How UK retailers and brands must tackle declining consumer confidence

Positivity for the future, but only for the businesses that are doing the right things

However, there is an indication that consumers are becoming more positive about the future, with more than three-quarters (77%) reporting they will be the same or better off next year – 45% of those consumers believe they will be better off, up 6 percentage points from 2024.

Even though in recent years we have seen a shift towards value, and despite their concerns, UK consumers are continuing to prioritise spending on things that matter to them, such as health and sustainability. Concerns about health drive nearly two-thirds (63%) of respondents to make healthier food choices. Most are also happy to pay a premium for the right product over cheaper alternatives, with 63% of consumers choosing healthier fresh foods and 56% will pay more for healthier processed food. Customers are also willing to pay higher prices for products that are more sustainable, 50% of shoppers will pay more for sustainably-sourced food and 49% for sustainable beauty products. 

Subdued UK consumer confidence means that only the retailers that offer the best value for money are winning with shoppers. Currently retailers are navigating a complex environment, with rising wage costs, ongoing geopolitical tensions and the need to deploy new AI-driven tools and propositions threatening to distract focus.

However, consumer behaviour around value is here to stay and is similar to the reaction following the global financial crisis of 2008 to 2012, when there was a step change by consumers to seek out value. That drove a huge market share increase to the discounters, which continues today.

The challenge for retailers is that the consumer obsession with price isn’t new and retail businesses have already focussed on many of the traditional value levers. It’s now essential to find new ways to deliver value by getting the retail basics right as the environment becomes ever more complex.

Three priority actions for retailers to take now:

1. Optimise product range depth and breadth.

Replace underperforming brands with strong private label alternatives and simplify the complexity of the customer offer.

In recent years, retailers have expanded product ranges in order to increase supplier funding. However, that has come at the cost of careful product curation. Customers can find making choices overwhelming and confusing; meanwhile, retailers find themselves with multiple brands fulfilling the same customer need and therefore each underperforms. There is significant opportunity to slim down ranges and, where appropriate, replace some brands them with trusted private label, higher-margin products. This will simultaneously drive greater financial returns and improve the customer proposition. Whilst some supplier funding may be lost, increased market shares for the remaining brands will offset this.

2. Ruthlessly focus on value perception.

Ensure that marketing, specifically on price and quality is linked to the brand. Retailers must and get the right balance between promotions, price, and loyalty investments.

Ongoing investment in marketing is essential but is insufficient on its own. Leading retailers manage all the elements of price and value perception, which is the primary driver of most consumers’ purchase decisions. They get the right balance of investment across pricing, promotions, and loyalty schemes. Retailers must also focus on product quality and flex these independently across categories. They ensure customers feel that prices are low where it matters the most to them and that price architectures show clear and consistent trade ups/downs, communicating the additional value delivered as the shopper pays more. This is combined with clear and effective marketing over the long term so that consumers know what to expect from the retailer. It’s important to remember that value isn’t purely about price, but whether customers feel that they are getting a fair deal, given what they’re buying.

3. Quickly leverage technology and AI.

Improve the effectiveness and efficiency of internal teams, and deliver a customer proposition that is increasingly easy to use, reducing all points of friction across the end-to-end customer journey. 

Technology, and AI in particular, provides retailers with multiple new opportunities to reshape their organisations to deliver the necessary cost savings, whilst simultaneously driving improvements to the customer proposition. Many retailers are piloting AI to increase both the efficiency and effectiveness of their teams, AI investment should also be pivoted towards delivering new personalised propositions and services. Our latest survey showed that the majority (66%) of UK consumers feel that AI is already enhancing their online shopping experience. The risk for retailers is that they fail to adapt and are replaced by AI shopping bots offering better customer service.

For consumer goods companies, brand development over recent decades has focussed on building recognised and trusted brands that are the go-to for consumers. But brands no longer hold the same power. Now that value is more important to twice as many consumers as brand, value has become the most important purchasing factor and brand loyalty is waning.

The challenge for consumer goods companies is to address the urgent value and loyalty challenges whilst also taking action to ensure their brands stay relevant as consumers continue to evolve.

Brand development must remain relevant to changing consumer priorities in health and sustainability. Whilst our global survey indicates that sustainability has become less of a priority for consumers worldwide, at least a third of UK consumers still prioritise higher priced, sustainable products, depending on category. This underscores the continued importance of sustainability as a focus area for brands in the UK.

With Generation Z reshaping expectations around brand engagement, consumer goods companies must also find more effective ways to connect with the consumers of tomorrow.

Three priority actions for consumer goods companies to take now:

1. Audit your brands.

Identify and divest the poorest performing brands. Leading consumer goods companies focus their efforts and investments on their best brands, ensuring they are highly differentiated in the market, and clearly demonstrate added value to consumers. They regularly audit their brand portfolio, robustly testing margin contribution, and pragmatically removing the brands that no longer deliver. Given only the very best brands can compete with own label, consumer goods companies must follow suit, allowing them to put investment and time behind their most important brands.

2. Significantly invest in R&D.

Differentiate the remaining, strongest brands and drive consumer loyalty. Enhance existing brands with innovation and quickly add new brands that resonate with consumers.

Despite consumers showing a high interest in more affordable products, generally prioritising price over brand, a superior product can attract 55% of UK consumers back, even with a higher price point. However, as they focus on brand development, consumer goods companies must ensure they take strides rather than small-scale tweaks or consumers simply won’t return.

31% consumers are willing to pay more for premium materials and improved product performance (29%), showing the importance for brands of prioritising research and development. For the consumer goods sectors that are viewed as most innovative – clothing and footwear (46%), household care (45%) and beauty (44%) – the dedication to R&D is already there. If others are to see the same rewards, then investment in innovation must be sustained to maintain competitive differentiation and secure consumer loyalty in the long-term.

3. Pivot marketing spend into new channels.

Reach Gen Z where they shop, rather than persisting with increasingly outdated traditional marketing activities.

Digital engagement continues to increase, particularly for Gen Z. With delivery platforms used by two thirds (68%) of Gen Z for dining out or takeaways, and online marketplaces being used by the majority of Gen Z for clothing (62%) and beauty (48%) purchases.

As a result, leading brands are shifting their marketing to channels where their customers spend the most time, as well as monitoring the returns on marketing investment even as budgets might be tighter.

The best performing leaders are bringing marketing development in-house and using AI to improve content quality and speed up delivery. AI is influencing consumer behaviour, with 27% customers using recommendations from AI when making buying decisions but over half (53%) of such AI recommendations focus on mass brands. This demonstrates how important visibility and robust traditional brand strength is to consumer goods companies. Their brands must be optimised for AI-driven discovery. If not, they risk becoming irrelevant because they won’t be found by consumers.

Summary

UK consumers are cautiously optimistic about their financial future, but short-term pressures continue to influence behaviour. With constrained budgets, purchasing decisions are increasingly deliberate as price sensitivity reshapes retail and brand loyalty. Retailers must refine product ranges and enhance customer experiences through technology, whilst consumer goods companies need to refocus on innovation and targeted digital strategies. Those who swiftly adapt to these evolving priorities and leverage AI to deliver value will be best placed to thrive in this era of conscious consumption.