The world may avoid a recession in 2023, but the United Kingdom is unlikely to be so lucky. The Bank of England forecasts lasting recessionary conditions until 2024 that could send unemployment to 6.5% over the next two years.
Further, the UK is alone among its G7 compatriots of Canada, France, Germany, Italy, Japan, and the U.S. — as the only country to record a decline in GDP between the fourth quarter of 2019 and the third quarter of 2022.
The knock-on effects of these macro circumstances sit alongside sweeping increases in energy prices largely driven by the war in Ukraine, and a rapid escalation in interest rates for UK borrowers, making mortgages suddenly unaffordable for some.
It also appears the UK will need to work harder than other countries to come out of recession if the Organisation for Economic Co-operation and Development’s (OECD) November Economic Outlook report is accurate.
The report cautioned that the global economy would slow in 2023 but would avoid outright recession and that GDP would grow 2.2% in 2023, rising to 2.7% in 2024. By contrast, the UK’s GDP is forecast to be -0.4% in 2023, rising to just 0.2% in 2024.
The Bank of England, the prime minister, and economists agree it will get worse in the UK before it gets better.
So what does this mean for consumers? Inflation is at the heart of what has been broadly labelled a cost-of-living crisis. The Consumer Price Index hit 11.1% in October, and worse, grocery inflation sits at 14.6% for November.
The consequence of these numbers is that consumers face a jump in their annual grocery bill of almost £720 if they continue to buy the same items. The jump is, of course, alongside raging prices hitting other essential needs.
Unsurprisingly, over a quarter of all households now say they’re struggling financially, double the proportion Kantar recorded in May 2020. Nine in ten of this group say higher food and drink prices are a major concern, second only to energy bills, so it’s clear just how much grocery inflation is hitting people’s wallets and adding to their domestic worries.
Another financial indicator, retailer own label sales, have risen month after month in 2022 as shoppers adopted different strategies to manage their budgets and retailers continued to add value products from their own label range and from brands. By November, own label sales were up almost 12% year on year.
In late 2021, Kantar identified a means of understanding the signals of change emerging from British shoppers. Three spending cohorts were established — called ‘pressure groups’. Each cohort description reflects where the households see themselves on the spending spectrum. The first group is for those who consider themselves “comfortable”; the second is “managing; the third is “struggling”. Among them, a sea change is taking place.
As 2022 played out, there was no let-up in the declining circumstances of consumers. In the five months from November 2021 to April 2022, Kantar’s pressure groups went from nearing half of households (41%) saying they were “comfortable” to just one-third, a meaningful and rapid shift from a place of confidence and security to one of reticence and insecurity. By July, the “struggling” group had grown a further 2%. By October, a further 2% were struggling and, tellingly, even the comfortable group fell 4%.
Not unexpectedly, spending ahead of Christmas has also changed, almost certainly because of these grim circumstances for an increasing number of shoppers.
For retailers and grocery manufacturers, the Christmas period is typically the busiest time of year, with shoppers spending 14% above non-holiday periods and often willing to “trade up” to more premium offerings.
Based on Kantar data in the fourth quarter of 2022, it appears people are still looking to treat themselves but this year they’re making cheaper choices within categories or shifting to other categories for more cost-friendly treats.
The impact of new legislation introduced in October that limits the in-store locations for products high in fat, sugar, and salt (HFSS) is also likely to impact at Christmas and other holidays. Products such as sweet treats, cakes, and salty snacks which are popular during the holidays fall into these legislation categories and are also subject to a ban on volume promotions.
2023 will be all about looking for early indicators to guide more confident decision-making for retailers and brands. To help that process, Kantar has identified five key areas to guide growth plans for the year ahead. We explore them in the following chapters. An underlying thread is the need to be bolder and nimbler whilst not depending entirely on behaviours of the past as a guide to the future.
