2020 Trendspotting

Our industry experts provide outlooks for the year ahead as part of our Annual Review of UK business disruption

As 2019 draws to a close, AlixPartners’ industry experts provide their outlooks for the twelve months ahead, assessing the opportunities and threats presented by a global business landscape in the throes of continued political uncertainty and unprecedented technological acceleration.

"The cultures of organizations and associated structures built over many years are institutionally resistant to significant change. However, if you don’t tackle underperformance head-on, others may come calling demanding that you do."

2020 will no doubt deliver further disruption, putting strength of leadership to the test once again. The value of experience in those critical “when it really matters^sm” moments will be key to success or, indeed, survival.

Use the form at right to see the digital edition of our complete Annual Review, which offers insights and survey results that will help you prepare for 2020 growth.

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Consumer Products

The Consumer Products industry is facing intense disruption. Global power brands are struggling to maintain relevance as private label brands and trendy, niche challengers—often powered by direct-to-consumer sales channels—continue to perform strongly. At the same time, I see significant consumer-led disruption. Health and wellness trends, combined with consumer demand for sustainability—ranging from the growth of veganism and the reduction in the use of palm oil and packaging, to action on global warming—means that many brands will need to adapt their offering. Alongside this, weak consumer sentiment is benefiting the discount segment, while the convenience market also continues to perform strongly.

Supply market uncertainty as a result of ongoing Brexit negotiations is adding further complexity. As a consequence, I expect to see consumer products brands facing input price and trade uncertainty, alongside the potential for increased competition and wage inflation caused by labor shortages. In response, corporate strategies are shifting. I anticipate significant portfolio reshaping and consolidation, and—following disappointing emerging market growth—a renewed focus on core home markets. Digital technologies will continue to transform the industry with improved customer insight and personalization, commodity price management, and manufacturing and distribution efficiency.

This disruption certainly poses a threat, but there is also huge opportunity. The winners will be those that create relevant brands and private label products that meet changing consumer requirements, while embracing new strategies and technologies to remain cost-competitive, innovative and exciting.

—Sanjay Bailur, Managing Director, London, and Andy Searle, Managing Director, London

Financial Services

It’s a challenging time for banks. Generating interest spread continues to be an issue as macro conditions call for loose monetary policy. Even when monetary policy allows spreads to improve, I fear that amongst the generation of customers who have bought homes and built businesses on low interest rates there will be borrowers who will be unable to easily absorb higher rates.

Larger banks with a global footprint will also be concerned about disruption to trade flows. The continuation of tariff wars will disrupt trade, impact profits and could translate to higher impairment charges for banks. Although the great promise of Open Banking is yet to deliver, technological innovation can help established banks maintain consumer relevance. Challenger banks have pushed the pace of innovation, but they and the incumbents must embrace data to help consumers make better financial decisions.

Predictive analytics will allow banks to educate consumers in the way they manage their money, encourage healthy savings habits and eliminate irrational choices. Success in 2020 and beyond will rely on close work with regulators to develop this pro-consumer innovation, bordering on advice. We have reached a point where shareholders, employees and customers want to understand how their bank’s activities support sectors that cause environmental harm. A clear position on sustainability that goes well beyond a CSR statement is more important than ever.

—James Worsnip, Managing Director, London; Claudio Scardovi, Managing Director, London; and Catherine Sherwin, Managing Director, London

Retail

Retail is facing an existential question. Its traditional distribution role is being disrupted by technology platforms like Amazon and Google, and customers feel they can get better value and convenience from discounters or online. While there is still growth in parts of the market such as luxury, discount and specialized retail, the mid-market is severely challenged. I see a "muddle in the middle" where the over-supplied and undifferentiated middle market will continue to be squeezed and the weak will die. Costs are only going up, high street footfall is only going down and technology platforms are only getting better. Only those with relevant value propositions, a lean cost base, manageable debt and operational excellence will survive.

In addition to the fundamentals, I believe every retailer must become a tech company at heart, building significant internal capability and the ability to partner intelligently with platforms. It is essential to master digital channel economics and leverage customer and product expertise to deliver growth. This huge task requires intelligent investment, new talent and, most importantly, substantial cultural and leadership change.

Finally, the power of authenticity cannot be underestimated. Retailers with a clear sense of purpose and a strong track record of ethical sourcing and sustainable policies will continue to be more attractive to customers. Those that merely pay lip service to sustainability will be found out and business will suffer.

My advice is to take bold steps bravely. The retail graveyard is littered with those that acted too late or did too little. Go big or go home.

—Matt Clark, Managing Director, London; Dan Coen, Managing Director, London; and Clare Kennedy, Managing Director, London

My advice is to take bold steps bravely. The retail graveyard is littered with those that acted too late or did too little. Go big or go home.

—Matt Clark, Managing Director, London; Dan Coen, Managing Director, London; and Clare Kennedy, Managing Director, London

Technology, Media & Telecommunications

In technology, there has been a significant shift away from the traditional license-selling/maintenance commercial model to cloud-based subscription models. This is a complicated transition for tech businesses to make, changing operating models and distribution channels; and I think we’ve only really seen the start of this transition.

Elsewhere, in media services, I’ve seen traditional creative advertising services heavily disrupted by new players damaging their top lines, while in telco there’s a pervasive trend emerging around what constitutes core and non-core activity (e.g.: Towers) and the huge drive towards 5G and fibre. The risk all these industries face is the sheer scale and profundity of change. At the speed with which this is happening, many companies will struggle to cope. If you add overly indebted balance sheets to the mix, the room for error will be compounded and businesses may become increasingly vulnerable.

