what’s in store? · 2015-06-03 · facing a w-shaped downturn, with plenty more pain to come in...

What’s in Store?Business insight for the retail and consumer sector

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WelcomeIn this edition

But if 2009 hasn’t been such a bad year, what about 2010? Most forecasters agree that we’re likely to have quite a reasonable Christmas; it’s 2010 where opinions really start to diverge - in fact I don’t think I‘ve ever seen the pundits so dramatically divided. At one end of the spectrum we have the optimists who say this is a V-shaped recession, and the upturn may prove to be as fast and sharp as the original nose-dive. At the other extreme, there are those who insist that we’re facing a W-shaped downturn, with plenty more pain to come in the shape of higher unemployment, higher taxes, and higher interest rates (and let’s not forget that the UK is the only G20 nation not to have shown growth in the last three months). And last but not least in this alphabet soup of forecasts, is the L-shaped recession, which will have us bumping along the bottom on zero growth for a good while to come.

So 2010 could be a lot better than 2009, or a great deal worse; the short answer is that no-one yet knows. With that in mind, we’ve tried to ensure that this edition of What’s in Store is balanced between articles that help you manage through the immediate challenges of the recession, and those that look ahead to longer term trends. We have a piece that looks

at how consumers are changing their shopping patterns in response to the downturn, and another focussing on new and smarter ways to compete with the value sector. We discuss the current prospects for retailers’ financial services operations in the light of PwC’s latest survey of UK consumer credit, and share some advice from our insurance team on how to get the most out of these add-on operations. Looking further ahead, we gain some insights on successful international expansion from drinks giant Diageo, and examine how the sustainability agenda is affecting the retail and consumer sector, both now, and in the long term.

However next year turns out, one thing is clear – every company in our industry needs to remain agile and flexible enough to respond quickly and effectively to new trends and developments. And with that in mind, I wish you a prosperous Christmas and an even more successful 2010.

Happy trading

Mark Hudson UK Retail and Consumer Leader

… and what have we done? Or rather, what has the market done? This time last year we were heading into one of the most uncertain year-end trading periods any of us had ever experienced, with the pundits forecasting gloom and doom, both for Christmas and for 2009 as a whole. As it’s turned out, 2009 has been far better than anyone expected, not least because a combination of low interest rates and falling fuel and utility prices has left consumers with more money to spend.

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And so this is Christmas…

Elsewhere in this edition we look in detail at the latest PwC research about consumer behaviour in the recession, and how it’s changing. The evidence suggests that tactical responses like trading down and switching store may well prove to be far more enduring this time round than has been the case with other recent downturns. After all, the value sector grew up largely as a result of the pressures of the recession of the early 90s, which means that for the first time consumers now have a genuine opportunity to ‘change their lifestyle, not their supermarket’ – and it appears that they’re taking it. But what does all this mean for the mainstream mid-market players? Can they really hope to win a price war with their cheaper peers, or are there cleverer and more strategic ways to compete?

Compete on value – not on priceRetail history is littered with mid-market players who thought they could compete on price alone, and found to their cost that their value and discount competitors were much better equipped to survive a price war than they were. Part of this is about the ability to survive on paper-thin margins, but a good deal of it is down to a completely different operating model. Businesses like Lidl or Aldi don’t just have low overheads, they have their own distinctive approach to everything from supply chain management to marketing, as well as a completely different culture. This means it’s almost always easier to start a new low-cost business from the ground up, than make the drastic changes required to convert a higher-cost one.

In the past, the typical mid-market response to all this has been to differentiate their own offering by adding value rather than cutting price, but the changes we’re currently seeing in consumer behaviour are calling this whole approach into question. For a start, if people genuinely believe they’ve been

As the value sector continues to gain share

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The smart players in the mid-market are changing their game

getting the same or better value by switching to cheaper stores or products, then that suggests that value and price are no longer synonymous – if they ever were. Moreover, consumers no longer seem to want many of the so-called ‘added value’ elements offered by mid-market companies, and the PwC research suggests this could well be a long-term change in purchasing priorities, rather than simply a defensive move in the face of a downturn. As Mark Hudson, PwC’s UK Head of Retail & Consumer, says, “The mid-market players need to think again about the best way to compete with the value sector, and a good place to start is by establishing what it is about their portfolio of goods and services that customers do value, and which they don’t.”

The theory sounds straightforward enough, but what does it mean in practice? There are two distinct but related answers to this all-important question.

Inside the business: good costs and bad costsThe first answer is to cut out costs that deliver no consumer benefit. This means reducing overheads, maximising procurement savings, and eliminating redundant product and service features. In essence, this is about identifying good costs, and bad costs – good ones that generate value for the customer, and bad ones that don’t. Hotel concierge and secretarial services are a classic example. There was a time that no business-oriented hotel could be without a suite of services like this – and the expensive physical space and equipment to support it – but now that almost every business traveller uses their own Blackberry or laptop, guests no longer value, or want to pay for, these services. It’s an obvious area where hoteliers can save money without having any adverse impact on the quality of experience offered to customers. But although eradicating ‘bad’ costs can mean making big one-off changes like this, it’s more typically about establishing a virtuous circle of constant waste reduction and efficiency improvements over time.

The second limb of this strategy is to match your proposition to what people want, and are willing to pay for.

Out in the market: from value for money, to money for valueThe most effective way for mainstream companies to protect their competitive position with consumers is by tailoring what they offer to what people really value. One approach that’s already proved successful for mid-market businesses across the retail, consumer goods, and leisure sectors is the concept of different price ranges, from budget to indulgent. This keeps people shopping in the same place, but allows them to choose which price point suits them. Waitrose Essentials, Tesco’s Value range, and Sainsbury’s Basics are all good examples of the big 4 supermarkets using this strategy to take the value operators on at their own game.

Creating different channels is another alternative. For instance, shopping online offers consumers extra convenience, and they’re usually prepared to pay the associated delivery charge. Likewise small local stores can often charge more for basic items purchased outside the main weekly shop, and formats like Tesco Metro and Express have capitalised on this model. New formats like this can be a very effective way for mid-market players to compete with low-cost competitors, because they can be built independently of the existing business, which

The smart players in the mid-market are changing their game (cont’d)

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“The mid-market players need to think again about the best way to compete with the value sector, and a good place to start is by establishing what it is about their portfolio of goods and services that customers do value, and which they don’t.”

means they can leverage scale benefits but avoid legacy costs. There could be huge opportunities for mainstream companies in this area.

Timing is another factor that can often be flexed. The simplest version of this is the good old-fashioned BOGOF or multipack offer – if people are prepared to buy more in one go, they get the benefit in terms of price – but you can also see it in operation in the travel industry, where the pricing model encourages passengers to buy their tickets as far in advance as possible.

As Mark Hudson says, “We expect to see many more mid-market and mainstream businesses testing versions of these strategies in the market, as a means of establishing exactly what it is that consumers really value. We also expect to see a fourth approach emerging, which has the potentially to transform the industry even more radically.”

