UK consumer confidence flatlines as 2018 commences

12 February 2018

Consumer confidence remained stagnant at the closing of 2017, despite improved household debt and disposable income sentiment. Both aspects of consumer opinion remain steadfastly negative, according to a new study, reflecting continued pressure on consumers – many of whom continue to have incomes below 2007 levels in real terms.

Political and economic uncertainties continue to grip, with government infighting in the UK regarding Brexit leaving businesses and consumers increasingly frustrated, as they are unable to plan for an uncertain future. This has seen numerous surveys suggest that consumer confidence is likely to have an impact on luxury and leisure spending in the near future, as households tighten their belts in turbulent times.

Now, new research from Deloitte into consumer confidence finds that it is stagnating, as consumers continue to have a net negative view. The percentage of consumers who said that their confidence did improve in the final three months of 2017, but still languished at a net score of -7. Confidence has picked up somewhat from the recent low-point at the half-way point of last year, but remains stubbornly in the net negatives, where it has been for more than six years.

Consumer confidence index

Consumers’ net balance of confidence in the level of debt also remains negative, at around -3% net balance, up slightly from the previous quarter. The increase is partly a reflection of perceived improvement to their respective household disposable incomes, with two straight quarters of improvement to around a net -17%.

Ben Perkins, Head of Consumer Business Research at Deloitte, commented, “One important observation is that consumers are starting to show more confidence about their personal levels of debt. The hope is that this is a sign of consumers taking control of their debt, rather than an acceptance that it exists.”

Job security

Job security net balance has improved slightly across the second half of 2017, rising from around -6% in Q2 to -4% in the latest survey, as employment levels continued to reach record rates. However, while job security has improved, the research also shows that consumers are increasingly concerned about job opportunities / career progression, with a net -4% cited in the latest survey, down from less than -2% for Q3.

Deloitte consumer confidence index jobs and real wages

The survey shows that average wage growth was slightly above inflation for 2017, following two years of real wage decline – wages in the UK remain below the levels of 2007, with public sector workers particularly hard hit. One study found that private sector workers are out by more than 10%, while parity with 2007 is not expected until the mid-2020s. For public sector workers, continued austerity is likely to see real-wages decline further.

Perkins said, “On the surface, it is reassuring to see that there has been a quarterly rise in spending for both essential and discretionary categories. But if you scratch deeper then you quickly realise that inflation has been a key driver for the rise in essentials spending: consumers are buying the same but are paying more for it compared to a year ago.”

He added, “We typically see a dip in confidence in the final quarter of the year, with consumers being surveyed at a time when they are conscious of their spending levels and health after the festive period. So the fact that confidence has remained flat is a clear indication that the UK’s consumers are remaining resilient to spending pressures.”


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Consumer goods start-ups grow interest from venture capital

23 April 2019

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.