Consumer spending and consumption patterns are constantly evolving in response to several interrelated factors determined or influenced by political, social, economic, cultural and technological shifts in the market resulting in a number of consumer trends, including the growth in e-commerce shopping, investments in distribution infrastructure and forward integration of supply chain, as well as the consumer spending preferences on lifestyle and leisurely services over material products. At the same time, we have also seen the consolidation of trends in environmental and sustainability focused consumption and holistic health awareness. Consumers increasingly seek out personalised or customised products and services and expect suppliers to use innovative technology to meet their demands. But how does this ever-changing pattern influence trends and opportunities within M&A?

We have already seen the general trend of private equity firms investing in technology, particularly in the development and deployment of artificial intelligence and other automated solutions, but pressure on consumer spending will likely present opportunities for savvy investors. Distressed and pre-distressed assets and brands, particularly in areas such as consumer electronics and fashion are likely to be a core opportunity whilst traditional retail remains under pressure. On the other side, ecommerce, pet-related and wellness-related retail continue to be areas of growth.

Any deals in these sectors must be carefully structured to factor in the rapidly changing consumer needs and ESG considerations will become even more vital in due diligence as pressure on supply chain sustainability continues to be top of mind.

Increasingly ESG disclosure requirements are imposed on those operating in this sector. At the end of 2023 California passed the first concrete climate emissions disclosure requirement which applies both to public and private companies within and outside of the US doing business in California with $1 billion or more in annual revenue worldwide -not just $1 billion in California – an important distinction that will not doubt result in a wider net of application with the impact of these requirements and prior practices of an acquisition target essential to be top of mind when navigating these deals.

So, what are some of the key trends in the consumer markets space that will continue to influence the flow, nature and desirability of M&A activity in the sector on a global basis?

ESG impact - ethical consumption and transparency of activities

Consumers are showing greater concerns about the effects of their consumption habits on the environment and are demanding that businesses show equal concern across their entire supply chain. Businesses who do not step up are not only at risk of not meeting consumer demands in a globally conscious marketplace, but they also increase the organisation's reputational risk.

In line with this trend, we can expect to see calls for increased transparency on ESG and sustainable business practices. Businesses will need to invest resources into eco-friendly material sourcing, packaging and distribution options. Consumers will lean heavily on businesses being open and honest with their activities so as to assure themselves that they are not unduly harming the environment through their consumption behaviour. This isn't just a "nice to have", consumers are quick to call out greenwashing, with reputations and claims to be carefully managed.

There has been a global explosion in legislation requiring ESG related disclosure obligations, many of which have reach on a global basis and impact the ability to sell into certain markets. This is having a significant impact on companies supplying consumer goods and services. Past ESG practices of an acquisition target must be carefully scrutinised during a due diligence process and appropriate warranties or other measures may be necessary to protect any acquirer from post-acquisition reputation damage.

Clicks and bricks – the growth of e-commerce and the evolution of physical stores

The modern-day consumer wants instant gratification. Many retailers recognised this behaviour and invested heavily in the e-commerce and online retail infrastructure, such as distribution and delivery management. Those investments are already paying off and we can expect the growth in online shopping to become even more entrenched in 2024. Sales directly through social media platforms and the consequent use of influencers to reach consumers continues to grow substantially.

Although 'brick and mortar' stores aren't dying out as consequences of e-commerce expansion, the physical stores are certainly undergoing a transformation – by diverting physical stores away from their traditional role as the primary point-of-sale, towards unique offerings and experiences that will attract consumers, beyond simply the purchase of goods. In 2024, physical stores will focus their attention on creating a memorable in-store experience, whilst also doubling up as effective distribution centres for their online sales. It's tougher to compete with scale of products online versus in store, so the differentiator must come from experience to lead to footfall and sales.

Unsurprisingly, and in parallel to e-commerce expansion, mobile banking and other instant payment solutions are also on the rise. Rapid development of fintech means there are many new and innovative ways to enable consumers speedy access to finances and more convenient ways to complete their transactions.

Lifestyle and leisure over ownership

Similar to the trends in physical stores are being optimised for enhancing the consumer experience, there is a more general trend emerging that consumers prefer experience and engagement over ownership, especially for younger consumers. We have seen this with the success of ride share technology companies, but also in media streaming services. We can expect many other industries innovating in the spaces which provide flexible consumer-use models, designed to create meaningful and convenient experiences Subscription models in particular are increasingly applied across a range of consumer products and services, highlighting the need for flexibility and personalisation, over ownership.

In line with consumer behavioural trends to seek fulfilment through experiences, we can expect to see increased spending in the travel and tourism industry as well as home and personal entertainment. Though this is likely to be limited growth, given the rise in living costs across the globe.

Holistic health awareness on the rise

Whilst different health fads tend to come and go each year, general health and wellbeing remain a constant and fundamental issue to the modern consumer. In 2024, a holistic approach to health took the lead, focusing on an awareness of the importance of physical, mental and emotional well-being for overall health. Somewhat related to environmental concerns, the holistic health trend also demands an increase in natural, organic and nutritious food supplies, and the reduction of artificial ingredients and overly processed foods.

Apart from food, consumers also want to know more about all health-related information from across the spectrum of consumables – from their average daily screentime, to tracking workouts and sleep patterns. The consumer has placed their health at the centre of their spending habits, and businesses which can genuinely contribute towards healthy living will be well positioned to meet current consumer needs.

The rising tide of technology and artificial intelligence

Technology is being rapidly integrated into all aspects of business, with recent advances in artificial intelligent solutions, and its potentially infinite capabilities, at the forefront of many modern business strategies. From a consumer perspective, the use of such technology is becoming an indispensable must-have to meet consumer demands, which increasingly calls out for instant gratification and personalised products and services.

Final thoughts

Overall, these trends tend to focus on the individual and their experience, whether that be value-aligned when it comes to ESG, efficiencies and speed as a trade off to ownership, or desire to try new things with cutting edge technology. Looking at these patterns is essential in determining the impact on M&A activity, as well as the opportunities that lie ahead.

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