From GenAI to finding growth, what trends will we see this year in consumer markets?

Retail Outlook 2024

Woman looking at dress hanging at store

Last year was a story of mixed fortunes for the consumer markets sector. Both businesses and consumers headed into 2023 with a sense of cautious optimism, but the second half of the year was harder going for some. However, consumers did end up spending more than they predicted over this year’s Golden Quarter, even if it was slightly down on the previous year. What might all this mean for 2024? Where are the opportunities? And what are the steps retailers can take to win share of wallet and stomach?

Overview of the Golden Quarter 2023

This year’s Golden Quarter saw some mixed results for consumer businesses. While trading may have outperformed expectations for a few, across the board we saw a slight downturn in performance. These categorised by a few trends:

Christmas still matters

While Christmas and celebrations remained important, we saw smaller family gatherings, fewer presents as a result and more sensible spending, consumers “played it safe”. That translated to more disciplined spending in general, with shoppers being more conscious about what they bought, despite still opting for ‘selective treats’. We saw cut backs in areas such as toys, sports equipment, watches and jewellery. And shoppers were more cautious on pet gifting.

Food and drink first

But grocery and hospitality grew its share of wallet over the period, as consumers prioritised eating and celebrating. Volumes may have been below pre-pandemic levels, but many retailers reported strong sales of premium ranges - particularly those that got execution right - as people looked to treat and trade up, and others managed inflation and temptation with promotion and store choice. Elsewhere, some hospitality operators, particularly more premium and trusted restaurant brands, were able to toast a strong end to the year for the second consecutive year as a welcome relief.

Winners played to their strengths

As consumers looked to spend less across the board, they defaulted to brands they considered reliable or promised quality - whether for food, gifts or experience. Inevitably, that led more people to larger, trusted brands and made it challenging for smaller businesses, new entrants and independents. While good news for many of our beloved and established retailers, it was less positive news for some value retailers, as shoppers looked to avoid temptation.

Given the trend toward considered consumption, winning formulas combined brand relevance, value for money, scale, and multi-channel offerings. The real success stories this year kept customers close, running effective and far-reaching advertising campaigns and encouraging people to prioritise (and spend on) quality.

Watch the recording of our Retail Briefing 2024 for more detail on how the consumer markets sector performed across the Golden Quarter. We also explore the economic, political and consumer outlook for the year ahead - including a focus on emerging technologies and GenAI - and look at what these trends might mean for the market, retailers and consumers in 2024 and beyond.

Outlook for 2024

There will be opportunities for success in 2024. Despite a slow start to the year with some non-food retailers using promotional levers to entice shoppers, positive indicators such as falling inflation, interest rates drops and improving consumer confidence hint at a better second half of the year.

Reasons to be cheerful

- Cost of living - the worst should be over
- Falling inflation and (hopefully) interest rates
- High employment, real wage growth
- National Insurance and other Budget giveaways
- Spending intentions better than last year

Reasons to be fearful

- Inflation falling... but not negative
- More fixed rate mortgages ending; rent inflation
- Employment levels peaked, higher job insecurity
- Polarisation between affluent/less affluent and young/old
- Anaemic spending forecasts

Our January Consumer Sentiment Survey has seen sentiment bounce back after stalling in the summer. In a somewhat surprising and significant improvement (to -4), it is now more positive than the long-run average. In fact, it is now the best score since September 2021, continuing a trend in the right direction that started in Autumn 2022.

Household finances have seen a small improvement again, with one in three having money left for luxuries and savings and only 8% telling us they are either struggling or in trouble. Older and wealthier consumers, in particular, are less affected by the cost-of-living crisis, with the majority of over 65s telling us they believe their finances are healthy. A third of all adults now believe they have healthy finances.

But even with wages now rising faster than prices and inflation affecting fewer people this year - only 48% are expecting to spend less because of the rising costs of everyday products (v 57% last) - discretionary spending categories will remain squeezed. Our survey suggests that consumers are more optimistic than this time last year, with a marked improvement across all categories. Priorities are likely to continue to be food, pets, holidays and children, as going out, big ticket items and eating out all feel the pinch.

