted then businesses will need to put in place additional safeguards before the end of the six month period to keep data flowing. The situation needs to be monitored carefully.”
Employment and upskilling
High street footfall is unlikely to return to pre-pandemic levels, according to research by online booking and customer engagement platform Appointedd. Their surveys found that the proportion of shoppers moving away from visiting the high street as often as they used to increased from 25.5% in June 2020 to 46.7% in December 2020.
As a result, 177,000 jobs were lost from the UK’s high street stores last year, according to new figures from the Centre for Retail Research quoted in the Guardian. This equates to 3,400 job cuts a week.
A further 200,000 jobs in the consumer sector may also be lost this year. This is due to the furlough scheme drawing to a close, and some of the biggest names in the industry, including Debenhams, closing their doors.
But some businesses that’ve successfully shifted to serving their customers have been able to retain staff. These companies have gone on to upskill employees so they can fulfil digital roles or be used elsewhere in the business.
HSBC has announced plans to close 82 UK branches between April and September this year due to the uptake of online banking during the pandemic. The banking giant has stated that it doesn’t expect to make any redundancies, and will move staff to nearby branches.
Our expert insight
"The COVID-19 pandemic has affected all businesses, and presented a variety of challenges.
"We’ve witnessed and supported business through restructures and redundancies, but the repercussions of the pandemic go much deeper and will be felt for much longer. As and when the situation improves and life starts to return to a semblance of normality, there are many challenges to come, particularly for those businesses within the consumer sector.
"Managing the return of employees to the workplace will mean juggling many competing concerns and issues. This will range from ensuring that workplaces are COVID secure to managing absence – not only in cases where employees contract coronavirus or are required to self-isolate, but where employees are reluctant to return to work or even suffer from COVID anxiety, and also where the absence is long term as a result of long COVID.
"The testing and vaccination programmes, while offering many solutions, have also introduced a number of complications and complexities. We’re receiving more enquiries on the implementation of testing in the workplace and what can be done if employees are unwilling to have the vaccine. We’re also being asked whether employees can be required to have the vaccine.
"Momentum has built around some so-called ‘COVID conspiracy theories.’ If they continue to gain momentum, they could potentially meet the requirements to be ‘beliefs’ under discrimination legislation in the future.
"And then there are the longer term cultural challenges as we reflect on new ways of working which have emerged as a result of the pandemic and changes in consumer demand. HR strategy and management has always been challenging and ever-changing, but this has never been the case so much as now.”
The Future of the High Street
With the changes that have emerged during the pandemic, what's the future look like for bricks and mortar stores?
The Future of the High Street
Pre-pandemic, ‘experiential retail’ was being looked at as a way to save bricks and mortar stores.
Adopting it would give physical retailers a USP over online set-ups by giving consumers one-off experiences, ranging from unique product launches to pop-up stores, and even hands-on sessions.
It remains to be seen whether this returns as the effects of COVID-19 ease. Will customers still want to gather en masse? Will they be willing to pay for parking, face the rain, and stand in queues when free next day delivery is available?
Despite all of this, there remains belief that the high street can recover.
With little opportunity to treat themselves, and most domestic and foreign holidays cancelled, UK consumers have amassed £100bn in savings, according to the Guardian. Pent-up demand could lead to another roaring 20s once restrictions ease.
The rollout of the vaccines at the start of 2021 has led to consumer confidence hitting a high not seen since before the pandemic, according to IGD's Shopper Confidence Index.
Damon Segal said: “If 30% of retail trade is done online, 70% isn’t. Sure, we’ve seen a massive shift online, but people want to get out. People want to touch, feel, smell and pick their preferences. I think that there'll always be a need for stores, but they'll need to provide the best experience.”
Harvey Jenkinson is co-founder and CEO of Gravity Fitness – a trampoline park with locations throughout the UK.
He added: “The general footfall for the business stems from the traffic to the surrounding retail venues. We rely on people going to these venues and making a day of the experience by coming to one of our parks to experience trampolining, climbing, electric karting or golf.
“We had to close the parks during lockdown, but maintained contact with customers over social media and adapted to social distancing. When customers could come back, our parks were very busy.
“People want to experience things, now more than ever following the restrictions. We believe that businesses will need to offer experiences to be able to grow. People will be less interested in going to bars, and more likely to go to a bar that offers a range of activities.”
Our expert insight
"The recent demise of high-profile retail institutions and use of Company Voluntary Agreement’s to slash rents, illustrates how retailers are facing unprecedented levels of disruption to their businesses. This risks fundamentally changing the shape of the high street as we know it.
"The resulting spate of store closures and subsequent impact on footfall, means retailers can be expected to focus their efforts on fewer high-performing stores and finding ways to stay relevant to consumers, whether through the continued use of ‘experiential retail’ or adapting their operations to get customers through their doors.
"The surge in online demand, which has been accelerated by COVID-19, means that many retailers who haven’t adapted their business models to embrace online sales are at risk of going under. Some retailers with strong balance sheets and low levels of debt will be able to withstand the impact of the pandemic. Others will be forced to close.
"It’s expected that retailers will be closely monitoring what happens post-pandemic and hoping that the government’s flagship £1 billion Future High Streets Fund will help areas recover and stimulate long-term growth in the sector.
