Due to the conflicts occurring around the world, inflation has become ever greater, causing an exponential increase in prices of core products and necessities. This has had a big impact on most businesses in the United Kingdom with many businesses being forced to shut down.
In addition, waning consumer confidence has caused an inconsistency in consumer spending habits and behaviour as businesses struggle to sustain and protect their businesses.
Although not all companies experience the same business challenges, the same struggles and or the same levels of business failures, we can all agree that the cost of living crisis does indeed affect all businesses in the UK in one way or another.
Effects on consumer behaviour:
Many consumers have reduced their discretionary spending habits, with most cutting back in high priced items (such as cars), electronics, holidays, and home renovations, as well as clothing. These sudden changes of direction in cash flow have impacted businesses who produce, supply, and sell the said discretionary products.
Amongst Millennials and Gen-Zers, 64% and 65% respectively are saying that they intend to buy fewer goods and services as a consequences of rising prices. Whereas for Boomers, this is contrasted with a lighter rate of 50%. (McKinsey)
The analyses show that customers tend to be more willing to spend more on products that may be out of their comfort zone, price-wise, if these products show value. This may mean that consumers may switch to buying from a different company or business, often resulting in a loss of customer loyalty. This often means that a business must work harder to maintain the loyalty between its customer and the business as businesses fight to avoid losing customers to their competitors. Yet, despite inflation, some consumers are still willing to pay for non-essential products, depending on the amount of disposable income they have left after paying for the necessaries.
Business Marketing:
As people sway towards a more frugal way of living, and decrease their spending habits, the subsequent fall in sales leads to a fall in advertising ROI. Businesses will move towards protecting their marketing budget as part of an approach to sustaining their businesses during the cost-of-living crisis. By this, businesses will evaluate and analyse which advertising strategy is or is not working with the intent of garnering a larger consumer base.
In a survey on the consumer insights platform Zappi in 2023, 85% of consumers were of the view that brands should cut down on marketing spend to tackle rising prices.
Energy, Fuel, Transportation Costs:
Businesses that must factor in delivery, as well as transportation for their businesses to run are directly impacted by the increases of the cost of fuel. Nonetheless, other businesses may still be affected specifically in the quotidian movements of employees and the external use of supply chains.
As for the cost of energy crisis, it is estimated that approximately 40% of business owners are stating this to be one of the primitive threats to sustaining and developing their businesses. Additionally, recent reports project that within the last year, small/medium business owners have faced an average gas bill hike of 250%! Moreover, businesses, unlike domestic customers, have not been covered by the energy price cap.
(The energy price cap sets a maximum price that energy suppliers can charge consumers for each kilowatt hour (kWh) of energy they use.)
As stated via the TEG Road Transportation Price Index, the average price-per-mile for haulage and courier vehicles increased from 101.5 points to 116.8 points between January 2021 and January 2022. This means that there is an approximate 15% increase a year, concerning business owners who must use transportation or delivery as a main means of sustaining their business.
Ultimately, business owners are struggling to continue running their businesses with a shocking figure of 70% of pubs having to shut down by winter 2022 due to the cost-of-living-crisis.
Employee retention:
Employee retention is a concern of most business owners’. Particularly through current times, as shown through a report, in the last quarter of 2021, 337000 people handed in their notice and resigned. 26,000 left for personal reasons, whilst the majority stated ‘other’.
The main reason to why employee retention has been a large topic of issue over the past couple of years is the fact that whilst energy bills and inflation has risen, salaries have not and employees are struggling to remain focused, motivated, incentivised, and loyal at work. Further, as more employees are likely to experience financial difficulties through this crisis, this may affect their mental health, thereby affecting their performance in the workplace.
On average, employee turnover rates have increased by 8.7% since 2019, yet have increased even more in 2023 and 2024. This fluctuation may endanger the continuity of many businesses throughout the country.
How can Pure Business Law help?
Pure Business Law are specialist Business solicitors based in Bedford and London and operating nationally. If you need advice on any of the issues that we have raised in this article, please call us on 01234 938089 or e-mail us at enquiries@purebusinesslaw.co.uk and one of our Helpline team members will be in touch.
Pure Business Law is regulated by the Solicitors Regulation Authority and is a licensed member of the Law Society of England & Wales.
Please note: This article is for general information only and does not constitute legal or professional advice.
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