The legacy “technology debt” that many companies have likely built up over the past five to 10 years makes it extremely difficult for them to execute the necessary changes. People don’t want to move away from the deeper aspects of their platform stack, but they should see technology restructuring as their number one challenge in order to be cost-competitive and remain relevant to their customers.

You have to move fast, it’s difficult, and it’s expensive, but a successful transition to lower-cost cloud-based models that operate on cost bases that are a fraction of what they are currently will profoundly change the processes and people that businesses will need to function efficiently and competitively in years to come.

—Eric Benedict, Managing Director, London; Serge Lupas, Managing Director, London; John Miles, Director, London; and Sherwin Godinho, Senior Vice President, London

Automotive & Industrial

I wouldn’t assume that things are going to get better for the automotive industry next year. Yes, we’ve seen record sales and production in recent years, fueled by a cleverly designed payment system, and a resurgence of UK-built vehicles—but times have changed.

In 2020, I expect consumer confidence to dip further, and motorists to become much less inclined to take up PCP financing. Dealerships will see the volume of new car sales fall, as more second-hand cars enter the market, putting further pressure on distribution networks. The potential rise of clean-air rhetoric, as mayoral elections are contested in May, could spook vehicle buyers and further shift buying behavior. Broader political uncertainty will also affect supply chains and impact the viability of component production plants in the UK. While there will be some winners here, who will run with the opportunity for "on-shore" production, others may find that their businesses become much less attractive.

Whatever the driver for the re-evaluation of automotive businesses, it’s simply what industry players should be doing now anyway. Those who make bold decisions sooner rather than later, while they still have cash in the system to fund new strategies, will be the winners. Dealers, manufacturers and suppliers should take a proactive approach in realigning their portfolios and industrial footprints to remain on the front foot.

In this saturated market, the risks are that much higher, so it’s time to do everything they can to streamline, improve and restructure. Those who don’t are likely to regret it.

—Andrew Bergbaum, Managing Director, London; Stefano Aversa, Managing Director, London; and Sean O'Flynn, Director, London

In this saturated market, the risks are that much higher, so it’s time to do everything they can to streamline, improve and restructure. Those who don’t are likely to regret it.

—Andrew Bergbaum, Managing Director, London; Stefano Aversa, Managing Director, London; and Sean O'Flynn, Director, London

Restaurants, Hospitality & Leisure

Over the last decade, changes in the way we consume food have come with major implications for the restaurant sector, which I believe present both challenges and opportunity.

One of the biggest shifts has come thanks to the rise of technology platforms like Deliveroo and Uber Eats, which have resulted in many more people choosing to dine in. Many restaurants are wondering how to play in this space, as it has contributed to the recent decline in the number of bricks and mortar locations. Alongside this, we’ve seen the rise of the conscientious consumer and a growing health and wellness trend that means many of us are now looking for restaurants with clear positions on issues ranging from supply chain sustainability to animal welfare, while at the same time offering menus with more plant-based options and allergen information.

Complicating efforts to respond to these changes, restaurants are having to deal with rising costs, particularly in relation to staff and property. This is contributing to a focus on de-skilling and automation, and a situation where quick and limited service restaurants are outperforming casual dining. With cost pressures mounting, the natural inclination for many will be to explore cost-cutting measures.

However, with consumer behavior changing rapidly, now is the wrong time to halt investment. In order to thrive in this new environment, I believe that restaurants will need to establish a laser-focused investment strategy and think more carefully than ever about why and where capital is being allocated in order to drive optimal returns.

—Graeme Smith, Managing Director, London; Tom Paterson, Director, London; Azeem Ahmed, Director, London; and Craig Rachel, Senior Vice President, London

Over the last decade, changes in the way we consume food have come with major implications for the restaurant sector, which I believe present both challenges and opportunity.

—Graeme Smith, Managing Director, London; Tom Paterson, Director, London; Azeem Ahmed, Director, London; and Craig Rachel, Senior Vice President, London

Private Equity & Investors

It has been a mixed year for Private Equity (PE), with financial and political uncertainty impacting deal flow, along with a lack of quality assets coming to market. Valuations continue to be at very high levels, increasing the need for more innovative strategies to creating value. But I’ve seen PE sponsors continuing to raise significant funds, with dry powder (marketable securities) at all-time highs.

With PE outperforming many other asset classes, the need to deploy capital remains strong, leading to an increased focus on "mega-deals" such as carve-outs from corporates (e.g. Nestle, Bosch and Hitachi), and an increasing interest in "public to privates" (e.g. Osram and Stada). Given the current climate, I would expect PE firms to continue developing innovative ways to deploy capital and, with the increase in activist or LP activity, competition in this environment is set to continue.

Economic trends will have a major impact on the sector in the coming years. We’re seeing signs of a global downturn and are asking how bad it will be and how long it will last. It will be critical to proactively manage portco performance and, in particular, cashflow, and expect an increased focus on infrastructure and special situations/credit.

Moving into 2020, I suggest that PEs should prepare for the worst. They should gain a thorough understanding of the performance drivers across their portfolio, how they may be impacted by a downturn and actions that can be put in place to maintain profitability and, more importantly, generate cash. Integrated digital and operational solutions will be key to accelerating and unlocking more value.

—Mark Veldon, Managing Director, London