Emerging market spending is part 2 of our 10 part blog series on emerging markets for consumer goods manufacturers.
According to McKinsey & Company, By 2025, more than half of the world's population will have joined the consuming classes.
They expect that this will drive annual consumption in emerging markets to $30 trillion. With these kind of numbers, it’s evident why CPG companies looking for future growth, need a strategy for the emerging market.
This explosion in spending is attributed to economic development, population growth and increased incomes in emerging markets. These things have been fuelling consumer spending for several years now. However, non-BRIC, emerging market countries, do have much lower average incomes and therefore have much less expendable income.
According to the Euromonitor report, between 2004 and 2013, BRIC economies basically doubled in size. BRIC countries now collectively account for 21% of global GDP and 53% of emerging market GDP.
It’s estimated that BRIC countries accounted for $1 dollar out of every $6 dollars spent globally in 2013. They also estimate that BRIC countries are home to approximately 268 million households with an annual incomes over $10,000 (US).
That might not sound like much to us, but it is to them. They also estimate that by 2020, BRIC countries are expected to add a combined $3.3 trillion dollars, to their consumer spending. That is approximately the same amount of money that France and Germany combined contribute to the economy.
In addition the Euromonitor predicts that the middle class income group, in the Association of Southeast Asian Nations will exceed 100 million people by 2020.
In a study done by Tassos Stassopoulos, of Alliance Bernstein, the contents of 70 refrigerators in rural and urban homes across 12 developing countries were surveyed. Although they recognize that it’s not a statistical sample, he was attempting to find patterns that suggest what households would likely buy.
The survey categorized items found in the refrigerators from the homes, based on their income levels. Essentials included basic foods such as eggs, fruits and vegetables. Middle-class refrigerators had higher end products that they referred to as indulgences. These included items like alcoholic beverages, chocolate and cheese. He also determined that more affluent households took health into consideration and had more items that included foods like low-fat yoghurt or 100% fruit juices.
Their research suggests that China and Brazil are already in or near the indulgence phase. So companies that make products like wine and chocolates should see increases in sales with their rising incomes. On the contrary, Indian families are still buying essentials.
A recent Fortune article claimed that consumers first spend their money on food items then personal care products. After that they spend on appliances, such as air conditioners. But research also shows they will sacrifice food and toiletries for electronics such as cell phones.
In our next blog, Part 3, we’ll discuss the emerging market population growth.
You are also welcome to be Relational Solutions guests at the 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