Disaggregate to accumulateThis new approach is disaggregation, and it’s where much of the smart mid-market money is going at the moment. It allows companies to ‘unbundle’ what they’re offering into its component parts, so that they can evaluate exactly which elements people value, and at what price. In theory it’s a win-win for everyone concerned: customers get more of what they want, and companies make more money doing it. A successful unbundling strategy requires a high level of insight about the cost of – and demand for – each individual component, but once you have this, it can help you make better decisions about the pricing and positioning of your offer. For example, if none of your consumers value a particular element of a product or service then it should ideally be dropped altogether. If some customers value it, then you need to explore ways to make them pay a suitable price for it, so that the majority of customers don’t have to subsidise the minority. And even if you find that all your consumers do value what you’re offering, you may still be able to find a way to get

them to do it for themselves. Last but by no means least, is the benefit that everyone values, but customers won’t or can’t do for themselves. This, in effect, becomes your new core proposition, and it’s where you need to achieve real long-term competitive advantage.

The airlines are far further down this route than many other sectors. For example, there’s been a good deal of media coverage about the fact that Ryanair now charges separately for checked baggage and on-board food and drink, but in their case the disaggregation process has actually gone much further than this, with services like arrival support dropped altogether, and customers taking part of the responsibility for cleaning the plane, which not only reduces costs, but cuts turnaround time on the runway. Nando’s is an example of the same thinking in action in the hospitality industry. They’ve managed to reduce their core proposition to three key elements: greet and seat, food service, and table clearance. Everything else has either been eliminated (like tablecloths) or passed on to the customer to do for themselves (like ordering, laying the table, and fetching dessert).

As Mark Hudson says, “so far the retailers have been rather slower to exploit the possibilities of unbundling, but that’s not to say it can’t be done - and done successfully. Look at Ikea - they no longer present their products on traditional shelves, and make an additional charge both for optional extras like

delivery and assembly, and for elements that are still core to a more conventional retail business model, like paying by credit card.” The Ikea case study demonstrates how unbundling can identify where the real consumer value lies, but it also reminds us that opportunities for unbundling need to be assessed

carefully, and that it will always work best where elements of the product or service can be easily separated from the underlying offering, and costed accordingly. Some businesses will find this easier than others, and almost all will have to undertake some market testing to establish whether their internal assumptions are validated by consumers’ actual preferences. Likewise, what consumers will and won’t pay for is also likely to evolve further over time.

The overall conclusion, however, is clear enough. If mainstream businesses are to survive the downturn – and position themselves to take best advantage

of the upturn when it comes – they will need to identify what ‘value’ now means for their own particular products and services. In all probability this will mean stripping out costs that don’t add value, as well as exploring ways to unbundle what they currently offer, and thereby focus more effectively on those elements customers actually want. This may prove to be a real challenge for some organisations, and it will certainly entail a lot of hard work as well as a willingness to re-think out-dated business and consumer models; but the good news is that the payback is likely to be new commercial opportunities, and new sources of competitive advantage. It should come as no surprise, then, that the smart players are already starting to do this.

The smart players in the mid-market are changing their game (cont’d)

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“...so far the retailers have been rather slower to exploit the possibilities of unbundling, but that’s not to say it can’t be done - and done successfully. Look at Ikea - they no longer present their products on traditional shelves...”

In the first issue of What’s in Store we looked at how the recession was likely to affect specific sectors of the retail and consumer market, based on what had happened in previous downturns. We explored the relative resilience of different sectors with a particular emphasis on food, clothing, and eating out: how deep was the recession likely to be for these different segments of the market, and how long was it likely to last?

In this issue, we are focusing on the UK consumer: what is the outlook for consumer sentiment and spending, how is consumer behaviour changing, and whether those changes are likely to be more temporary or permanent? We are finding that people are adopting multiple strategies to cut back on spending – from buying less to trading down and switching retailers – which is no surprise. The important question being raised is whether these changes in consumer behaviour are likely to persist when the economy starts to recover.

The PwC Strategy team has spent the last three months surveying over 1,000 consumers about their new shopping habits, to get a better idea of how consumer behaviour has evolved over the last year, and whether these new trends are likely to become a way of life in the future, rather than a short-term, cyclical response to tougher economic times.

High Street bluesIn general, it still seems unlikely that the economic environment will improve significantly in the next six months. Depending on which measure you choose, the current recession is still harsher than the last – figures for GDP, consumer confidence, and household debt are all worse than they were in 1991, unemployment is still going up, the savings rate is still

increasing, and credit is still exceptionally tight. Nonetheless, the PwC view is that the decline in UK GDP is now bottoming out, and should start to turn positive, albeit slowly, in the second quarter of 2010. However, the outlook for consumer spending is not nearly so encouraging.

As Cristian van Tienhoven, Assistant Director in the PwC team, says, “a recovery in consumer spending is likely to lag GDP, and much of this is down to how people feel about their own personal prospects. Our research shows that while overall consumer confidence is starting to improve, this is actually a reflection of people’s views about the economy in general. If you probe them about their own circumstances they’re much less positive. A quarter of consumers in our survey intend to spend more – because they believe they will have to spend more due to increasing prices of staples like food and fuel to go up. Another quarter of consumers intend to spend less – but they are choosing to spend less as they continue to be concerned about savings and jobs.“

The picture is also complicated by the way that underlying economic factors affect different groups of consumers. For

example, average earnings are now starting to go back up, and mortgage interest rates are still low, which should have a positive effect on middle-class

family budgets. On the other hand, pensioners have been disproportionately affected by the decline in the value of their savings, and are facing rising food and utility bills. Likewise unemployment among young people is already high and getting higher, so while some youth retailers are still showing reasonably healthy profits at present, this situation could deteriorate very quickly.

The UK Consumer – where next?

As consumers adapt to survive the downturn, we take a closer look at

“a recovery in consumer spending is likely to lag GDP, and much of this is down to how people feel about their own personal prospects.”

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What’s interesting about the new PwC research is that even if people’s circumstances are very different, they’re dealing with the downturn in a remarkably consistent way. Consumers across all age and socio-economic groups are employing the same four broad strategies to manage down their expenditure: they’re buying less, trading down to cheaper ranges, switching to cheaper stores, and looking actively for special offers and promotions. The latter is a particularly challenging area for retailers, because promotions rarely build loyalty, they just erode margins. As Jacqueline Windsor, a Director in the PwC team, observes, “Between a half and two-thirds of consumers have employed at least one of these tactics, and that number rises to three or four when it comes to food shopping. You can see the evidence of these changes in the latest sales trends for items like fresh, frozen and chilled food. Chilled ready meals are down year-on-year, while their frozen equivalents are up. Likewise shoppers have clearly been switching from expensive smoothies and freshly squeezed orange juice, to not-from-concentrate products.

