Growing middle class leads change in consumption patterns
Dramatic trends are seen in the spending power across some of the major rapid-growth markets.
By 2022, rapid-growth markets will have more middle-class households than the US.
We see some dramatic trends in the spending power across some of the major RGMs.
In China, many lower-income households will become significant consumers. Households with incomes below US$10,000 will no longer represent the majority. By 2022, nearly 80 million households will have incomes greater than US$35,000.
Not only will these consumers be able to buy a wider range of goods and services, but also demand for health and education services is likely to expand significantly. This will add to the skills of the workforce.
The ageing population in China will need new financial services to help them save for retirement. In addition, the pressures on urbanization will lead to growing demand for green technologies.
The transformation is most dramatic in China, but there will be shifts across all the RGMs. By 2022, there will be more than 15 million households in Brazil and Russia with this income level, while Mexico, Turkey and India will each have in excess of 10 million such households.
What these households want may be very different from the consumer demands seen in previous periods of rapid economic development. Businesses will need to tailor the products they offer to shifting local demands.
Higher demand for culture and communications
Over the past decades, advanced economies have dominated sales of consumer durable goods. Penetration is still relatively low in many rapid-growth economies. Once household incomes approach US$10,000, demand for durable consumer goods picks up.
As more households in RGMs move into higher income bands, they will have more money to spend on discretionary items. Demand for services such as communications, culture and recreation will grow at almost twice the rate of spending on food.
Urbanization increases the need for public services and infrastructure
The fast pace of growth and urbanization can strain public services and infrastructure. To capture the gains from this rising middle class and balance the pressures on scarce resources, many rapid-growth markets will need to invest in green technologies and public transport, and improve the business environment. In 2014, every BRIC country ranked outside the top 80 in the world for the ease of doing business.
Other pressure points include rapidly rising property prices and air pollution. In recent years, many major fast-growth economies, including mainland China, Hong Kong and Malaysia, have introduced measures to curb house price growth.
Kristina Rogers, EY Global Consumer Products Emerging Markets Leader, offers a viewpoint on page 9 of the full report: Read it in the implications for businesses - Beyond uncertainty (2.6mb PDF file)
Households with an income greater than US$35,000×