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How BRICS Consumers Behave

August 2013

With growing economies, rising incomes and expanding middle classes, the five emerging countries that form the BRICS (Brazil, Russia, India, China, South Africa) offer a wealth of potential for consumer goods companies facing stagnant demand in the West. However, these markets are far from homogeneous and each has its own advantages and pitfalls. This new global report compares and contrasts the characteristics and buying behaviour of BRICS consumers, and identifies future opportunities for grow

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A formidable new force

The BRIC markets of Brazil, Russia, India and China were joined by South Africa in 2010 to form the BRICS. The group provides a formidable new force, accounting for 40% of the world’s population, a quarter of its land mass and a fifth of global GDP.

These countries’ vast and growing pool of middle class consumers are providing immense opportunities for consumer goods companies facing stagnant demand in developed markets. However, they are a disparate group with diverse characteristics and habits.

China dominates the BRICS in terms of economic might

With its GDP of US$13.5 trillion (at PPP) being 22 times the size of South Africa’s. China also saw the fastest economic expansion over the 2008-2013 period.

India has the second highest GDP of the BRICS group, projected at US$5.2 trillion (PPP) in 2013. India has also witnessed consistent economic growth over the last five years and, like China, was relatively unaffected by the global recession.

Russia and Brazil had similar GDP levels measured at PPP in 2012, at US$2.7 and US$2.5 trillion, respectively. Russia was more severely impacted by the global recession than other BRICS, but was quick to recover on the back of high oil prices.

South Africa has by far the smallest economy of the BRICS, but is a significant force within the Middle East and Africa region, with a well capitalised banking system, abundant natural resources and an established manufacturing base.

Unemployment levels are relatively low and falling among most of the BRICS, contributing to growing consumer confidence and spending levels. However, South Africa suffers from very high joblessness, at over 25% in 2013, which is especially severe among the young.

Gap between rich and poor

Despite the wide and growing gap between rich and poor, per capita disposable income rose strongly in all five markets over the 2008-2013 period. Forecasts for 2013 show per capita income to be highest in Russia and Brazil, at US$9,432 and US$8,345, respectively.

Disposable incomes in India are still very low by international standards, amounting to just US$1,331 in 2013, with the majority of the rural population still living in extreme poverty.

A strong, largely urban middle class consumer base has emerged in all markets, boosting domestic consumption in a wide range of categories, such as household durables and everyday goods, housing, communications, financial and healthcare services, education and leisure.

The share of “middle income” households is highest in India and Brazil, at 29% and 28%, respectively, and is particularly low in South Africa, at 15%. However, Russia has the highest share of households with an annual disposable income over US$10,000 (PPP), at 86%.

One visible indicator of the growth of middle classes is the rapid growth in car use. While in Russia, over half of all households possessed a car in 2013, only 7% of Chinese and fewer than 5% of Indian households did so, suggesting huge potential for growth in these markets.

Despite growing incomes in general and the rise of the middle classes, income inequality remains a massive problem facing all of the BRICS economies. South Africa is the most unequal society in the world, with a Gini coefficient of 0.64.

Brazil and Russia were the only BRICS markets to see a slight improvement in equality over the review period as government measures to reduce the income gap began to bear fruit.

EXECUTIVE SUMMARY

Market Drivers
Chart 1 A Comparison of Income and Spending in BRICS Markets in 2013
Consumer Spending
Chart 2 How BRICS Consumers Spend
Consumer Behaviour and Markets
Summary 1 Commonalities and Differences in Behaviour between BRICS Markets
Outlook

INTRODUCTION

A Formidable Force
The History of the BRICS Grouping
But Are They Compatible?