Passing fad or permanent shift?In the light of these findings, the team looked in more detail at each of the four broad changes in purchasing patterns, and asked consumers whether they were likely to continue with the same behaviour after the recession. On the grocery side they

found that promotions and special offers scored highest both in terms of current and probable future use, followed by the shift to own labels and cheaper brands. Fewer people overall have been changing their supermarket, but shoppers who have done this say they’re likely to stick with their new store in the long term. Turning to the clothing sector and you find broadly

similar results. The most common money-saving strategy was to buy fewer items, but consumers who’ve done this will probably revert back to their previous level of purchases when their circumstances improve. On the other hand, those who have switched retailer or started shopping online will probably continue doing this in the future.

“When we asked people why they won’t be going back to their former retailer, the most common response was that they think they’ll continue

to be concerned about saving money, even when the economy starts to recover. However, there’s another important shift at work here, and that’s the fact that people who’ve switched stores have generally liked what they’ve found in the new one,” says Jacqueline Windsor. “Over two-thirds of respondents also said they’re getting the same quality now as they got before, but at a cheaper price. If that’s what people genuinely believe, there’s little incentive for them to switch back in an upturn.”

So if changes like these do indeed prove to be permanent, what can the mainstream players do about it? Will the recession kill off the mid-market altogether, or can these businesses find new ways to compete in a post-recession world?

The UK Consumer – where next? (cont’d)

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“When we asked people why they won’t be going back to their former retailer, the most common response was that they think they’ll continue to be concerned about saving money, even when the economy starts to recover.”

How to win the new retail warAt first sight the prognosis is not good. The team’s analysis of the all-important Christmas trading period shows that recessions tend to sort out the weak operators from the strong, with twice as many companies gaining or losing market share in a downturn, as in a boom. What is more surprising is that these firms rarely revert to their former position afterwards - indeed 75% of those companies which change position in a recession, maintain that new position as the economy improves. On the face of it, this sounds like bad news for the mid-market, but there’s plenty of evidence to indicate that these companies are refusing to accept this as inevitable, and are already developing a range of new strategies to compete more effectively in the new retail environment.

Introducing value ranges such as Tesco discount and Waitrose Essential brands are designed to allow consumers not to change their lifestyle or their supermarket, but this is only one of a number of battles now being waged in the new retail war. Other players are banking on a different form of innovation. Sainsbury’s, for example, launched a successful “feed your family for a fiver” campaign. And as we discuss elsewhere in this edition, chocolate and coffee manufacturers are leading the way in using the sustainability and ethical credentials of the products to reinforce their brands’ consumer appeal. Other manufacturers are launching new products with tangible benefits such as Young’s Omega 3 fish products.

Competing on price can also be a moveable feast – it doesn’t have to be everyday lowest pricing on every single line. The clever retailers are experimenting with different types of deals, and matching each other’s prices on specific key components of the weekly shop. Smart manufacturers are protecting both their top line and their premium lines by developing new ranges exclusively for the value sector. Innocent, for example, has developed a new range specifically formulated for Lidl. Other operators are moving from the High Street to online and cutting their costs in consequence. Dixons have gone so far as to launch an advertising campaign that encourages

shoppers to choose their product at one of the famous department stores, but actually buy it online from Dixons. These are all potentially effective consumer-facing strategies, but there is also a good deal companies can do internally, such as reducing operating or manufacturing costs, streamlining product specifications or packaging, or making improvements to their supply chains, as companies like Bird’s Eye, Mars and Persil have done.

Cristian van Tienhoven sums it up like this: “We’ve identified a list of key actions that will help both retail and consumer companies compete more effectively. Start by getting your own house in order by managing for cash, cutting out superfluous costs, and rationalising either your portfolio of stores, or your range of products. Then look at what channels you should – and shouldn’t – be focusing on, which promotions work best for you at least cost, and which pricing structure reinforces value proposition while preserving margins. And finally – and most importantly – think about your customers: how can you give them the best possible experience, and send them away feeling they’ve got more and spent less. In the long term, that’s what will generate real competitive advantage.”

The UK Consumer – where next? (cont’d)

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“...and most importantly – think about your customers: how can you give them the best possible experience, and send them away feeling they’ve got more and spent less. In the long term, that’s what will generate real competitive advantage.”

Few people will be surprised to find that the amount of unsecured borrowings of consumers (personal loans, credit and store cards) has remained static over the last 12 months given the banks’ much-publicised attempts to shore up their balance sheets and consumers’ preference for paying down debt in a downturn. Overall unsecured lending now stands at £230 billion, equivalent to around £10,000 per household. As Richard Thompson, a partner in the PwC Consumer Finance team, says, “This is almost the first time in living memory that total consumer credit has actually stagnated year on year, and that fact is all the more significant because it’s been rising by around 10% annually throughout the last decade, and was an important driver of economic growth during that time. So the big question is what happens next, as the recession comes to an end.”

PwC’s view is that consumer credit may well be evolving into new and exceptionally tough territory. As the economy improves, the demand side of the market will probably revert – albeit slowly – to where it was before the credit crunch, as consumers become more confident and want to spend more. But will they be able to? Many of the obstacles that are currently stifling bank lending are likely to persist - like the need to rebuild battered balance sheets - but there are other new factors that will also come into play that could restrict the supply of consumer loans even further: with rising bad debt levels, additional supervisory capital requirements and potential changes to capital adequacy regimes (such as

tougher liquidity requirements), more capital will be required by the UK banking sector. Rather than focusing principally on growing volume, lenders will be more focused on profitability. This means they will choose to lend to the most profitable

consumers which may not necessarily be those that are in most need.

The obvious consequence – unintended or not – is that demand will outstrip supply, and the cost of borrowing will inevitably rise. Many consumers will have to pay more for their loans, and

others won’t be able to access credit at all. Given the importance of consumer spending to UK plc, this could be a drag on both the speed and scale of any imminent economic recovery. As Richard Thompson says, “The recent announcement by one major issuer that they would not generally seek to acquire new credit card customers who don’t already have a current account with them is in stark contrast to the time when credit card marketing material accounted for one in every four pieces of mail that made it through our letterboxes. It’s also interesting to note that lending on store cards was one of the few segments of the market to rise in the last twelve months”

Back to the future?When the retailers first started offering credit many years ago, their primary motivation was to increase their own sales. They were able to exploit strong brand recognition, ready-made distribution channels, and relatively cheap and easy access to

The 2010 PwC Precious Plastic survey of the UK consumer credit market

PwC has just published the results of its annual survey of consumer credit in the UK. Many of the findings about the current state of the market will come as no great revelation, but there are some interesting emerging trends that may prove critical as the UK economy struggles towards recovery, and which could open up significant new opportunities for the retail sector in particular.

New opportunities for retailers as the banks rein back

“The obvious consequence – unintended or not – is that demand will outstrip supply, and the cost of borrowing will inevitably rise. Many consumers will have to pay more for their loans, and others won’t be able to access credit at all.”

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funding to capitalise on the burgeoning demand for consumer credit, and in the process many were able to expand their financial services offering and turn it into a profit centre in its own right.

But this model is now under pressure. A combination of rising bad debts, an increasingly intrusive regulatory agenda, and constraints on banks’ balance sheet has put pressure on retailers’ lending margins, making this part of their business significantly less profitable. At the same time, some retail brands have found the stretch to financial services products a leap too far, and have struggled to command the same consumer trust outside their traditional sphere.

