New Marketing Manifesto – ‘Convergence with Divergence’

August 31, 2013,  Guru in a Bottle, News  No comments

When the global economy flags, do Americans buy less soap?

And when the global economy picks up, do South Africans drink more tea?

And do British consumers purge themselves on guilty pleasures like chocolate when they see a rise in the value of real estate?

These may sound like Trivial Pursuit questions but in fact were part of a heavy weight econometric study conducted by Mintel and the Economist Intelligence Unit earlier this year that looked at household spending trends across five emerging markets – China, India, Mexico, South Africa and Turkey – and contrasted this with consumer expenditure trends in the US and UK.

Key findings:

• Though some consumer tastes are converging as goods become more affordable to a larger number of consumers, the differences between these markets remains stark
• Regulation, cultural factors such as religion, and attitudes towards health and beauty and the marketing efforts of companies themselves all contribute to how households spend money
• The US remains overwhelmingly the biggest market in terms of total spending
• The UK spends more per head in many consumer categories
• Both the US and UK markets are growing more slowly compared with the other five emerging markets
• US spending growth will average 4.5% 2013-16
• UK spending growth will average 3.6% 2013-16
• The five emerging markets will average 7.7-15.2% growth 2013-16.

As is typical in wealthy markets, Americans and Brits devote less of their spending to food in the home than do consumers in most emerging markets. But the food service market is enormous in the US, and increasingly sizeable in China, where business spending on catering is high.

The researchers found that food spending is the priority for consumers, staying strong in most countries throughout the global recession and set to keep growing steadily even as the global economy recovers. Higher commodity prices have fed into that growth, particularly when it comes to commodity food, where suppliers have few options to shift to cheaper ingredients.

Nevertheless, underlying this trend are some sizeable shifts in spending habits. The most obvious is the increasing consumption of more expensive prepared foods, whether it’s snack foods in Mexico, breakfast cereals in India or cooking sauces in China.

Even in mature markets such as the UK, the rise in snacking is discernible, and is being encouraged by the launch of new convenience products such as the microwavable bags of basmati rice. This shift to more expensive prepared food explains why spending on food is expected to accelerate in most, countries, even as commodity prices fall.

According to the researchers, as spending on food starts to fall behind total spending growth, it will leave room for consumer priorities to shift to other household products, such as washing powder and cleaning products to be one of the strongest segments over the forecast period. This growth will be led by India (growing at 21% per year between 2013-16), where the spread of washing machines and other household appliances, as well as rapid population growth, is leading to soaring demand for these products.

Turkey and China (both up 15% a year) will be strong markets too.

The clothing market will generally be the most subdued, largely in part of continuing pressure on prices and a predicted fall in commodity costs such as cotton. As real incomes rise in textile-producing countries it’s likely that clothing prices will start to level off and sales values are predicted to accelerate. China will lead this growth but it will be noticeable in India and South Africa where online shopping is growing exponentially.

A number of trends from this study are relevant for marketers looking for export sales into these emerging markets:

Consumers are value, not just price, conscious

Though consumers the world over are always keeping an eye out for a bargain, they’ll not simply buy the cheapest every time, as trends in the clothing market show.

With clothing production now overwhelmingly located in low-cost countries, prices have been on a long-term downward trend. So although volume demand remains strong in most markets, sales values are tracking behind household expenditure growth everywhere but South Africa, where online shopping is helping to fuel sales. There are signs that the price of clothing is rising, however, not only as a result of wage growth in producing markets, but also because consumers want to invest in longer-lasting garments.

Consumers are increasingly health conscious

In many markets, focusing on health benefits is a powerful way to drive sales. This is particularly true in emerging markets where malnutrition remains a live issue.

For example, in India, parents are keen to feed their children vitamins, which is why enriched juice drinks are mostly targeted at children. In the US, by contrast, parents concerned about obesity are shifting from juice and carbonates to flavoured water.

This is just one example of long-term public priorities that not only influence consumer choices, but can also lead to greater regulation.

Product innovation is driving sales in emerging markets

Even in relatively slow-growing markets there are always bright spots and these are often thanks to product innovation in well-established categories such as convenience foods. As a result, companies play a key role in changing consumer tastes and the influx of foreign investors such as Coca-Cola, Nestle and Unilever into emerging markets has helped to stimulate demand for new products.

The following table provides a snapshot of which consumer product categories are predicted to take off over the next three years:

Source: Mintel/EIU (2013)

For marketers on the ground, it’s the nuances within consumer demand growth—such as the increasing desire for sun cream in Turkey, or the lack of interest in dishwasher detergents in India—that help to guide their product development and marketing in the future.

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