After a difficult year for businesses, 2023 doesn’t look like much of a breather. The economist said he was one of the UK’s longest recessions on record as the cost of living crisis, war in Ukraine, high energy prices and ongoing supply chain problems impact consumer and business spending. I predict it will be
These latest economic difficulties come just three years after the 2020 Covid recession and the UK’s slowest growth since the 2008 credit crisis. But Julio Bruno, chairman of Mercato his Metropolitano and director of the Pacha Group, points out that “a recession is a given.” So companies have to learn how to navigate them. “A lot of people think ‘recession’ is a bad word, but the economy goes up and down. he says.
Adapting to changing customer needs
That said, there are changes companies need to make. This downturn could see changes in how and how much consumers spend their money, as rising utility bills and rising costs of commodities reduce consumption of luxury goods.
Kantar’s latest work Global Issue BarometerA survey conducted in November found that 71% of UK consumers spontaneously mentioned the economy when asked to mention their concerns before the war (58% ). Jobs and unemployment also top the list of concerns, with 40% volunteering to list them, surpassing climate as the third biggest cause of anxiety.
Sarah King, Senior Partner of Kantar’s Sustainable Transformation Practice, said one of the key expectations companies have during economic times is He said it’s about treating employees properly. It came out during the pandemic and remains.
“The expectations of business have increased. People don’t see them as separate entities. says.
The survey also found that 53% of people struggle to meet their monthly expenses. To combat this, 27% of consumers are reducing their general spending, 26% are looking for promotions, 22% are shopping at discount stores and creating shopping lists, 20% say they stay within their spending limits.
Luxury goods big and small are being sacrificed to help people weather inflation. About 55% said they would lower their priority on luxury items, 46% would reduce recreational activities and holidays, and 44% would reduce their frequency of going to restaurants and coffee shops.
For businesses, this means avoiding opportunistic price hikes, understanding when and why shoppers hit the market for products, and finding ways to capitalize on new customer needs. But King believes the current outlook remains “cautious, not panicking.”
“A few people have clearly hit their limits and are finding things very difficult. It looks like,” says King.
Nigel Vaz, CEO of digital transformation company Publicis Sapient, agrees. He understands that consumers want to do more with less, so he typically trades them for other products of better value or chooses cheaper delivery slots. So instead of trying to find new customers, companies are fighting competitors to keep current ones, he says.
“In nearly every sector, businesses need to avoid customer churn by creating better products, services and experiences that make people choose them over someone else,” he said. say.
Focus on core business
For that to work, Bruno says, it will refocus on its core business to ensure the company is fit for purpose and able to generate as much revenue as possible. This may include restructuring the business, driving efficiencies, or increasing prices.
“Business leaders need to focus on finding growth in what they are already doing. Too often, people and companies want to do new things, and that is why they ask companies to do it first. Sometimes we forget that it was the core activity that brought in the profit,” he says.
That’s when many businesses can get into trouble and find bargains.Businesses with cash will go out and become more aggressive
“Focus on knowing what you already know well. If you are already efficient, push yourself to be more efficient. Look at your prices – they are your in line with the cost-based reality of
Vaz believes it’s important to improve core products and services, but warns that too often it requires big bets on digital technology. If your business is short-term focused, it can be difficult to get approval during a downturn, but leaders need to know where the market is heading to stay competitive, he said. says.
He gives the example of a large financial services company that Publicis Sapient works with. This company has invested in reducing the time it takes him to get a mortgage from 12 days to 10 minutes. “It was more important for them to take advantage of capital expenditures and save operating costs than vice versa,” he adds.
Another example is customer service. Businesses are investing in chatbots and AI to make their call centers more efficient and better support their customers. “You often have to find costs within your business to fund new things, but new things reduce your exposure to costs.”
A pragmatic approach to M&A
Businesses often save cash and close the hatches in a recession to prepare for a boom. This will become even more important in 2023 as interest rates rise and borrowing becomes less attractive to businesses.
“Cash is always king, but even more so in a crisis,” says Bruno. “If you can generate cash for the kind of business you do, save it.”
But he sees an opportunity for cash-rich companies to consider mergers and acquisitions.
“I’m afraid a lot of businesses will get into trouble, but that’s when you can always find a bargain. Those with cash will go out and be more aggressive. ”
Data from previous recessions also shows that companies that can afford to trade can emerge from recessions. A PwC analysis of data from the 2001 recession found that the companies he acquired had 7% higher returns to his shareholders than his peers a year later, but in the first half of that recession. The companies he traded with were making 10% higher profits than his.
Jonathon Parkinson, managing partner at M&A advisor Marktlink, believes this is because they are doing it because it is part of the DNA of the companies they are doing business with. “They remain true to the values that have brought the business to where it is today. They are entrepreneurial, flexible and optimistic.
“In times of crisis, it’s easy to be conservative and focused internally. But that’s when you want to look for opportunities.”
He also believes it’s not just companies in trouble that are being acquired, suggesting that some leaders need to think differently. “There is still plenty of competition for businesses that are resilient to everything happening, show strong growth, hold strong margins and still generate cash.”
If you’re thinking of buying one, I recommend getting the basics in place as soon as possible. The key is to first determine what kind of strategic funding or acquisition is appropriate. UK or international, private equity or another business. Then tailor your business to appeal to that audience.
“Business owners need to realize that selling a business does not necessarily mean exiting. So finding a good strategic or financial partner may give you extra confidence and peace of mind that whatever happens, you can overcome it. is the right buyer,” he says.