As a result there will be few retailers who will be able to view financial services as a sustainable stand-alone profit centre. The rest will need to be more rigorous in assessing whether their financial services operations are genuinely driving retail sales, and if so, how best to collaborate with their financial services partner to structure a resilient product range on terms that work for both parties.

At the other end of the spectrum, there will be a small number of big names (not all of them retailers) who have the brand equity, distribution network, to exploit the weakness of some of the established banks. They could well be facing a golden opportunity to expand their financial services offering and compete with the banks head-on. Tesco Bank is a prime example. But for most retailers, PwC believes that profitable partnerships with financial institutions are still the most sustainable route to expansion.

Other industries could face equally interesting challenges – and possibilities. The vast majority of unsecured loans are taken out to pay for home improvements, cars, or holidays, but while it’s standard practice to offer car finance along with a car, there’s nothing even remotely similar in the travel industry. “It could well be that this is a significant new opportunity for the major holiday companies,” says Richard Thompsion, “and there’s a lot they can learn from what the retailers are already doing.”

At the other end of the spectrum, there will be a small number of big names (not all of them retailers) who have the brand equity, distribution network, to exploit the weakness of some of the established banks. They could well be facing a golden opportunity to expand their financial services offering and compete with the banks head-on.

New opportunities for retailers as the banks rein back (cont’d)

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Back in the early 1990s consumer insurance was, in effect, a closed shop. Just as banking was only done by banks, insurance companies had a monopoly on their own sector of the financial services market: no-one would have dreamed of buying car cover from M&S, or a health policy from Boots, or insuring their mobile phone with BT (though come to think of it, most people didn’t even own a mobile phone back then). These days this sort of ‘branded intermediary’ insurance is a huge and growing area of the market, with an annual value of around £4 billion in the UK alone. In 2008, 17% of the UK’s motor policies and 15% of Household cover were sold this way, and as public trust in financial services providers has plummeted consumers have turned instead to High Street retail brands they know and trust.

This has opened up a whole new market for retail companies, and a major player like Tesco is now using it to generate

How do you ensure you’re getting the value you deserve?

Offering insurance products to consumers is a growth area for retailers, but

insurance sales of £500 million a year – more than many of the established financial services brands. But Tesco is an extreme example: as we discussed in the last edition of What’s in Store, they’re in the process of establishing a full banking operation, and have developed their own in-house expertise in the whole suite of financial service products. There are advantages to this approach, not least the opportunity to maximise revenue and cross-sell other services, but there are also considerable and highly specialised risks, which most retailers have neither the experience nor the appetite to take on.

This has prompted the development of other, less aggressive operational models, based on a partnership between the retailer and an insurance provider: one uses its brand recognition to sell the products, the other uses its expertise to manage the underlying insurance cover. These models are designed

to share the risks and rewards involved, and range from a relatively simple system based on an upfront commission for each sale, to a profit share arrangement over the life of the policy, to a more comprehensive and formalised joint venture structure, which can take a variety of forms. Sainsbury’s, for example, uses the joint venture framework for its own insurance business, a model that Tesco has recently reverted back with Fortis a European financial services group.

However, there’s a danger that the ostensibly straightforward nature of these partnership arrangements can induce a false sense of security. As Darren Boland, Senior Manager in the PwC FS Insurance team says, “our experience shows that even where there is goodwill on both sides, most retailers actually have little in depth knowledge of how the insurance market works, and most insurers have limited understanding about the day-to-day practicalities of retailing. Combine this with what is by its very nature a complex and often opaque product, and you can end up with contracts that lack transparency for either party.” His colleague Reeken Patel (Director, FS Insurance) agrees, “even some of the larger retailers often have

only a handful of people

managing their insurance business, and in a number of cases these are employees with no specific insurance expertise, and limited experience of managing relationships with insurance companies. There’s a natural tendency for retailers

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“our experience shows that even where there is goodwill on both sides, most retailers actually have little in depth knowledge of how the insurance market works, and most insurers have limited understanding about the day-to-day practicalities of retailing.”

to concentrate the available resources on products like storecards, which are more directly relevant to what happens at the tills, whereas their insurance business can actually be much more significant in terms of profit potential.”

This is where the PwC team come in; over the last 5 years they’ve worked with some of the biggest names in the retail market to help them understand the exact nature of the contracts they’ve signed with insurers, and gain the maximum benefit from them, both for their own bottom line, and for the customers they’re selling to. As Darren says, “there’s a whole list of questions retailers should be asking themselves about these arrangements. For example, is your contract as competitive as it could be for you as the Retailer? Is the contract arranged to give your customers the best deal? Are you making as much profit as you could be? Are your customers getting an appropriate level of service? If not, should you consider inserting your own brand manager into the insurance arrangement to ensure that your customer service standards are adhered to? Is the way your profit share is calculated the right one? The latter is a particularly thorny area, because there are so many different assumptions and interpretations for contract terms, particularly poorly written ones. Likewise insurers may want to maintain prudent reserves for claims, but this has an immediate and detrimental effect on the retailer’s cashflow. ”

All this means there can be huge opportunities to increase revenue and make savings, but you need to know where to start, and what you’re looking for. “Many of our clients simply

didn’t understand the full implications of what they’d signed up to, “ says Reeken. “For example, some had overlooked who benefitted from the investment income generated on premiums, and others agreed contracts where parties were not remunerated for maximising value. In other cases we found profit share calculation errors that resulted in an instant cashflow benefit to the retailer. By combining our team’s insurance know-how with the retail expertise elsewhere in the firm, we can give retailers all the ammunition they need to go back to their insurer and renegotiate the contract. Most of the assignments we’ve worked on have resulted in us identifying potential savings of more than £1 million.” .

But there’s an important proviso in all this. As Darren Boland reminds us, “this is not a simple supply contract like all the other purchasing relationships retailers typically have as the insurers are a partner rather than a supplier. In the current environment the balance of power is definitely with the retailers, but there’s no point in pushing back so hard on your insurer that they have no incentive to do anything other than the bare minimum. After all, it’s your brand that’s at risk here – not theirs. If your customers get a poor or slow service, it’s your name that they’ll associate with that - most of them won’t even know who’s providing the actual cover. And remember the insurer has to put up capital to underwrite the risk on these products, and that comes at a price. So if you want to make the most of this market, you don’t just need the right

contract with the right insurer, you need to see your relationship with them as a genuine partnership, and manage it as such.”“Most of the assignments

we’ve worked on have resulted in us identifying potential savings of more than £1 million.”

How do you ensure you’re getting the value you deserve? (cont’d)

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Stuart Fletcher has been with drinks giant Diageo since its pre-merger days. In fact he started at Guinness as long ago as 1986, working first in the Guinness Brewing finance function, and then for United Distillers in the US and Asia Pacific, before becoming Diageo’s President, International in 2004, covering everything outside North America and Europe. A distinct Asia Pacific region was created in 2007 and now his remit “only” stretches from Argentina to Zambia - a fascinating mix of markets across Latin America, the Caribbean, the Middle East, Africa, and Diageo’s Global Travel Retail business. Clearly Stuart is in a good position to talk about new and emerging global trends in consumer goods, but we started closer to home, with his thoughts on the impact of the recession in the UK.

