Noida: Consumer confidence across a core group of emerging markets has improved from a year ago as the global economic outlook has brightened, local stock markets have risen and pressure has eased on countries sensitive to commodity prices, according to the Credit Suisse Research Institute’s (CSRI) seventh annual Emerging Consumer Survey.
India tops the Credit Suisse Emerging Consumer Scorecard despite the near-term sentiment being adversely impacted by the government’s move to demonetize 86% of the currency in circulation. The Credit Suisse Emerging Consumer scorecard measures consumer sentiment by looking at medium-term expectations across five factors: personal finances, inflation, household income trends, immediate spending intentions and income history.
The Credit Suisse Research Institute (CSRI) survey provides a granular analysis of the profile, mood and behavior of consumers across eight major emerging economies – Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey. These nations have a total population of close to four billion people and total annual consumption worth US$9.4 trillion, which means an analysis of their spending habits can generate valuable investment themes.
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The report shows that while confidence has improved across this group of eight countries in aggregate, a sharp divergence has emerged between the most optimistic consumers who reside in the major Asian economies and those in Turkey and Mexico where geo-political factors have contributed to a slide in confidence. More than 40% of Asian consumers expect to see their financial circumstances improve in the next six months. Despite these contrasts, a change in the nature of consumption driven by a rapidly growing “middle class” in emerging economies remains on track.
India has the highest consumer confidence score among the eight emerging markets surveyed, while China slipped to third place. India’s buoyant consumer sentiment was supported by consumers’ greater confidence in their current and future finances, as well as relatively lower inflation expectations. India saw strong improvement in personal finances expectations; a net 47% of the respondents expect the state of their personal finances to improve over the next six months, up from 27% in last year’s survey. However, only 57% of respondents thought it was a good time to make a major purchase, a sharp drop compared to 80% last year.
“The 2017 Emerging Consumer Survey explores current growth opportunities and new consumer cultures across the emerging world. This year, we observe a changing pattern in the spending behavior of the emerging middle class. We also find that a more “conscious” consumer is on the rise across emerging economies. Smart businesses will capitalize on these developments,” commented Urs Rohner, Chairman of the Credit Suisse Research Institute and Chairman of the Board of Directors of Credit Suisse Group, addind that digital technology continues to be the facilitator of changing consumer behavior. With more than a billion consumers yet to come on-line in our surveyed countries, the potential is significant.
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The survey highlights some new developing consumption patterns including a more “conscious spending” approach among emerging market consumers involving a focus on healthier and more environmentally-friendly living. This has meant a greater outlay on skin care, quality foods and sportswear as well as a greater willingness to use car-sharing services than to own a vehicle as consumers engage with “the sharing economy”.
Almost 40% of consumers in the Asia-Pacific (APAC) region follow a low-fat diet, nearly twice the level seen in Europe or North America. India ranked top 2 among the eight emerging markets in the survey, with 72% of consumers choosing to eat less sugary and healthier options.
External indicators from sources such as Euromonitor also highlight the growing shift toward leading a healthy lifestyle. For example, consumption of sports drinks during the past five years has been growing strongest across most of the economies surveyed, with India in the lead displaying a CAGR of 30% over the past five years (2016 vs 2011). India also ranked #1 in the increase in sportswear spending in local-currency terms and rose 189% during the five year period.
Consumers in China and India have shown noticeable signs of becoming more open to car-sharing services. In India, 17% of the consumers surveyed intend to use car-sharing services, compared to 11% in last year’s survey, while car ownership recorded a 4% decline over the period.
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Across all consumer categories including cosmetics, fashion apparel and watches, the number of respondents who have purchased or are planning to purchase in both urban and rural areas has been trending upward since 2010. For example, in whiskey, premiumization is growing, with 52% of respondents stating that they have upgraded to more expensive brands. In fashion apparel, we have seen an increase between 2010 and 2016 of around 5–10 times in the percentage of respondents wanting to buy premium brands, while the share of consumers buying unbranded products has dropped from 45% in 2010 to 30% in 2016.
In 2017, urban consumption should see an acceleration due to low inflation, a reduction in interest rates and government pay hikes. Moreover, the move from unbranded to branded products should accelerate with the implementation of the goods and services tax (GST).
The combined effect of the two recent initiatives from the Indian Government – demonetization and GST – will help to drive the adoption of non-cash payment modes by consumers that will likely lead to acceleration in the switch to consumption of branded goods. During the period immediately after the demonetization announcement late last year, due to a currency shortage, the volume of point of sale (POS) transactions (usage of debit and credit cards) jumped 144% year-on-year. Despite slowing in January and February, usage of non-cash payment forms remains well above trend.
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Online shopping – how big can it become?
The growth of e-commerce continues in the emerging market, with the CSRI forecasting online retail spending in the surveyed group of markets to exceed US$2.5 trillion by 2025, up from US$1 trillion today. In India, 50% of consumers now shop online compared to just 32% in 2014. The Indian online market is expected to account for 15% of total retail spending by 2025, up from 2.5% last year, with the potential size of the online retail market reaching USD219 billion by 2025, up from currently USD23billion. However, the survey has identified a fresh fight-back from traditional retailers which are developing multi-channel offerings to re-take lost ground, potentially disrupting the growth trend of e-commerce for pure play operators.
The survey also finds that, as the emerging market consumer has developed, local brands are increasingly gaining leading market share in lucrative consumer segments previously the preserve of large global brands owned by Western multinational companies. A key investment theme for the emerging markets will be the identification of “national consumer champions”.