- The greatest source of consumer vulnerability in emerging markets lies in Russia and South Africa, not in China
India tops the Credit Suisse Emerging Consumer Scorecard 2015, moving up from fourth in last year’s scorecard. India was rewarded for its consistent performance; being the only country to score in the top three for each of the key metrics mentioned above. China falls from first in last year’s Scorecard to fifth this time round and while it tends to dominate the debate surrounding EM, Credit Suisse analysts would note that, although the gloss may have come off this story, it remains far from the greatest source of consumer vulnerability in emerging markets. That lies in Russia and South Africa according to The Credit Suisse Emerging Consumer Survey.
The report analyses which of these economies and consumers are most exposed to the current commodity and currency volatility. India, Turkey and China are less directly exposed versus Russia, Latin America and South Africa.
The Credit Suisse Research Institute has published its fifth annual Emerging Consumer Survey – a detailed study profiling consumer sentiment and its drivers across the emerging world. The study provides a timely insight regarding consumer sentiment and future consumption patterns at a time when emerging economies are under a spotlight of concern with growth rates slowing and the prevailing commodity price and foreign exchange volatility posing new challenges.
1. e-Commerce and the emerging consumer
This year’s survey provides very positive support for the outlook of e-Commerce across the countries surveyed, with feedback from this year’s study indicating that e-Commerce across the nine countries could become bigger as a share of total retail sales than in developed economies.
Some of the reasons for this are: the relatively underdeveloped “bricks and mortar” retail sector, especially in more rural areas, the rapid increase in the share of consumers with smartphone-related inter net access creating new verticals of spending and the underlying driver of expanding disposable income. Today’s survey estimates that this could lift total annual online retail sales across our surveyed markets to as much as $3trn, which would impact companies across multiple sectors including retail, finance, security and technology.
Of particular note is the growth in online behavior amongst Indian consumers. For example, the share of respondents in India that have used the internet for online shopping increased to 32% from 20% in 2013, while the share that is likely to use the internet for online shopping in the future is now higher than that of China. Sizeable potential also lies in Latin America.
2. Travel & leisure and the emerging consumer
The desire to increase future spending on holidays and travel has been a consistent theme of all our previous surveys, and this continues into 2015. The propensity to travel has risen again in this survey with consumers holidaying rising from 45% to 65% during the life of our surveys with multiple holidays now a feature.The short- term trends manifest themselves differently by country. For example, the desire to travel more has accelerated most meaningfully in Mexico and India but has slowed in China, Turkey and South Africa.
The interaction with technology is a related theme and visible in the survey. Global travel distribution channels are evolving rapidly, with more emphasis on web-based bookings via both direct (company owned) and indirect channels (third party online travel agents). The associated changes in consumers’ chosen booking channel are having profound effects upon the industry value chain, especially for hotels, where margins are coming under pressure, though presenting great potential for the on-line platforms themselves
3. Autos and the emerging consumer
Mobility is another key trend for economies where GDP per capita is rising. The largest car market in the world, China, has continued its strong positive trend in car ownership, growing at a compound annual growth rate (CAGR) of 13% since our 2010 survey, the strongest growth in our survey. Turkey is also moving up the curve rapidly with a CAGR of 6%. Ownership rates have remained broadly stable in other regions. India and Indonesia have the lowest household car ownership rates, at 19% and 7% respectively, and in that respect are a source of great potential.
However, it important to note that the development of the car market in the emerging world, and particularly in China, cannot be looked at in isolation from regulatory developments in areas of pollution control, energy efficiency and also, if to a lesser extent, safety requirements. Where emissions are concerned in China, 2020targets for CO2, for example, require a 32% reduction from the 2013 actual level (versus 25% in Europe). This underlines the significance of technological developments in the auto component field addressing these needs.
4. Healthcare and the emerging consumer
Healthcare in emerging markets is seen as a structural growth opportunity by both companies and investors alike. Indeed the relationships between healthcare spending and rising GDP per capita are well established. The reality is that the picture is far more complicated than the simple relationships would suggest, particularly when translated into the revenue projections for companies. The nature of healthcare provision (public versus private), local versus global brand positioning and who is ultimately paying the bills are key considerations. Our survey provides a perspective on each of these issues and comes to a cautious view as to how the structural story translates to the corporate bottom line.
Access to healthcare growing -There is growing government involvement in most countries, with reported access to free medicines increasing from 26% of the emerging market population in 2011 to 48% in 2014.
Out-of-pocket spending remains stable - As a share of overall spending by consumers, out-of- pocket spending on healthcare has remained broadly flat at around 5% of income, but income that is of course growing.
Trust in local brands, safety concerns abating - We have seen an increase in overall trust for local brands (57% to 59% on a population-weighted basis, with increased confidence in India and China. The correlation between a lack of confidence in local brands and a willingness to pay for international brands continues to be a key feature.
The age/income conundrum - Both income and spending on pharmaceuticals increase with age in developed markets. The purchasing power and needs are aligned. Our survey continues to suggest that this is not the case in emerging markets in a world where disposable income continues to be more concentrated in the hands of the young. The need for healthcare and the location of purchasing power are not well aligned.
5. Brands and the emerging consumer
The report updates its unique brand analysis and draws out several key themes. The battle between domestic and global brands is a key focus, highlighting which products and preferences are skewed domestically.
The relevance of technology and e-commerce is a new feature to this debate and highlights the significance of domestic rather than global e-commerce brands and platforms and the challenges it poses to the global software companies and networks. In the hardware space, the analysis underpins the brand momentum of Apple, though Samsung displays the widest penetration and growing recognition across the emerging world. It is a standout brand across the widest range of categories.
Away from technology, a key theme from the survey is the accelerating penetration of the more typical “high street” brands such as H&M and Zara, at a time when luxury brands have been losing some of their gloss.