There’s a lot in this edition of What’s in Store about the ‘flight to value’ – how consumers are trading down or shopping round for promotions in a bid to survive the downturn. Is this happening in the drinks sector?

The same consumer trends impact different countries in different ways. In the UK there’s no doubt that some people are focused very much on saving money, especially those on limited incomes, but our research is starting to pick up evidence of other more interesting trends as well. Those who do still have money to spend are making small but quite significant changes in their lifestyles, which is having a direct impact on what they’re buying, and when.

In our sector the general point is that every purchase, whether in the bar or for at-home consumption, says something about who you are (what we call the emotional benefit) so the ’flight to value’ trend isn’t as strong in drinks as many other consumer goods categories. What’s even more important

Thinking internationally

From Guinness in Ghana to Smirnoff in São Paulo, Diageo’s global success is all about

“What’s even more important than ever in these times is collaborating with the retailers to understand the evolving needs of our consumers, who are their customers - understanding what will appeal to them, and which offers will work best.”

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than ever in these times is collaborating with the retailers to understand the evolving needs of our consumers, who are their customers - understanding what will appeal to them, and which offers will work best. We’re seeing some real success by working in partnerships like this with major retailers around the world.

For example, before the recession people were spending a good deal of money on going out; now they’re staying at home more often, but they’ve realised that this doesn’t have to mean compromising the quality of the experience - they can have the same premium brands at home, and still save money. Our shorthand for this trend is ‘at home sophistication’, and from a commercial point of view it’s about adapting to the fact that the market is shifting more from on-trade sales in bars and pubs, to off-trade purchases for drinking at home. The proportion of sales through the UK off-trade has already grown from 63% in 2007 to a projected 72% in 2013.

Our challenge is to turn this trend into a business opportunity. One way, amongst many, we’re doing this is by helping people get as close as possible to the product experience they get in a bar – for example, by developing high-quality premixed drinks that make it easier and less time-consuming to make really good cocktails at home. We’re already selling products like this in the US and South Africa, and our Brazil business has been doing it for years, though in their case it was driven primarily by convenience – Smirnoff Caipiroska was initially developed as a ready-to-serve Caipirinha for people to take with them to the beach. Pre-mixes also have the advantage of making premium brands more accessible in terms of the price of each individual purchase – you can still enjoy, say, a Pimm’s and lemonade or Gordon’s and tonic, but you don’t have to buy the whole bottle in one go. It’s the inverse of multi-buy offers like Buy One Get One Free.

In the retail sector it’s the mid-market that’s getting squeezed – is that the same in your industry? From what you say the demand for premium brands is holding up in markets like the UK.

You can certainly see a polarisation between cheap and own-label at one end, and premium brands at the other. But it’s not just that premium brands are holding their own in terms of market share; it’s rather more than that. People are actively seeking brands they can trust – names that have been around for a while, and inspire trust. Brands like Bell’s or Gordon’s or Guinness have fantastic heritage and long pedigrees (Guinness has been around for 250 years this year!) and consumers can engage with them in many different ways – it’s amazing how many people still remember TV campaigns for Guinness that go back ten or 15 years, and that’s only one example of how a brand like that can create a special relationship with its consumers. Authenticity is a key word here – we have to manage these brands in a way that makes the most of their heritage, which is why we’re putting so much investment into digital relationship marketing. For example, the new Johnnie

Walker website is themed around the idea of ‘walking with giants’ and includes footage of people like Ranulph Fiennes and Richard Branson talking about their own life journeys. They’re happy to be associated with the brand because it stands for something exceptional and enduring.

What about outside the UK – what new trends are having an impact there?

The first one that comes to mind is the increasing importance of women as consumers – whether of drinks or any other product. I recently read a report from the World Bank which forecast that women will be controlling $18trillion of consumer spending worldwide by 2014 – that’s twice the estimated 2014 GDP of China and India combined, and a $5trillion increase in the next five years. From the point of view of our own sector, there are fewer and fewer markets where there’s any significant stigma attached to women drinking, and as women become more financially and socially independent they’re making their own decisions about what and where they want to drink. You can already see the impact of this in countries as diverse as Brazil, China, and Australia, and we’re flexing our own portfolio to ensure we have the right brands for this consumer group, marketed the right way.

Another interesting trend is what people in the clothing industry are calling ‘forever forty’. In other words, there’s a whole new generation that’s ageing, but doesn’t want to get old. They still want to wear fashionable clothes, go to the gym, even play computer games, and enjoy all the same things they did in their thirties. In many countries – including the UK – the 50+ market is growing faster than any other segment, and this then needs to be reflected in the marketing approach and brand positioning used to communicate and engage these consumers

At the other end of the scale there are huge and growing populations of young adults in developing markets, as well as in the US. For example, the number of people over legal purchase

age is forecast to grow by 40 million in sub-Saharan Africa by 2025, and there’ll be 26 million more people between the ages of 25 and 29 in India by the same date. Finding an effective way of marketing your brands to this audience is always a real challenge. The advent of broadband on laptop or mobile has forever changed the way that people form and sustain relationships, whether with each other or with brands. As a premium lifestyle brand business we absolutely have to exploit

these new ways of engaging with our consumers in a full and appropriate way, and so far we think we’re doing that pretty well.

What about the relationship between international brands and local ones?

This is really interesting. In the markets I cover global brands still have all the cachet they ever had. Johnnie Walker is still an aspirational status symbol in Latin America, and Guinness plays the same role for many people in Nigeria and many other markets in Africa – when they can afford it, they’ll buy it. And, of course, drinks brands are a much more affordable and accessible ‘luxury’ than other high-end items like jewellery or cars. At the same time, some of our markets are also seeing a renewed interest in local brands – a new pride in locally-produced products like cachaça in Brazil, which is going hand-in-hand with a growing sense of national confidence. This doesn’t cancel out the demand for global brands – the two run in parallel – but it gives us the opportunity to create a local portfolio that gives people many different options at different price points. So, for example, a premium local rum may sit

“The first one that comes to mind is the increasing importance of women as consumers – whether of drinks or any other product. I recently read a report from the World Bank which forecast that women will be controlling $18trillion of consumer spending worldwide by 2014”

Thinking internationally (cont’d)

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just below Johnnie Walker Red Label in terms of cost, so as people’s incomes rise they can make the transition between one product range and the next.

So luxury isn’t dead, as some commentators have suggested?

Luxury certainly isn’t dead, but bling is - these days it’s all about substance. I think you’ve talked elsewhere about the idea of ‘money for value’ as well as ‘value for money’. That’s just it – people are prepared to pay high prices, but the quality and authenticity has to be outstanding. And the super-premium market is still alive and well – we recently launched an ultra-premium extension of Johnnie Walker Blue Label, ‘The John Walker’, that retails in a small number of very select duty-free outlets, and even at $3,000 a bottle it’s out-selling our expectations during this early post launch period.

