There is an old saying “Man Plans, and God Laughs”. If nothing else, the last few years have taught us that life is unpredictable, and unexpected changes will inevitably occur – so it perhaps feels somewhat foolhardy to make our now annual predictions for the year ahead. Who knows what delights 2022 will bring! That being said, gazing into our crystal ball of consumer-facing industries, here are our top 10 predictions for leadership challenges in the year ahead
1) Consumer confidence will remain high, and prices will increase
Starting with a positive – in the face of never-before-seen turbulence, consumer confidence will remain high. As one fund manager, who we recently interviewed as part of our research on private equity appetite in the consumer sector, put it: “the desire to consume hasn’t altered at all. And indeed, in some areas, it has increased. What has changed is the way in which we want to consume.”
This high consumer confidence will continue, despite significant consumer price increases of the likes we haven’t seen in a generation. In December, for example, fresh food saw some of the biggest price increases in almost a decade in the UK, as retailers and manufacturers passed the rising cost of production, continued supply chain disruption and a serious labour shortage onto customers. We expect to see significant consumer price increases throughout 2022 – and, assuming consumer confidence remains high, this shouldn’t necessarily be seen as a bad thing. In the next twelve months and beyond, customers will begin paying the true cost of what they consume, with production and retail costs now normalised for the “new normal”.
2) Supply chain disruption is here to stay
Everyone who manufactures in Asia can’t wait to get on a plane back to the region, in particular China. How much longer can China keep its border shut with strict quarantine rules in place? Finally, this year, we hope to have the chance to sit down face-to-face with key suppliers – something many businesses haven’t done for over two years now – and solve some of the key challenges that have arisen from both Covid-19, and geopolitical events such as Brexit.
Looking ahead to the coming year, increasing agility and flexibility of supply chains will be front of mind. We will see more organisations rethink their global supply chains – in particular, reverting to moving elements of their offshore manufacturing onshore, or at least close to key markets, to improve response time and be more receptive to local demand.
In the UK, businesses will begin to prioritise European and UK-based manufacturing, and building out their European operations to service customers in Europe. Not only will this mitigate the risks involved in large global networks, but speak to the growing consumer demand for more local production. We will also see more CAPEX deployed in vertically-integrated models, whereby organisations own their production facilities rather than outsourcing manufacturing.
A complete re-evaluation of supply networks will require new talent, especially in developing technology solutions to improve transparency and agility long term – and also in leading complex supply chain transformation programmes.
3) ESG will become a serious corporate priority
Investors and consumers will drive a pincer movement to ensure ESG is a top corporate priority – part of a long-term strategy and backed up by sufficient budget and executive and non-executive sponsors. Businesses that fail to take ESG seriously risk losing significant consumer audiences, who are feeling increasingly confident to vote with their wallets.
I’m sure many of you will have seen Netflix’s recent hit Don’t Look Up over the Christmas break. The film allegorises the impending climate crisis and satirises the growing rift between those who take it seriously and those who don’t. The movie is pure parody – but the message is clear: the world is split between those who take issues such as a sustainability and diversity seriously, and those who don’t. Businesses will need to decide if they look up, or down… and I am sure most businesses in our consumer sector will look up – making long-term decisions that benefit their stakeholders and the planet in the face of an increasingly bifurcating customer base.
4) The boom in ownership changes will continue
2021 saw a number of significant ownership changes in our sector, and I can’t see this slowing down any time soon. Last year, in retail, giants of businesses such as Asda and Morrisons were acquired by private equity funds; high-profile IPOs took place, with the likes of Deliveroo, Oatly and dating app Bumble all going public – and numerous businesses, from Arcadia to Debenhams, went into administration.
In 2022, the pipeline of consumer IPOs remains strong – with over ten IPOs in our sector planned for the first half of 2022 (and that’s just the ones we at MBS know of!). Additionally, private equity activity in 2021 was at a record high – with the number of PE-to-PE deals rising 44% compared to the year prior – and this will continue into 2022. In conversations with funds in recent weeks, we are very confident that the PE market for consumer assets will remain extremely buoyant, with strong businesses trading on record multiples. Talking with one fund’s Managing Partner just before Christmas, they told me that they are at complete compacity in terms of looking at new deals – and are now seriously looking at only 1 in 5 of every deal book presented to them. There are more than 120 funds now making sizeable consumer investments across Europe – we expect to see activity from nearly all of them in our sectors during 2022.