MARKET DRIVERS

Economic Indicators
Differing levels of growth Slower growth in China is inevitable Reform is needed India suffers from lower investment Brazil’s growth set to pick up Russia propped up by oil Domestic consumption fuels South Africa’s growth Chart 3 BRICS GDP by Country 2013 Chart 4 BRICS Real GDP Growth by Country 2008-2013
Employment
South Africa suffers from chronic unemployment Service industry provides more jobs in India Brazil sees strongest fall in unemployment Chart 5 BRICS Unemployment by Country 2008/2013 Chart 6 BRICS Female Employment by Country 2008/2013
Income Trends
A rise in earnings across the board India lags behind Chart 7 BRICS Per Capita Disposable Incomes 2008/2013
Growing Middle Classes
No universal definition Middle earners still a minority in all markets Chart 8 BRICS Middle Income Households 2008/2013 Table 1 BRICS Population by Social Class 2013 Households moving out of poverty Chart 9 BRICS Households with Income over US$10,000 (PPP)
Rising Vehicle Ownership
Russians have the most cars Brazilians aided by credit Car ownership explodes in urban China Chart 10 BRICS Car Ownership by Country 2008/2013
Income Disparity
Inequality is rife throughout BRICS Situation improving slowly in Brazil China’s market economy creates growing wealth gap Russia increases minimum wage Table 2 BRICS Gini Coefficient by Country 2008/2013
the Growth of Hnwis
Chart 11 BRICS HNWI Population by Country 2010-2011
Demographic Trends
A combined population of 3.0 million Russia’s population stagnates Chart 12 BRICS Total Population by Country 2008/2013 Chart 13 BRICS Birth Rates by Country 2008/2013 BRICS populations begin to age Russia and China have oldest demographics While populations of India and South Africa remain young Chart 14 BRICS Mean Age of Population by Country 2008/2013
Levels of Urbanisation
Urban consumers spur spending Brazil is the most urbanised of the BRICS The cost of urbanisation China has adapted best to city growth Chart 15 BRICS Urban Population as % Total by Country 2008/2013 BRICS account for more than half of the top 15 cities Chart 16 World’s Most Populous Cities in 2012

CONSUMER SPENDING PATTERNS

Savings Ratio
The Chinese are the most cautious Russians are saving more Brazilians spend as they earn South Africans spend more than they earn Chart 17 BRICS Savings Ratio by Country 2008/2013
Consumer Expenditure
Most of spending still on necessities Housing shortages push property prices up Discretionary spend is growing Indians invest in education Consumers take more responsibility for health Chart 18 BRICS Per Household Expenditure by Category 2013 Chart 19 BRICS Growth in Per Household Expenditure by Category 2008-2013