Can you talk us through a few of the regions you’re responsible for? What does the market look like in Latin America, for example, compared with Africa or Asia?

I’ve recently come back from Bogota and the city is booming. It’s even been voted the most business-friendly city in South America, which would have been unthinkable even a few years ago. A more stable economic and political environment is attracting increasing levels of Foreign Direct Investment as well as drawing expatriate Colombians back home, and they’re bringing investment money with them. They’re also changing their purchasing patterns: for example, there are an increasing number of top-class retail developments across Latin America, with the result that wealthy consumers are no longer doing their serious shopping only in sprees to Miami, but in Mexico City, São Paulo, and other major cities in the region.

Another region to mention is one that’s close to my own heart. Africa has also benefited from greater stability over the last 5 or 6 years, and there are signs that governance is improving, corruption is decreasing, and sub-Saharan Africa, in particular, is becoming a good place to do business. There’s an emerging and sizable ‘middle class’ population who have money to spend, which makes them increasingly important for

companies like ours in terms of growth. We need to plan our portfolio so that we have products that they can buy now, as well as those they can aspire to.

India is another obvious market to mention in this context. The challenge here is the infrastructure – India still has an enormously bureaucratic regulatory system, which makes it difficult, for example, to set up a nationwide retail network. In fact, there are hardly any multiple retail chains who manage to operate effectively across the whole country. On the other hand, recognition of international brands is very high, and the middle class want to buy them, so the opportunities are definitely there, and we have to be there too.

Another place we have to be is China. It’s no surprise that China is coming out of the recession quicker and more strongly than many other markets, and even if business and government entertaining is at lower levels than it was, our brands are still doing well. China is also another good example of the growing power of local brands. Back in early 2007 we bought a stake in the premium Shui Jing Fang Chinese white spirit brand, which retails at around the same price as Johnnie Walker Black Label. It’s now a key brand in our global portfolio of strong local premium brands. It’s also a great example of the fact that when you expand internationally the learning process is a two-way street: when it comes to brand marketing and understanding consumers our experience in international markets can be a rich source of insights that we can then apply to our other global markets. One of the great strengths of the Shui Jing Fang brand is the impact it makes with presentation and packaging, and we’re transferring what we’re learning from them to the benefit of our mainstream global brands, both in China and elsewhere.

This sort of thinking has been one of the keys to the success of Diageo’s International business: we’ve grown our business by spotting emerging trends, and developing products and approaches that don’t just work well in one market, but can be adapted and scaled up across whole regions. That’s what makes this job so interesting – even after all these years I’m still learning.

Thinking internationally (cont’d)

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Is sustainability past its best-by date?

In the last few years sustainability has shot up the To Do list of almost every CEO with an eye to public opinion and their company’s Corporate Responsibility credentials. But as times got harder, and many of those same businesses faced the very real possibility of failure, the more cynical commentators started to predict that sustainability would be one of the first casualties of the recession. But has that actually happened? Has sustainability really run out of steam, or is it starting to affect business decision-making in ways that could help retail and consumer companies emerge from the current recession stronger, leaner, and fitter for the future?

Recent research conducted by the PwC Sustainability and Climate Change team suggests that the sustainability agenda remains a critical part of Retail and Consumer Goods businesses strategy. It also suggests that the response by the sector to sustainability challenges has evolved over the recent consumer downturn and economic crisis. It concludes that rather than running out of steam, sustainability and climate change will ultimately affect retail and consumer companies as profoundly as the internet did, and could bring about even more drastic changes in the way the sector operates.

Corporate push or consumer pull?In 2008 PwC published a detailed research survey on consumer attitudes to sustainability (Sustainability: are consumers buying it?). This showed that consumers were genuinely concerned about sustainability issues, and were prepared to change their buying patterns if there was a clear environmental or social benefit and the product was easily available. The team recently re-ran the same piece of research with over 2,000 consumers, to see how attitudes have changed since the economic downturn.

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The research determined that people are still concerned about sustainability issues – 70% of those questioned were worried or very worried about climate change. However, shopping patterns have changed quite dramatically in the over the past year. The percentage of the population who say they regularly purchase organic food has fallen from 43% to just 22%. The numbers regularly buying Fairtrade food are down from 43% to 35%, and Free Range has dropped from 65% to 50%. Price is certainly the single most important factor for most consumers at the moment, with 58% of people citing price as the biggest barrier preventing them buying green and ethical alternatives, up from 48% last year.

More interestingly, consumer confusion about the what is - and isn’t – genuinely sustainable is becoming increasingly influential as a potential ‘failure factor’ for this sort of product. Faced with a plethora of media stories, consumer advertising campaigns, and NGO publicity material, it’s hardly surprising that 38% of those questioned say they don’t know who to believe, and find the minefield of conflicting and partisan messages almost impossible to navigate. Some 20% of UK shoppers say this lack of trust prevents them buying more sustainable alternatives, a dramatic increase from just 3% in 2008. The league table of those regarded as most trustworthy has not changed very much in the last year, with scientists and experts still topping the chart at 40%, followed by NGOs at 26%, the media at 13%, and consumer goods companies at 10%, down from 16%, and retailers at 5%, down from 9%.

As Toby Kent, Assistant Director in the PwC Sustainability team, says, “in this context the recent fall in sales of organic products is not so surprising. Not only are people being asked to pay a significant premium, they’re being asked to do so without a clear picture of either the personal or environmental benefits. Fairtrade and free range have held up better in part because the perceived benefits are more easily understood – farmers earn ‘a living wage’ and animals are reared humanely.”

But do the cumulative results for organic, Fairtrade and free range products suggest that consumer demand for sustainable

products could soon be gone for good? Peter Collins of the PwC Sustainability team does not think so; “Right now progress towards sustainability is being driven more by corporate push than consumer pull. However, the two are still intimately connected, since innovations by leading retailers and producers ultimately have the effect of changing consumer expectations, which in turn creates new miniumum standards for the sector as a whole.” As this suggests, there are some complex new factors at play here, which could have significant implications for conventional business models. These range from changes to the way goods are positioned and priced in the market, to the way organisations operate internally. The PwC team identify four key drivers of change here: marketing and branding, range and price, sourcing and supply, and operations and culture.

Marketing and brandingThe end of the last consumer boom saw a huge upsurge in companies’ emphasis on sustainability in their consumer marketing - TV campaigns by Kenco and PG Tips are only two of the more obvious examples. The more interesting question is why this trend has continued so strongly through the downturn, despite all the evidence about the re-emergence of price as the single most important determining factor for most shoppers: if consumers ‘aren’t buying’ sustainability the way they were a year ago, then why push it in the ads?

The answer, says Peter Collins, is positioning and quality perception: “Genuine sustainability credential are still seen as supporting product quality. Brands can protect against generic or value competition by stressing these credentials, and, by implication, their quality and trustworthiness.”