"The introduction of the new use class E, which will enable the repurposing of buildings in high streets without the need to obtain planning permission, will give retailers greater flexibility in the way they operate. Local authorities will be looking for other sectors, such as hospitality and leisure operators, to step into the breach and utilise the space that’s become available, and for residential developers to take on the larger department stores.
"Only time with tell, but once the restrictions imposed by COVID-19 ease, and consumers feel safe enough to venture from their homes (following the vaccination rollout), retailers will be hoping that pent up demand will lead to a recovery.
"But consumers may be returning to a high street that looks and feels very different to the one they once knew."
Senior Associate, Real Estate
Wider Pressures Affecting the Consumer Sector
It's not just the pandemic that consumer businesses need to be aware of – Brexit and climate change are also critical.
Wider Pressures Affecting the Consumer Sector
"Uncertainty over the length of lockdown, the economic downturn and potential supply chain issues around the EU trade deal means that confidence will remain fragile for the foreseeable future," said Simon Wainwright, Director of Global Insight at IGD (quoted on IGD).
Since Brexit, imports and exports have become more difficult, with trade barriers and increased red tape holding up the movement of goods.
This has impacted supply chains, with consumer goods, parts and perishables trapped in containers, leaving some UK supermarket shelves empty as a result.
The BBC has reported on these problems at the ports. It says that 10,000 lorries would usually cross the Channel between Dover and Calais every day, but just 2,000 were crossing in mid-January. It also notes a reduction in traffic between Northern Ireland and the Republic of Ireland.
Groceries are particularly at risk. Half of all food consumed in the UK is imported, with 32% coming from the EU, according to research from Kantar. The proportion of fresh food that’s imported is even higher at 62%.
The knock-on effect will be price increases. But consumers are already wary about spending more in the midst of the pandemic, and price rises might result in a change in consumer behaviour as they look to save pennies.
It’s worth noting that there are also opportunities for UK-based businesses who sell to the UK market, according to Deloitte’s Consumer Review. They have a significant opportunity to strengthen their market share through price, if imports from foreign competition become more expensive.
Likewise, a fall in the value of the pound could lead to an increase in demand for expensive luxury goods from foreign buyers. At the other end of the scale, discount and low-end retailers could gain new customers as UK nationals look to save money.
These issues could be exacerbated for the grocery sector and others that rely on foreign labour.
Every year, 90,000 workers are needed to pick fruit and vegetables on UK farms, and low-paid foreign workers account for a significant proportion of these. But the end of the free movement of foreign nationals, and the introduction of the points-based system, will reduce the chance of low-skilled workers obtaining a visa.
On top of this, food and drink growing businesses will become increasingly impacted by climate change as it continues to affect yields. By the year 2100, Britain could be 5°C warmer, with 1400mm less rainfall during the growing season of April to September, according to The Independent. A change such as this would leave many areas unable to support their usual crops.
Our expert insight
“The underlying consequences of being a ‘third country’ to the EU, and in certain respects Northern Ireland, were predictable. They’re now starting to emerge, with increases in direct and indirect costs, logistics friction, and other impediments to trade in goods and consumer services.
"This will continue to result in retail price, speed and flexibility of delivery, and product and service range impacts on both exports and imports (including to and from Northern Ireland).
“The weakening of the Pound due to our situation may help exports, but will further impact import costs. UK companies with a significant EU mix in what they buy and/or sell are likely to focus on whether to change sources, discontinue lines, or increase prices for the domestic market.
"Some may look to make more of an effort to sell products that have been traditionally heavily exported to the EU (e.g. some types of fish) in the domestic market to offset the reduced options/viability in those markets. This might result in some price improvement in some domestic-sourced products, if retailers have sufficient margin to be able to promote increased domestic sales in this way.
“Eventual decisions on services regulations and GDPR will also have direct and indirect effects that need to be monitored for. If the Johnson administration decides to diverge from EU standards materially in future, then the situation’s likely to become more complicated – so continual active monitoring and horizon scanning is prudent.”
General Counsel and Brexit expert
Top Tips for Consumer Businesses
Six things to take away from this report
Top Tips for Consumer Businesses
1. Retailers must adapt their businesses to embrace online sales or risk going out of business.
2. Consumer business embracing new ad-tech, IT and logistics strategies must ensure they're robust enough to cope with surges in demand and agile enough to react to opportunities. Contracts with any third-party providers of these are vital.
3. All consumer businesses must consider the data they’re collecting on their customers, and ask whether they really need it. Data can’t be collected ‘just in case.’ They should also use this time to look at where any data that their systems collect is physically stored, and make sure GDPR export rules are being complied with.
4. Hospitality and leisure operators have an opportunity to ‘step into the breach’ and utilise the space that has become available on the high street by taking advantage of the new use class E.
5. Businesses need to consider the long-term impact of the pandemic on staff. While they need to make sure their premises and practices are COVID secure, they also need to be aware that some staff may be reluctant to return to work or be suffering from COVID anxiety.
6. A weak Pound as a result of Brexit may help those businesses that export to the EU. But this could be offset by an increase in costs and bureaucracy the borders. It may be prudent to explore whether more sales can be made to the domestic market.