5) We’ll see increased NED rotation
2022 will be a year of NED rotation – as forward-thinking Chairs make overdue changes to recalibrate their Boards coming out of Covid. As documented in our 2021 report Boards of the Future, new skills are required of today’s non-executives, whose remit is no longer limited to pure oversight and governance issues. This year, as Chairs conduct their annual board effectiveness reviews, they will recognise this and begin a process of recalibrating the board. As topics such as AI, broader technology and ESG become central to business operations, we can expect to see non-executives with specific expertise in these fields taking up more board seats.
6) Digital transformation will accelerate
2022 will be a year of continued digital disruption. At a time when even small, local corner shops are partnering with tech startups, all companies will need to continue to embrace and invest in digitalisation to diversify their channels in order to stay ahead.
For many sub-sectors in consumer, such as online grocery delivery, market share will take priority over short-term profitability. In other sectors, however, such as apparel, we predict that retailers will start to pass on the true cost of digital channels, in particular returns, to consumers. The process of educating the consumer has started – and we can expect much more public debate on the cost to businesses, and the environment, on digital fulfilment to play out in the coming months.
7) Executive fatigue will spark leadership changes
Since March 2020, companies in the consumer-facing sector have been more entrepreneurial and agile than ever before. It has been a privilege to witness the flexibility, creativity and strength of organisations as they pivot to operate in new trading conditions and to cater for different customer needs. In 2022, I have no doubt that the need for agility will remain. Businesses with CEOs driving this agility – with “can do” attitudes at the helm – will continue to win.
Over the pandemic executives have gone above and beyond, funnelling their time and energies into adapting to new ways of trading and working. Conversations with Chairs and CEOs have revealed that many leaders who helmed businesses at the height of the crisis are experiencing fatigue after nearly two years of disruption and continued reinvention. In 2022, new executives will be required to breathe fresh energy into several significant businesses – and in some cases, restore investor confidence. Different skills may well be required to grow, build back momentum and move from the defence to the offence, and we can expect lots of Chair, CEO, CFO and CHRO changes.
8) Cross-pollination of leaders will continue
In 2022, expect to see more bold and unexpected executive appointments from companies looking to step-change their performance. We’ll undoubtedly see healthcare firms looking to the consumer and hospitality sectors as companies transform to cater to new consumer and patient expectations. Similarly, retail businesses will continue to learn from the subscription and loyalty space; consumer goods firms will look to ecommerce and retail as they build up D2C offerings; and hospitality firms will continue to share lessons – and talent – with luxury houses aiming to expand into services.
9) Employment will remain challenging
Looking back to the start of the Covid-19 pandemic, economists everywhere were predicting mass unemployment. Thanks to significant government interventions globally, the opposite has occurred – and throughout our sectors, it has become harder to hire enough of the right people. Businesses will need to become more creative in how they attract and retain employees, and employee brand and culture will become a top priority. Sectors will need to think together, as one, about how they address shortages of chefs, drivers, front-of-house staff and front-line care workers. A new role will arise for trade bodies in leading this joined-up thinking, and governments may need to weigh in. 2022 will be a challenging year to recruit front line staff – however, without action this year, 2023 and beyond could be disastrous.
Additionally, sadly, it seems inevitable that Omicron won’t be the last variant of Covid-19. Possibly the biggest challenge going forward will be keeping businesses open when a significant portion of the workforce is off sick or isolating. In the UK, the latest data suggests that 25% of staff could be absent at one time in the worst-case scenario, and organisations of all sizes and scopes will have to think carefully about what trading looks like in this new normal. Expect to see lots more “closed due to staff sickness” signs on doors in businesses throughout the world.
10) The role of the office changes forever?
We have now been working from home, or in a hybrid fashion, for nearly 2 years. To date many businesses have framed this as a temporary state – and have avoided making long-term decisions about flexible and homeworking going forward. In 2022, this may start to change – some companies will look to right-size their office footprint to reflect new working patterns, and will invest in new and different formats in existing spaces, reflecting how they are now used; employees (possibly funded by some forward thinking employers?) will start to make modifications to their homes to ensure they are proper working environments – and many businesses will start to embrace fully-flexible ways of working as permanent, with the “9 – 6 working day” dropped from many contracts.
These changes will have huge ramifications for businesses across our sector – from facilities management, through to contract caterers, through to trainlines – with these businesses needing to adapt and evolve their offerings. Employees will be closely watching employers to see how they codify new working practices. Given the current buoyancy in the labour market, particularly with younger employees, some may choose new employers whose working policies better reflect their own personal working preferences.
What have I missed? Do email me with your own predictions for 2022 – elliott.goldstein@thembsgroup.co.uk. Taking the opportunity to wish you all a happy, healthy and successful new year!