This – as much as consumer or stakeholder pressure - is why Cadbury now stresses it uses 100% FairTrade in Dairy Milk chocolate, and Mars is moving to 100% Rainforest Alliance cocoa in Galaxy bars. As Toby Kent says, “These firms are aiming to combine security of supply with an appeal to broader

Is sustainability past its best-by date? (cont’d)

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customer interests. Large multinationals also want to insulate themselves and their brands from NGO and other activist campaigns, which ’sustainability’ certification can help with. This is about old fashioned competitive advantage.”

Range and priceThis is another area where the smarter operators are taking a strategic approach to sustainability to create competitive advantage. For example, some of the mainstream multinationals have been acquiring niche ‘eco’ players, as a way of broadening their own range, and – at least in some cases – benefiting from the halo effect of their high-profile new acquisition. Unilever acquired Ben and Jerry’s as far back as 2000, and more recently we’ve seen Cadbury acquire Green & Black’s, and L’Oreal take over Body Shop, while Coca-Cola has taken a stake in Innocent, even in the midst of the downturn.

A more interesting example of the same trend is Clorox’s acquisition of Burt’s Bees, which brings together a traditional chemicals manufacturer and a brand designed specifically to appeal to the eco-sensitive consumer. But this particular deal is about more than mere appearances: Clorox is using the acquisition to support a fundamental shift in the way it manages its own operations and impacts. For example, Clorox launched its ‘Green Works’ line with six new products in 2008, and before the year’s end had achieved a 40% market share of the natural cleaning product market, which had previously been the preserve of niche outlets, rather than a mainstream producer like Clorox.

As Peter Collins observes, “The interesting thing about all of this is how difficult it is for major branded goods companies to re-invent themselves, no matter how much they want to be more sustainable. Established companies are either using acquisitions as catalysts to achieve this degree of change, or at the very least, re-casting their product ranges to make them more diverse.”

While price is cited as the biggest barrier to purchasing sustainable alternatives by consumers, PwC suggests that sustainability can support the development lower-cost propositions. We are starting to see some in the sector linking sustainability savings with consumer messages. Peter Collins highlights Asda’s TV advertising campaign in the Summer as a strong example; “The Asda ads were a great example of a mainstream operator linking energy savings with an existing customer message – in this case passing on cost reductions in the form of Rollbacks.”

Sourcing and supplyAfter decades in which food had become progressively cheaper (and in which the EU has in fact sought to manage down food supplies), the world has suddenly been confronted with severe shortages in some staple foodstuffs which the sophisticated developed markets of Europe and North America have taken for granted. Companies across the retail and consumer sector are having to address difficult commercial challenges around security of supply, price volatility, and rising costs in the most basic commodities. As Toby Kent says, “If you look closer at what lies behind these trends, it’s clear that many of them are a direct result of what can be defined as ‘sustainability issues’. For example, tea hit record prices in October this year, cocoa reached a 30-year high, and coffee the highest price for 11 years. The same dynamics are at work in all three cases: environmental factors are starting to limit the amount of supply.”

Some shortages like this are demand-related, such as population growth, the ‘westernisation’ of diets in middle class India and China which is pushing up the price of milk and animal protein, or the increasingly controversial diversion

of food crops and agricultural land to the production of biofuels. Others factors are those affecting supply, of which climate change is by far the most significant: hurricanes and

floods may attract the headlines, but even relatively minor changes in weather and rainfall patterns can have a huge impact on yields, as in the case of tea and coffee. As Peter Collins observes, “We face a more constrained future, which means sustainability will

become mainstream because it has to, not because it’s an optional extra. Many of the changes to product ranges and formulations we’re already seeing now, are actually the result of attempts by consumer goods companies to protect their sources of supply.”

Operations and cultureThe most obvious factor here is the impact of the regulatory agenda. For example, many UK retail and consumer businesses are about to feel the full impact of the intergovernmental climate change agenda for the first time when the UK’s Carbon Reduction Commitment comes into force next April. The major High Street retailers and big consumer goods companies will be among 5,000 or so UK companies who will have to start accounting for their energy use and carbon emissions by purchasing the equivalent amount of carbon credits. Some could see their energy bills rising by as much as 25% by 2014 as a result. Likewise landfill tax is set to double in the UK in the period up to 2013, which will substantially increase the incentive for retailers in particular to reduce waste and increase re-use and recycling.

“The Asda ads were a great example of a mainstream operator linking energy savings with an existing customer message – in this case passing on cost reductions in the form of Rollbacks.”

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As Toby Kent says, “From a government point of view environmental regulation looks like a clear win-win: not only raising more tax revenue, but improving environmental performance into the bargain. It also forces the corporate sector to choose between accepting higher costs or becoming more efficient, which by contrast will actually help bring costs down. This is one aspect of sustainability that even fairly skeptical CFOs can support, and companies that use fewer resources and make better and more efficient use of those they do deploy, also tend to be more sustainable.”

The success of Persil’s Small & Mighty laundry liquid is an example of the same thinking in action, and shows how a more sustainable approach to production and packaging can not only create a compelling consumer proposition, but reduce costs for the company: as the company’s website says, ‘because it’s 2x concentrated, it only takes ½ the water to make it, ½ the packaging volume to put it in and ½ the lorries to deliver it.’ Similar thinking by Coca-Cola has led to the development of the ‘PlantBottle’, which is fully recyclable, and reduces carbon emissions, compared with petroleum-based PET plastic bottles.

Peter Collins adds, “Brands like Persil and Coke are still investing in improving both the ethical and environmental attributes of their products and supply chains, and the retailers are doing the same. They are going beyond their own direct impacts and influencing behaviour up and down the value chain because in many cases the biggest impacts are in the raw material production and consumer use and disposal phases.”

Looking to the futureSustainability will survive because it goes to the heart of commercial business needs, both in a boom and a recession. It’s about applying practical common sense in the management of all the environmental, social and economic factors that affect day-to-day decision-making, from supply chain management to cost control, productivity, and market positioning.

As Mark Hudson, PwC’s UK retail and consumer sector leader, concludes, “Those people who think sustainability will be a victim of the economic downturn should look at what

happened with the internet. While some in the retail sector wrote the web off after the dot.com crash, others were figuring out how to make it work for them, and we all know who ended up being on the winning side. History has a habit of repeating itself, and we could be seeing something very similar happening now: while some may be dismissing sustainability as a passing fad, most large retailers and consumer goods companies are investing heavily in it for the future. They’re the businesses who will be best-placed to deal with the challenges of increasing regulation, and the opportunities offered by the upturn when it comes, and in the meantime they’re benefiting from significant cost advantages. These are also the businesses who understand that the competitive arena has changed: greenwashing no longer works, and the sustainability battle has moved from consumer-facing activities like marketing, to the nuts and bolts of day-to-day operations. In five years time sustainability will be as much of a part of the everyday business environment as the internet is now.”

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Emerging consumer trends – how can consumer goods companies respond

Over the past year the world has changed significantly for consumer goods companies. The recession has caused consumers to reassess

what they value, driving change in consumer purchasing behaviour. Here we discuss the major emerging consumer trends and, with the upturn on the horizon, we highlight how consumer goods companies can best position themselves and effectively manage their stakeholders to win in this new world.

