Why Emerging-Market Consumers Remain Bullish

Despite dreary news of economic slowdowns and market volatility from Brazil to India to Turkey, consumer sentiment in some of the world’s largest rapidly developing economies (RDEs) remains remarkably bullish. Shoppers in key emerging markets feel more financially secure and far more confident about the future than those in developed economies. They also express greater enthusiasm for brands and for consumerism itself.

But recent economic challenges are starting to temper that exuberance. The Boston Consulting Group’s 2013 Global Consumer Sentiment Survey found that many shoppers in RDEs are adjusting their near-term spending behavior to correspond with tougher economic environments: compared with BCG’s 2012 Global Consumer Sentiment Survey, fewer respondents in the current study said that they plan to increase spending over the subsequent 12 months, for example, while a greater percentage said that they intend to cut back. And while, on average, more consumers in RDEs than in Japan and the West reported that they are trading up to higher-priced products, they plan to do so less than in previous years.

This combination of short-term caution and long-term confidence is something that companies should keep in mind as they hone their brand strategies, investments, and expectations in RDEs. True, consumers in emerging markets are likely to tighten their belts somewhat in the next year or two. But because they are looking forward to a brighter future for themselves and their families, our research shows, they remain far more eager to spend and trade up in the product categories that they care about most.

These are the broad generalizations. When it comes to specifics, however, our survey found significant—and in some cases, dramatic—divergence in consumer sentiment and spending plans across emerging markets. For this report, we compare the results of our survey of nearly 7,000 consumers in Brazil, China, and India; around 9,000 consumers in eight African economies; and 23,000 consumers in nine developed economies.¹ 1 The eight African economies are Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa. The nine developed economies are Australia, Canada, France, Germany, Italy, Japan, Spain, the U.K., and the U.S. Notes: 1 The eight African economies are Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa. The nine developed economies are Australia, Canada, France, Germany, Italy, Japan, Spain, the U.K., and the U.S. (See The Resilient Consumer: Where to Find Growth amid the Gloom in Developed Economies, BCG Focus, October 2013.)

The following are some of the key findings on the short-term outlook of consumers in RDEs:

• More consumers this year plan to cut spending, especially on fashion and luxury goods and dining out. But while 49 percent of respondents in India and 66 percent of those in Brazil said that they will cut back, only 33 percent of consumers in China said they intend to cut spending over the subsequent 12 months.
• More consumers in RDEs than in developed nations are now trading up to higher-priced, higher-quality products, especially big-ticket items such as housing, cars, and large appliances. But in China, the intention to trade up dropped from 40 percent in 2011 to 27 percent in 2013, and in Brazil significantly more consumers in 2013 reported plans to trade down to lower-priced products.
• Perhaps contrary to stereotype, the highest priority for increased spending among shoppers in China was not luxury goods but fresh foods—and it constituted the lead trading-up category among consumers in India and Brazil as well.

Now for the longer-term outlook of consumers in RDEs:

• Optimism remains strong. An average of 72 percent of respondents in Brazil, China, and India are optimistic about the future, compared with only 48 percent of respondents in developed markets.
• An average of 55 percent of consumers in the three RDEs feel “financially secure,” compared with only 35 percent in developed markets. While the level of financial security has declined over the past year in Brazil and China, it has risen sharply in India.
• Approximately twice as many consumers in RDEs as in developed markets said that “every year, there are more things I want to buy.”

Even though we expect at least some bumps over the next year, the overall picture for RDEs remains bullish for the medium and long terms. Hundreds of millions of households are poised to enter the ranks of the middle and affluent classes. These households have enormous unmet needs and will want to enjoy the fruits of their larger discretionary income. The eventual prize for companies is a consumer market that is projected to be worth a combined $10 trillion annually in China and India and $1.6 trillion in Brazil by 2020.

It is important to remember, however, that priorities for spending in emerging markets continue to shift in response to changing economic circumstances and as consumers enter new income segments. In this year’s survey, for example, consumers in RDEs reported that they are now spending greater portions of their budgets on what they perceive to be healthy, high-quality products that offer value for money, while devoting smaller shares to luxuries and nonessential purchases. Companies that tailor their marketing messages and brand, product, and go-to-market strategies to the new consumer priorities and preferences in each type of economy can seize competitive advantage in what are likely to remain the most dynamic growth markets in the world.