CONSUMER BEHAVIOUR AND MARKETS

Eating and Drinking
National preferences vary widely in fresh foods Table 3 BRICS Per Capita Consumption of Fresh Food by Country 2012 Increased uptake of packaged food is universal Russia’s market is the most mature Brazilians seek more sophistication India holds the most potential for growth Chinese market benefits from premiumisation Table 4 BRICS Sales of Packaged Food by Country 2008/2013 Table 5 BRICS Per Capita Sales of Packaged Food by Country 2008/2013 Summary 2 Packaged Food Trends by Country 2008/2013
Drinking Habits
South Africans and Russians drink the most Beer gains popularity among BRICS consumers Alcohol consumption still low in India Table 6 BRICS Per Capita Consumption of Alcoholic Drinks 2012
Leisure Habits
Chinese enjoy travel and shopping Cinema going on the rise in China Brazilians are more cultural Indians sociable, but most averse to exercise Russians are most active South Africans head to the mall Table 7 BRICS Middle Class Consumers: Favourite Activities Away From Home 2012
Eating Out
Chinese eat out most frequently India sees influx of Western-style eateries Dining out considered a luxury in South Africa Russians eat out to socialise Chart 20 BRICS Frequency of Eating Out by Country 2012
Foodservice Market Trends
BRICS consumers experiment with new cuisines China’s foodservice doubles in size Fast food competition heats up Brazilian has most established coffee culture Franchise concepts expand in Brazil India’s foodservice market is low in value International players take growing interest in India Russia’s foodservice market is less dynamic Coffee shops become popular meeting places Fast food leads foodservice category in South Africa Table 8 BRICS Sales of Consumer Foodservice by Country 2008/2013 Table 9 Per Capita Sales of Consumer Foodservice by Country 2008/2013
Attitudes To Health
Growing awareness of health issues Obesity reaches high levels in Russia, South Africa and Brazil Rates still low, but growing, in China and India Chart 21 Obesity Rate by Country 2012
Smoking Prevalence
Russians are the largest smokers Affluent consumers more likely to smoke in South Africa Smoking less common in Brazil and India Chart 22 Smoking Prevalence by Country 2012
Consumer Healthcare
Consumers turn to self-medication Russia has most developed OTC market Emergence of OTC in China and India Table 10 BRICS Per Capita Sales of OTC Products by Country 2008/2013
Health and Wellness
Per capita spending highest in Brazil and Russia China sees rapid growth Market remains underdeveloped in South Africa Table 11 BRICS Per Capita Sales of Health and Wellness by Country 2008/2013
Beauty and Personal Care
Celebrity influence Brazilians spend most on looking good Russians maintain a taste for luxury South Africans like to smell good Chinese pamper their babies Basic hygiene products dominate Indian sales Table 12 BRICS Sales of Beauty and Personal Care by Country 2008/2013 Table 13 BRICS Per Capita Sales of Beauty and Personal Care by Country 2008/2013 Summary 3 BRICS Personal Care Trends by Country 2008/2013
Technology
Internet use burgeons throughout the BRICS Ownership levels soar Table 14 BRICS Middle Class Consumers: Ownership of Electronic Devices 2012 Less affluent still access internet from cyber cafés Access on the move Chart 23 BRICS Internet Users as % Total Population 2008/2013 Retail sales take off Table 15 BRICS Per Capita Sales of Selected Consumer Electronics in 2013 E-commerce still in its infancy India and South Africa remain undeveloped Table 16 BRICS Internet Retailing by Country 2008/2013
Trends in Grocery Shopping
Habits remain largely traditional China has the most developed supermarkets/hypermarkets network Convenience stores make progress in Russia South Africans see a reverse trend Supermarkets yet to take off in India Chart 24 BRICS Share of Modern Retail Formats 2008/2013
Attitudes Towards Shopping
Table 17 BRICS Middle Class Consumers: Shopping Habits 2012
the Market for Luxury Goods
Newly rich consumers aspire to luxury Russians live up to their reputation for extravagance Luxury goods companies invest in Brazil India experiences strongest growth Table 18 BRICS Sales of Luxury Goods by Country 2008/2013
Attitudes Towards Travel
Chinese discover international travel Low-cost airlines open up tourism in India Russians expand their horizons Travel in Brazil shifts from coaches to planes International travel beyond the means of most South Africans Chart 25 BRICS Domestic Tourism by Country 2008/2013 Chart 26 BRICS Outbound Tourism by Country 2008/2013
Attitudes Towards Money and Status
Financial security is paramount Russians like to spend Table 19 BRICS Middle Class Consumers: Money, Status and Shopping 2012

FUTURE OUTLOOK

BRICS Economies Set for Further Expansion
Growth will be slower South Africa will continue to be dogged by unemployment The next growth markets Chart 27 BRICS Forecast Real GDP Growth by Country 2013-2017
Incomes Will Continue To Rise
Russians will maintain highest incomes Income growth will fuel discretionary spending Consumer confidence is high Chart 28 BRICS Forecast Per Capita Disposable Incomes 2013/2017
Inequality To Worsen, But at A Slower Pace
Gini coefficients to rise marginally in all countries except Brazil Potential for luxury goods Table 20 BRICS Projected Gini Coefficient by Country 2013/2017
Middle Classes To Expand Further
More consumers to move out of poverty Newly rich consumers to drive demand for consumer goods Chart 29 BRICS Forecast % Households With Annual Income Over US$10,000
Consumer Expenditure Set To Rise Across BRICS
Per household spending will remain highest in Brazil Discretionary categories will gain share of household budgets Chart 30 BRICS Household Consumer Expenditure 2013/2017
A More Sophisticated Consumer Base
Populations Will Continue To Age
Chart 31 BRICS Forecast Mean Age of Population by Country 2013/2017
Cities Will Expand Further
BRICS will be home to more of the world’s mega cities Urban life will boost demand for convenience
Future Spending Habits
Holidaying is at the top of consumers’ wish lists Indians are most keen to save Brazilians want to pay off debts Table 21 BRICS Middle Class Consumers: Future Spending Habits
Growth Markets for the Future
China to dominate sales in most categories China holds most potential for alcoholic drinks and tobacco Consumer foodservice to take off in Russia Brazil to lead in beauty and personal care Indians to take a greater interest in self-medication China will remain top consumers of electronics Table 22 BRICS Forecast Growth in Selected Consumer Categories by Country 2013/2017
Challenges for Marketers
Untapped potential Competing with domestic giants Putting things into perspective Service is key Using local expertise Infrastructural hurdles
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