Contact: Kevin Drake

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Russia & CIS Express newsletter

Russia & CIS Express is a quarterly bulletin from our Russia & CIS Business Centre for UK companies wishing to do business in the region. It contains articles on a range of subjects, including the economic outlook

and editors’ views on current hot topics. Each issue also profiles one of the CIS countries and includes information on upcoming events.

Contact: Alina Listopad

[email protected] +44 (0) 020 7804 9398

Recent publications

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Precious Plastic

2009 has been a watershed year for consumer credit in the UK, with both lenders and borrowers reassessing their balance sheets. Historically high levels of bad debt, a growing regulatory burden, continuing funding and capital constraints and the toughest macro-economic

environment in a generation are placing unprecedented pressure on UK lenders. As a result, consumers will face a reduction in the availability of credit and an increase in its cost.

This year’s publication also presents the findings of the latest PwC Credit Confidence survey which provides an important ‘street-level’ perspective on everyday debt repayment and credit issues.

Contact: Claire Clark

[email protected] +44 (0) 20 721 24314

Evolution or revolution – how to respond to consumers’ demands for value

We’ve all seen the evidence, whether in the newspapers, in the retail sales numbers, or in our own local stores: consumers are responding to the

recession by reining back on their spending. And if the changes are most noticeable in food and household goods, these are by no means the only sectors affected – value operators now account for 25% of the UK clothing market while in leisure, the budget airlines and hotels continue to gain share. Given the current economic conditions, this is no great surprise; the more critical question is whether these changes in consumer behaviour are likely to be permanent.

In the last 3 months we’ve interviewed over a thousand consumers, and some of the leading CEOs in the retail, consumer goods, and leisure sectors. We wanted to look behind the headline figures and media stories to identify whether the trends in consumer behaviour we’re seeing now are temporary, or indicative of a far more enduring step-change in the way we shop now.

Contact: Jillian O’Grady

[email protected] +44 (0) 20 780 40774

Emerging consumer trendsHow can consumer goods companies respond?

Consumer Goods

Over the past year the world has changed significantly for consumer goods companies. The recession has caused consumers to reassess what they value, driving change in consumer purchasing behaviour. Here we discuss the major emerging consumer trends and, with the upturn on the horizon, we highlight how consumer goods companies can best position themselves and effectively manage their stakeholders to win in this new world.

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Mark HudsonMark is the leader of the PwC UK Retail and Consumer team. As a partner in Transaction Services, Mark and his team are one of the largest providers of due diligence services to the sector. The team has worked for buyers or vendors on most of the larger Private Equity or corporate

transactions in the retail sector in the last few years, providing a combination of strategic, financial and operational advice on over 100 deals.

[email protected]

+44 (0) 20 780 45141

Cristian van Tienhoven Cristian is an Assistant Director in the PwC Strategy Team in London. He has over eight years of supporting clients in consumer facing industries. He specialises in providing strategic advisory services and commercial and operational due diligence, having supported over 25

transactions/IBR reviews in the sector.

[email protected]

+44 (0) 20 7804 1611

Toby Kent Toby Kent is an Assistant Director in PwC’s Sustainability and Climate Change team. He has worked in the field of sustainability and corporate responsibility since the late 1990s. Toby plays a lead role bringing PwC’s sustainability offering to our Retail and Consumer clients, where he has a wide

range of experience working with FMCGs, in particular.

Toby has delivered sustainability projects and strategies in Africa, Asia, Australia, Europe and North America. He has worked with UK-based companies in the retail, consumer and hospitality sectors, with previous clients including Unilever, Diageo and Whitbread, amongst others..

[email protected]

+44 (0) 20 7212 1465

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Richard ThompsonRichard is the leader of the financial services team in our Valuation and Strategy practice. He has advised clients on a wide variety of consumer credit issues including joint ventures, partnerships, acquisitions and disposals. Richard has advised on many of the financial services partnerships

and consumer credit deals that have completed over the last few years. By working closely with the key players, he has great insight into market trends and the issues facing financial institutions and retailers.

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+44 (0) 20 721 31185

Darren BolandDarren has worked in the insurance industry for 11 years supporting and has supported a wide variety of clients with their insurance propositions including retailers, banks and insurance companies. Having helped a number of insurers with their distribution strategy this has allowed him to provide insight into

non-insurers that are working within the sector.

[email protected]

+44 (0) 20 7804 7919

Reeken PatelReeken is a Director at PwC in our Actuarial practice. He has worked in the insurance sector for ten years with both insurance and non-insurance companies and is a qualified actuary.

He has advised many clients (including several FTSE 100 companies) on how to best to set

up and manage their ongoing relationships with their insurance providers. His close working relationship with the key players in the insurance market means he has great insight to share with his non-insurance clients. This has helped these clients better understand their insurance arrangements and extract value from them.

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Peter CollinsPeter is a Manager in the Sustainability and Climate Change (S&CC) group at PwC. He joined the team in 2007, following six years in PwC’s Global Equities Analysis Team covering retail and consumer goods businesses.

Since joining the S&CC team, Peter has co-authored the PwC UK flagship thought leadership publication, ‘Sustainability: are consumers buying it?’, leading the consumer research element of the report.

Peter’s client experience has involved a number of strategy development projects in the sector, including leading the development and analysis of consumer and employee engagement surveys. He has also project managed, designed and delivered senior management workshops for clients in the Retail, Consumer, Leisure and Financial Services Sector on all aspects of sustainable development, from impact of legislation to consumer behaviour and responses.

Prior to joining PwC Peter was a retail analyst with Verdict Research, predominantly covering UK and European food and grocery, electrical, furniture and DIY sectors

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Jacqueline WindsorJacqueline has over 10 years strategy consulting experience in the retail, consumer and leisure sectors.

Her client engagements have focused on helping management make better strategic and organisational decisions that range from growth

strategies to customer proposition, operating model, organisation structure and management processes.

She has advised a mix of clients from big corporates to PE-backed businesses, private companies and national charities including Tesco, Sainsbury, Boots, Associated British Foods, Cadbury Schweppes and Cancer Research.

Jacqueline was formerly a strategy consultant at Marakon Associates and Eden McCallum after earning a MBA at The Wharton School, University of Pennsylvania

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Andrew Garbutt Andrew is a director in the Transaction Services Retail and Leisure Team. His sole focus is on retail and leisure operational and commercial due diligence and advice, having worked on over 50 UK and European retail, leisure and consumer deals, including:

Clothing: Peacocks, TM Lewin, Phase Eight, TJ Hughes, Ethel •Austin, DCK Concessions, Cortefiel, Debenhams, Wyevale, Fat Face, Republic, Bank Fashion, Bon Marche

Hard goods: Maplin, WH Smith, Greeting Card Group, Birthdays, •Original Factory Shop, The Fragrance Shop, Hema

Suppliers to retail: Visage Imports, Ultimate Products•

Leisure: Paramount Restaurants, TGI Fridays, Tragus•

European deals: Cortefiel, Hema•

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