The consumer sector is forecast to grow over the next five years, driven by increased spending on food and consumers investing in new products / new technology
The consumer sector is the UK’s largest private sector employer at 3.8m people
The consumer sector enjoyed the fastest return to pre-recession outputs growing at 0.5% versus wider economy of 0.2%
The UK’s consumer sector
The consumer sector is a collective term for companies that operate in food processing and manufacturing, non-food manufacturing and retail. According to the Food and Drinks Federation, the consumer sector is the UK’s largest private sector employer at 3.8m people, which equates to 14% of all UK employment.
Splitting the market out into Food & Drink, Consumer Goods (Consumer Durables) and Retail, the split of the consumer sector can be described as:
UK Food and Drink Manufacturing – this industry is worth £26.5bn Gross Value Added, with 8,995 companies and 411,000 employees (DEFRA – Food Statistics Pocketbook 2016)
UK Consumer Goods (non-food) Manufacturing – Multi £Billion, multi-category industry ranging from Health & Beauty through to Household & DIY products
UK Retail – this industry has a total value of £358bn in 2016, with 192,000 registered retailers, employing 2.8m people (Retail Economics – UK Retail Sales Report, January 2017)
The consumer sector enjoyed the fastest return to pre-recession outputs, growing at 0.5% versus wider economy at 0.2% and consumer spending, despite Brexit uncertainty, remains remarkably robust and has been the dominant driver of UK economic growth over the past three years. It's underpinned by solid employment growth, negligible inflation, cheaper energy costs, ultra-low borrowing costs, rising house prices and heavy discounting by many retailers.
Positive growth outlook
The UK forecast for food & drink and consumer durables (non-food) consumption are both forecast to grow over the next five years and retail sales are forecast to rise slightly too.
In the ever-changing and fast-paced consumer sector, the traditional business model is becoming less relevant. Technology has created markets that are open for business anytime, anywhere – and in any way the customer prefers to shop. Consumers can now sit and instruct their Amazon Echo to add washing up liquid to the shopping list and it could be delivered to your door the next day. The only effort the shopper puts in, is getting up to answer the door when the delivery driver arrives.
This analysis of the market, undertaken by The Economist Intelligence Unit (EIU) was carried out post the Brexit vote, and the assumptions within their report take into account the Brexit effect.
Food & Drink
Consumer expenditure on food and drink is forecast to grow from $210.7bn in 2016 to $228.2bn in 2021, a growth of 8.3%.
The share of household spend on food, beverages and tobacco, having fallen in recent years, is expected to rise gradually in 2017-21 due to rising prices and falling incomes. Growth in food sales will outpace that of non-food sales, due to an increase in demand for convenience foods and the changes in people’s shopping habits.
Exports are also healthy for food and drinks manufacturing and the first quarter of 2017 saw exports of all UK food and drink grow to £4.9bn, up 8.3% on 2016. This represents the largest first-quarter exports value on record. The UK's top three export products remain whisky, salmon and chocolate. Export growth to non-EU countries (+9.4%) increased at a faster rate than those to the EU (+7.4%).
Consumer Durables (non-food consumer goods)
Consumer expenditure on non-food retail sales is set to grow at an average annual rate of 2.3% during the forecast period, reaching £186.8bn by 2021, up from an estimated £167bn in 2016, a growth of 11.74%.
The UK's mature market for non-food consumer goods is more closely linked to the economy’s performance than the overall retail market. Brexit-related uncertainty will constrain volume sales, but demand will still be supported by replacement needs, technological change and wider sociological factors.
The retail market will grow in nominal value terms, from an estimated £350bn in 2016 to £398bn in 2021, but will remain broadly flat on a volume basis, with average annual retail sales volume growth of just 0.4% in 2018-21.
This positive outlook in the numbers from the EUI report was backed up by KPMG in the last quarter of 2016. Three-quarters of the consumer industry CEOs surveyed expressed confidence about industry growth over the next 12 months, with 43% saying they were confident, and 32% very confident. On growth prospects for their own organisations in the coming year, they were even more optimistic, with 83% expressing confidence 46% saying they were confident and 37% saying very confident.
The impact on talent strategies
At MacGregor Black we're seeing more requests and requirements from our clients for candidates that have experience in roles that are at the forefront of change: digital, supply chain, NPD, HR and operations as our clients look to deal with ever-changing and more competitive environments.
However, rapid technological change and evolving consumer habits will continue to drive significant changes across the retail sector, sustaining the shift towards online and discount channels.
Headcount: Over the next 12 months, 49% expect headcount to grow by less than 5%, while 18% expect similar growth over the next three years. 18% expect headcount to rise by 6 to 10%, and 56% anticipate the same increase over three years.
The Economist Intelligence Unit (EIU): Consumer goods and retail, UK, published Q1 2017; Retail Economics - Outlook for UK Retail 2017, published Q4 2016.
KPMG: Global CEO Outlook, October 2016.
DEFRA: Food Statistics Pocketbook 2016
The Food & Drink Federation, FDF website, June 2017
The Food & Drink Federation: UK Food and Drink Exports see record growth in first quarter of 2017, 31 May 2017
Retail Economics: UK Retail Sales Report, January 2017