Mega-Trend of Growing Emerging Middle Class Remains on Track
More than 100 million new households in emerging markets have moved into middle income territory over the last two years, according to a new report from Credit Suisse.
The sixth annual Emerging Consumer Survey, published today, is a detailed study based on more than 16,000 interviews, which profiles consumer sentiment and its drivers across the nine major emerging economies of Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey.
With investor sentiment showing signs of improvement in emerging markets and currencies stabilizing, the report highlights the investment opportunities presented by a fast-growing consumer culture in emerging markets, driven by a rapidly growing young middle class with access to technology.
The role of the young consumer is key, it says, with income growth in younger age brackets the strongest across the countries surveyed, and in some countries such as China, from a higher income base to begin with.
Although consumer sentiment was negatively affected by 2015's challenging economic and market backdrop, contrasts exist - with India, China and Saudi Arabia remaining robust.
Growth in Online Shopping
According to the report, e-commerce continues to grow. Findings suggest that online retail markets across the key countries surveyed could more than triple annual revenues to reach USD 2.5 trillion by 2025.
This year's survey shows that while Chinese consumers remain more frequent online shoppers, other countries are starting to catch up. The share of Internet users who shop online rose to 30 percent, up from 27 percent in 2014 and 22 percent across all countries in 2013. At the same time, online banking and travel are gaining in popularity.
Domestic Travel Dominates
2015 was a challenging year for the travel sector, as emerging consumer behavior was negatively impacted by exchange rate and macro weakness.
Across the countries surveyed since 2010, the propensity to take holidays declined for the first time to 57 percent from 61 percent, although that is still 21 percent higher than results from the first survey in 2010. Domestic rather than international travel continues to be the dominant segment, with 88 percent of respondents holidaying in their home country.
Increased Access to Healthcare
The 2016 survey highlights increasing access to healthcare among respondents, but via growing state provision.
There is still a structural growth story for healthcare in emerging markets, as increased government spending amid aging populations should lead to the further expansion of healthcare infrastructure.
Taken alongside consumers' enhanced perceptions, and government support of local brands and generics in countries such as China, local suppliers could be well placed to capture a growing share of this market opportunity.
An important theme for multinational pharmaceutical companies operating in emerging markets is the perception of their premium quality or efficacy over local brands. However, the report cautions on potential growth in emerging markets considering current macro uncertainties. Although there is a structural case for long-term development of healthcare and medicines in emerging markets, it says key questions remain around the profitability and opportunities for global companies vis-à-vis increased competition against local companies.
Domestic Brands Boost
The survey found that domestic brands are playing a key role in kick-starting the e-commerce revolution, via domestic as opposed to Western platforms. This is not to say that the appetite for Western brands more generally is on the wane. 2015 shows how firm the secular shift in tastes has become. For those who can afford premium brand purchases, purchasing preferences and aspirations for Western brands remain strong.