Confidence among UK consumer businesses is lower than the global trend, according to a new survey from KPMG International, but those that have weathered the downturn are now emerging fitter, leaner and ready to grow.
The survey, called CFO Insights: A Global Survey of Consumer Markets Executives, found that 52 percent of UK consumer businesses – which includes retailers and manufacturers of consumer products – believe that their performance will improve in 2011, compared to 76 percent of businesses in the sector across the globe.
At the same time, UK consumer business leaders also have a lower expectation of the level of consumer spending: 45 percent predict an increase in their target markets, compared with 76 percent globally.
“With the current squeeze on disposable income in the UK it’s perhaps unsurprising we’re seeing this lower trend,” said Helen Dickinson, Head of Retail at KPMG in the UK. “However, even while we experience an erosion of consumer spending and the market remains in a state of flux, it is encouraging to see an element of cautious optimism from our survey respondents.”
Costs and growth
While the economic downturn has had a significant impact on profits and growth for many UK consumer businesses over the last three years, those that have weathered the downturn have emerged fitter and leaner: nearly 46 percent of executives say they have stronger relationships with suppliers; 41 percent report better prospects for growth; and 28 percent highlighted improved cost structures.
“A strong focus on cost management going forward remains critical and the management disciplines that consumer businesses adopted throughout the downturn made many of them leaner and more efficient, creating a stronger base from which to pursue growth,” said Helen Dickinson. “Success for consumer companies that have weathered the recession will depend on their ability to maintain their cost and supply chain efficiencies as well as to source and/or create innovative products and business models to grow the top line.”
Improvements in supply chain efficiency are critical to growth strategies with over 50 percent of respondents intending to improve distribution structure, invest in technology, decrease inventory and consolidate suppliers.
Information technology (IT) investment also plays a significant role in both cost and strategic growth initiatives. Over 70 percent of respondents say their companies will invest in IT systems for customer relationship management, enterprise resource planning, business intelligence and forecasting.
However the survey highlights the challenges which remain for consumer businesses. Thirty-nine percent of respondents said that maintaining profit margins will be a challenge due to rising input costs, inventory carrying costs, discounting, and decreased sales volumes. Moreover, 62 percent believe that they will have difficulty raising prices and when asked about market share, 48 percent said this will be difficult to grow in 2011.
When asked about growth the highest number of respondents to a question about existing geographic markets – some 38 percent – are planning to grow through M&A, with a further 21 percent opting for a mixture of organic growth and M&A. Only 17 percent stated they were not looking to enter new geographic markets this year, with those that are aiming to do so through new store openings, additional distribution channels and M&A.
“With significant challenges in the home market, many businesses are turning their attention to the growth opportunities overseas. Finding the right local partners, getting the market entry strategy right as well as ensuring the product and proposition is right will be key and often turns out to be much harder than anticipated at the outset.” said Helen Dickinson.
A changing global backdrop
For the study, CFO Insights: A global survey of Consumer Markets executives, KPMG International worked with CFO Research Services to survey 291 senior finance executives of consumer businesses to solicit and examine their outlook on the issues affecting their industries and market segments. Shortly following the crises in Japan and the Middle East, 150 of these executives were again surveyed to also gauge their outlook on the impact that these events would have on their businesses and economic growth.
Fifty nine percent of European respondents believe that the ongoing situations in Japan and the Middle East will have little or no impact on their business operations in the long-term, although for Asia Pacific specifically, 80 percent of all respondents expect a sustained impact on economic growth over the next six to 12 months. Ninety-five percent of European respondents said the most significant effect these situations are expected to cause over the period is volatility in energy and commodity prices.
And in a global economy where volatility may be the new norm – economically, environmentally and politically – 48 percent of European respondents, when polled about the impact of the Middle East and Japan crises say they will most likely address changes to their risk management policies, and 52 percent intend to adjust their supplier programs.
“In the face of such volatile market conditions with continuing economic risks compounded by the impact of other social and environmental trends retailers and manufacturers will need to consider how they can develop contingency plans and adapt their operations and strategies to quickly respond to these dramatic changes,” concludes Helen Dickinson.