Consumers from emerging markets are vastly different than those in modern markets. Their needs, their income limitations and the frequent political unrest in their countries all differ greatly. They have transportation limitations that we don’t see. They have environmental constraints that we don’t have. All of these things are much different than the issues we face in modern markets.
The chart above by Angus Maddison of the University of Groningen, Homi Kharas, Sr. Fellow at Wolfstein Center for Development at Brookings Institute and McKinsey Global Institute, depicts the significant impact emerging markets will have on the world economy over the next decade.
Members of these markets have much less disposable income than developed markets. Many times, today, they have no disposable income. Therefore, even items considered to be staples in the US are often huge improvements over what they have available.
These charts show how African households spend their money compared to the way American’s spend their money. For African’s, Healthcare accounts for 30% of their income. Compare this with a US Bureau of Labor and statistics, that show healthcare costs in the US account for only 7% of our income. African households have less than 2% expendable income. American’s expendable income along with entertainment is 16%.
Despite the relatively low levels of middle class income in some emerging markets, they remain an important consumer group. Engaging with these consumers at an early stage can be a smart strategy for building brand awareness, and creating and shaping the market for offerings from the outset.
According to the the estimated average American grocery bill for family of 4, meaning a couple with 2 teenagers, ranges from $700 per month to $1,400 per month. That is spent on groceries alone. Compare that with a family's entire income from emerging markets. According to Gallup World, the average family income in the poorest 10 countries was $1,390 US in 2013.
Therefore, another challenge facing CPG manufacturers trying to sell their products into emerging markets, is the fact that transaction amounts tend to be much lower. Managing your business intelligence to prove the value of being in those markets is critical.
My next blog on emerging markets will discuss entering emerging markets.
You are also welcome to download our whitepaper. We also invite you to be Relational Solutions guests at the CGT Consumer Goods Emerging Markets Forum #cgem14! on September 17-19th at the Ritz Carlton in Fort Lauderdale. Click below for more information and enter promo code EMRSVIP.