Overall, we’re expecting a more normalised - if slightly subdued - year ahead, with less impact from inflation, less variation in retailer performance between different product categories, and less variation between instore and online. Winners will be the ones that can stimulate demand and find those pockets of consumer resilience such as the wealthier, younger and older demographics. That will see retailers look to ensure they are wherever their customers want them to be, as well as explore new routes to market, foster partnerships and consider M&A to fill proposition and capability gaps. Leading retailers will also look to build resilience into operations and supply chains and harness emerging technologies to improve efficiencies, empower workforces and find new ways to deliver growth.

Trends for 2024

Going for growth

Encouragely, PwC UK’s CEO Survey shows leaders looking to move away from a focus on cost-out and towards driving growth. In fact, 78% tell us their growth strategy is driving transformation in their organisation.

To secure long-term viability and growth, businesses are planning to use transactions - whether M&A, divestments, joint ventures or refinancing – as a crucial transformation factor, from enabling faster tech adoption to accelerating decarbonisation or adding new skills to the workforce. Our latest Value Creation research reveals over half (56%) of senior executives see transactions as the best way to keep up with market developments and overcome challenges.

Across consumer markets, there appears to be cautious optimism for an uptick in M&A in 2024, provided macroeconomic conditions hold steady.

“While M&A in consumer markets may take longer to recover, it remains a powerful—and, indeed, essential—lever to transform, accelerate growth and give companies a competitive edge as they face tomorrow’s challenges.”

Hervé Roesch, Global Consumer Markets Deals Leader, Partner, PwC UK

Yet transformative transactions aren’t always easy to get right. While most say their experience of using transactions to create value has been positive, around one in five failed to meet expectations.

By aligning target transactions with a bold vision, leaders can create a path to long-term viability and growth through deals that support the organisations ambitions and create value through enabling tech ambitions, accelerating decarbonisation, improving workforce skills and capabilities, or more. Companies and leaders can take some simple steps to be prepare for what’s ahead:

  • Create a strategic and transformational view, with a clear business rationale for transformative deals
  • Get creative with financing to reflect the changing way deals are financed
  • Be bolder around value creation with clear and ambitious value creation plans that focus on top-line performance as well as operational efficiency.
  • Prepare assets for sale and plan for the capabilities you need to transform

Building supply chain sustainability and resilience

While growth strategy is the standout driver of transformation plans for UK CEOs this year, increased productivity, expanded offerings and with other drivers such as net zero remain high on the list. And to meet all of these ambitions, supply chain transformation must be a focus for consumer businesses.

More than half of CEOs tell us they are looking to transform their supply chain this year, with more than one in three (38%) telling us they have either recently completed or are currently running a supply chain transformation.

And in a continuing theme from last year, businesses are focusing on getting control of supply chains as an effective way to take charge of the journey to net zero. With consumers wanting greater transparency, visibility and accountability from brands, regulators demanding increasingly robust ESG reporting and stakeholders looking for continued growth, organisations are increasingly turning to technology and data to steer their actions.

“Supply chain innovation and transformation is likely to be a key focus for consumer businesses this year. We know there are opportunities for leaders to diversify, explore new technologies and strengthen relationships with consumers. But it’s critical that they think about how they balance cost, resilience and sustainability if they’re to solve those challenges that go deep into the value chain.”

Richard Pugh, Director, Deal strategy and operations, PwC UK

Some organisations are turning to frictionless technologies to find the rich data and insights they need to improve data quality, visibility and supply chain transparency, and turn ESG ambition into action. Pairing this information with powerful technology solutions across the supply chain, enables them to gain a fuller picture of their progress on ESG, while nudging customers to shop more sustainably and helping them make their own data-driven decisions.

And as GenAI and other emerging technologies evolve, they offer further opportunities to help consumer-facing businesses better manage their supply chain - from predictive analytics to manage supply-demands peaks and troughs, to increasing logistics productivity, improving shipments comms, improving warehouse productivity, better managing waste and returns, and more. Some have already embraced technology to integrate ordering systems into suppliers, supply chain, and logistics providers, for instance.

