Consumer sentiment around the world: Trending upward
In many
countries, consumers felt less financial pressure in 2016 than they did the
year before.
More consumers across
the globe are enjoying a
sense of financial stability. In our second annual Global Consumer Sentiment
Survey, conducted in September 2016 across 25 countries,1fewer consumers said they were delaying purchases,
cutting back on spending, and feeling uncertain about the economy. Survey
results varied by country and region, of course, but in only one region—the
Middle East, which was severely affected by falling oil prices—did consumer
sentiment falter significantly compared with the year prior.
The latest survey
findings confirmed the trends we summarized in our March 2016 article. In addition, evident in the most recent results are
three broad trends that should inform how consumer-goods companies and
retailers pursue growth in certain markets around the world. Specifically, we
found that consumers in Western Europe and India are increasingly “trading up”
to more expensive options, local brands are gaining traction in Brazil, and the
migration to online channels is happening especially swiftly in China and
India.
Trading up in Western Europe and India
Consumers’ financial
optimism was reflected in the brands that they chose to buy. Fewer consumers
worldwide said they traded down either to cheaper brands or to private-label
products, and more consumers traded up. As the exhibit shows, the largest
increases in trade-up behavior were in Western Europe—specifically, the United
Kingdom, Germany, and Italy—as well as in India.
In Western Europe, we believe the rise
in trade-up rates can be attributed to a number of factors. For one, it’s a
natural consequence of many consumers feeling financially secure. A separate
survey found that 37 percent of Germans, for example, feel they “can afford
almost anything” they want.2It’s therefore not
surprising that they’re willing to pay for higher-end products such as organic
foods—a niche category that has proved particularly popular among German
households with young children.
Retailers’ assortment
and pricing initiatives have also encouraged Western European consumers to
trade up. Discounters, for instance, have begun to sell more branded products
in their stores as part of their efforts to increase average basket size in a
flat retail market. In addition, the price gap between branded products and
premium private-label products has been shrinking: as the largest retailers
have gained greater buying power, they’ve been able to cut prices on top
brands, making these brands more widely affordable.
That said, trading up
doesn’t necessarily mean buying branded products. Across Western Europe,
trading up can mean switching from lower-priced private-label products to
higher-priced private-label products. Private label is in such an advanced
state in most of the continent that Europe’s major retailers have several tiers
of private-label products, from value labels at entry-level prices to premium
labels that can be even more expensive than branded products from national or
global manufacturers.
In India, the factors
contributing to rising trade-up rates are altogether different. The survey
shows that the categories with the highest trade-up rates—alcoholic beverages and
personal-care products—are the same as in the rest of the world. However, in
India, we believe the driving forces are rapid urbanization and the expansion
of modern retail outlets that carry higher-end products. Also, as more Indian
consumers get Internet access and travel to other countries for leisure, their
awareness of and desire for global brands increases. Premiumization is another
factor: in recent years, we’ve seen consumer-packaged-goods (CPG) companies in
several categories—such as L’Oréal Paris and Lakmé in beauty products, Mondelēz
International and Baggry’s India in packaged food, Tata Global Beverages and
Pernod Ricard in beverages, and Kwality and Amul in ice cream—launch new
premium or superpremium brands.
Indian consumers across
all income classes are trading up, but none more so than the affluent. The
survey revealed that a majority of Indian up-traders had a “better than
expected” experience and intend to continue buying the more expensive brand.
Conversely, more than half of down-traders in India said they’d like to go back
to the more expensive brand. These findings suggest that the trade-up trend in
India will accelerate further.
Brazil’s homegrown brands
Survey results indicate
that quite the opposite is happening in Brazil, where the challenging
economic and political environment has spurred more consumers—especially those
with low incomes—to opt for cheaper products. This trend is becoming evident
even in categories that were formerly immune to trading down, such as
cosmetics. In the past, Brazilian consumers stuck with their preferred beauty
brands but either reduced their purchasing frequency or shopped around to find
those brands at lower prices; only very recently have they begun to trade down.
This shift has
benefited national and local brands. When Brazilian consumers trade down, many
don’t buy retailers’ private-label products but instead buy cheaper national or
local brands, such as Ypê detergent from Química Amparo. (That said, some of
the most popular local and national brands are owned by multinational
companies: for example, Paulista yogurt is Danone’s and Sorriso toothpaste is
Colgate-Palmolive’s.) And when consumers in Brazil’s middle- and high-income
classes trade down, most find themselves satisfied with the cheaper products
and no longer want to trade back up.
Asia’s e-commerce boom
The explosive growth
of e-commerce in China continues
apace. Fifty-eight percent of survey respondents estimated that they spent more
on online purchases in 2016 than they did in 2015. Chinese consumers are,
in general, less hesitant about buying online or via mobile devices, and they
are much less concerned than consumers in Western Europe and the United States
are about privacy and data-protection issues. Witness the speedy success of
Three Squirrels, a snack company founded in 2012 that sold its products
exclusively online. The company has grown more than 300 percent annually,
racking up sales of more than $350 million in 2015. It is now expanding offline
as well, with plans to open hundreds of stores in the next five years.
In India, e-commerce
has been growing at a rate of 35 to 40 percent per year since 2010. The
migration to online retail was led by urban centers, but today tier-two and
tier-three cities are catching up, thanks largely to payment options such as
cash on delivery, which has helped make e-commerce accessible to places in
India with low credit-card penetration. Almost two-thirds of survey respondents
in India said they shifted some of their spending to the online channel in
2016. And CPG e-commerce is still only in its infancy: online sales of beauty
and personal-care products, for example, accounted for a mere 1.0 percent of
total category sales in India in 2015, up from 0.1 percent in 2010.
The sentiment survey,
which we plan to conduct annually, offers a high-level snapshot of not only
consumer sentiment but also evolving consumer behavior. Companies must keep their finger on the pulse of the
changing global consumer, or else risk being left behind by savvier, nimbler
competitors.
By Max Magni, Anne Martinez, Rukhshana
Motiwala, and Alex Rodriguez
http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/consumer-sentiment-around-the-world-trending-upward?cid=other-eml-alt-mip-mck-oth-1705&hlkid=e63eb89201e3471ca7d8f149a0104af2&hctky=1627601&hdpid=08200e53-c7df-4c3e-92a5-18d12535eb30
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