The changing face of the consumer
How are companies leveraging the rise of the middle classes, particularly from India and China?
By Adam Bates | Published 10:01, 28 February 12
The OECD defines the global “middle class” as those with purchasing power of between US$10 (£6.30) and US$100 per capita per day. Today there is something like 1.8 billion in this class. By 2020 it will be something like 3.2 billion, an increase of 1.4 billion or 78 percent.
Ways of communicating, either on or offline, between these middle classes is getting ever more sophisticated and so the challenge - or should I say opportunity - will be how companies can leverage these mind boggling numbers of empowered and ambitious consumers to buy their products - particularly in China and India.
What is the evidence to prove this seismic change?
First: motor vehicles. Perhaps one of the classic symbols of the middle classes (I remember my father’s pride when his Morris Minor was delivered in the 1960s). Between 2000 and 2010 the number of cars and motorcycles in China increased 20 times. Not surprising that last year China became the world’s largest car market. Partly due to their obvious prestige, many Western brands are doing well. Sales of Bentleys in China almost doubled last year. Audi saw growth of 37 percent and General Motors selling 2.6 million vehicles in 2011 grew by over 8 percent.
Second: prestigious alcoholic drinks. On many of my trips to India a glass of imported whisky is often the first drink before (and sometimes during) dinner. Diageo reported a 42 percent increase in the volume of sales in India last year alone. Chinese investors are buying wine estates in France and wine and spirits maker Moet Hennessy wants to produce a super-premium red wine at the foot of the Himalayan mountains in southern China.
Third: luxury goods. Top brands such as Louis Vuitton, Chanel, Gucci, Dior and Armani drove growth of 25-30 percent last year. LVMH, the home of many luxury brands grew 27 percent in Asia, Hermes up 36 percent in China and Burberry up 30 percent in China.
Fourth: art. When reporting record second quarter results last year, Sotheby’s CEO noted that: “This is the best quarter in Sotheby’s history and reflected the surge of activity from buyers and sellers across China”. In its autumn auctions in Hong Kong it sold US$412.4 million worth of wine, art, antiques, jewellery and watches. Hong Kong became world’s third-most important auction hub last year, after New York and London.
Fifth: travel. The US saw 36 percent more Chinese tourists in 2011. By 2020 the number of Chinese outbound tourists will approach that of the US. This will have a very direct impact on hotels, airlines and restaurants in virtually any tourist attraction around the world.
But as with any success story, there is always a “but”. How can our planet cope with this increased consumption? Whether it is shortages of key resources - water, minerals or food or the impact on climate change. Whatever becomes the reality, companies will need to prepare for this and have a strategy to deal with it. Reducing resource use, recycling, using substitute materials and the like is becoming more valued by consumers and investors alike. It is not just about churning out more sales and carrying on as before is not an option.
In addition, while the many millions of workers who have migrated to the cities in China have seen their pay and living standards rise steadily, many tend to be savers rather than spenders. This has become such a concern that the World Bank recently issued a report on China offering advice on how to avoid growth slowing in the years ahead.
So while the prize is there to be had, and there are many examples of Western companies that have and continue to do well working with China, this is by no means a sure thing. What is your plan to succeed?