Ambitious leaders must now look to transform supply chains in a more strategic way: one that allows them to optimise spending and grow stronger at the same time, and creates greater value through increased control, visibility, and efficiency.

Using emerging tech and data to deliver

“The traditional end-to-end value chain has become increasingly complex, intensified by multi-channel models, geographic expansion and the convergence of different retail models, such as direct, wholesale, marketplaces, resale, rental and retail media estates. But the onset and evolution of GenAI gives retail an opportunity to revolutionise their approach, simplifying some of those activities by doing it cheaper, better or faster.”

Jac Windsor, Head of Retail, PwC UK

Right across the value chain there will be opportunities to find growth and efficiency. At the planning stage, for instance, organisations may look to advanced customer analytics, from customer segmentation to emotion analysis, and automated customer journeys. Some retailers are already using emotion analytics to refresh brand cues, helping them stand out among competitors and stand up on social issues.

Elsewhere, retailers are experimenting how AI more broadly can inform the design stage through multi-modal trend analysis across data and images, and using AR design systems to develop new products. Across the supply chain, AI can also support the buy with advanced supplier selection, ESG passports and intelligent contract negotiations.

More ‘rudimentary’ uses of technologies, such as automated chatbots to manage small suppliers, AI-enabled localisation ranges, dynamic pricing and 3D product catalogues are helping find efficiencies. In marketing, GenAI is already being used in anything from content creation and translation to hyper-personalised experiences. And it can really supercharge the efficiency through intelligent supply chains and using AI-powered robotics in fulfilment centres.

There is undoubtedly significant potential out there. But in the excitement to adopt these emerging technologies - particularly GenAI - retailers must ensure that they have the right foundations first. Failing to have the right technology and data in the right place for adoption will only exacerbate poor data, bias, toxicity, lack of data control, and more.

Creating long-term value will require serious investment in skills and culture, risk and governance, as well as cloud and data infrastructure: the right guardrails, data security and human involvement to mitigate against such issues.

“Cloud provides the foundational platform to reliably collect data from sources right across an organisation, its supply chain and wider logistics networks. Collating and analysing that data will inform smarter and more consistent decision-making, as well as powering specific benefits such as greater customer insights, cost out or more robust reporting in support of net zero transformation. It can also become an entry point to enable GenAI. This isn’t about driving individual changes in different parts of an organisation, it’s about creating a basis for ongoing agility and change whenever and wherever it is needed.”

Rachael Hampton, Cloud Transformation Leader for Private Sector Clients, PwC UK

It’s here where cloud technologies - from infrastructure and platforms, to applications and more - have become critical enablers of ongoing transformation, and are key to creating continuous value from data and fast-growing technologies. We now know that those businesses going ‘all-in’ on cloud are finding greater value quicker, reinventing business models faster and delivering radically better services to customers than traditional competitors.

Encouragingly, our EMEA Cloud Survey reveals 72% of retailers are looking to have all operations in the cloud within two years. But while the ambition is there, 53% are still modernising data one business area at a time. Now must be the time to take an enterprise-wide approach to their data strategy to ensure they don’t miss this opportunity.

For some, Industry Cloud offers organisations the chance to transform at speed without costly infrastructure investment. Typically pre-designed and cloud-based, these technologies set out a template of what a ‘cloud-powered’ business could look like. Scalable and cost effective, this technology can meet the specific needs of a growing business, whether that's embracing GenAI, building and securing a data strategy, decarbonising the value chain, or more.

Contact us

Lisa Hooker

Lisa Hooker

Leader of Industry for Consumer Markets, PwC United Kingdom

Tel: +44 (0)7802 882562

Kien Tan

Kien Tan

Director, Retail Strategy, PwC United Kingdom

Tel: +44 (0)7880 552726

Jacqueline Windsor

Jacqueline Windsor

Partner in Strategy& Deals Consumer Markets and Head of Retail, PwC United Kingdom

Tel: +44 (0)7801 074739

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