Research Institute - Emerging Consumer Survey 2017 - Credit Suisse

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Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
March 2017

Research Institute
             Thought leadership from Credit Suisse Research
                           and the world's foremost experts

                Emerging Consumer
                Survey 2017
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
                           We are delighted to present the seventh edition of        In contrast, consumer confidence in Turkey and
                           the Credit Suisse Research Institute's Emerging           Mexico has declined markedly. Whereas geopoliti-
                           Consumer Survey. This publication traditionally ex-       cal concerns are weighing on the consumer in the
                           plores the growth opportunities presented by the          former, the protectionist and anti-immigration
                           new consumer cultures developing across the               rhetoric of the new US administration is at work in
                           emerging world, which continue to show vastly             the latter.
                           different, often more dynamic demographic profiles           Interestingly, we observe the ongoing changing
                           compared those of developed economies. The                pattern in the spending of the emerging middle
                           report reflects an ongoing collaboration between          class. Spending on travel and entertainment in
                           the Credit Suisse Research Institute and our              China is booming and reached over 10% of house-
                           research partner, the leading market research firm        hold income. A new theme we find at work is that
                           Nielsen, which has delivered data from 14,000
                                                                                     of a more "conscious" consumer, focused on a
                           face-to-face interviews with consumers across the
                                                                                     more active, healthy lifestyle and one engaged with
                           emerging economies of Brazil, China, India, Indone-
                                                                                     the sharing economy. Local rather than global com-
                           sia, Mexico, Russia, South Africa and Turkey as a
                                                                                     panies and brands are emerging to capitalize on this
                           basis for our research.
                                                                                     trend. Also importantly, digital technology is and will
                               In this year’s edition, our findings suggest that a
                                                                                     continue to be the facilitator of changing consumer
                           consumer culture within emerging markets may be
                                                                                     behavior with more than a billion consumers yet to
                           developing more rapidly than anticipated: a further
                                                                                     come online in our surveyed countries. We estimate
                           10% of surveyed households have succeeded in
                                                                                     that online retail spending can rise from a current
                           entering middle-income territory in the last three
                                                                                     USD 1 trillion to USD 2.5 trillion by 2025.
                           years, creating a consumer base of 1.25 billion
                                                                                        Finally, these themes are elements of the
                           people across the eight countries covered by our
                                                                                     broader rebalancing in growth we are witnessing in
                           survey alone.
                                                                                     the emerging world from its undue reliance on fixed
                               We find the immediate measures of consumer
                                                                                     investment and external trade to more domestic
                           confidence improving from a year ago, with con-
                                                                                     consumption. This provides a powerful internal
                           sumers in the major Asian economies of India,
                                                                                     dynamic to growth in the countries concerned
                           China and Indonesia reflecting the most optimistic
                                                                                     – a feature of considerable significance should the
                           outlook and topping our emerging consumer score-
                                                                                     global economic landscape become more multi-
                           card as we look into 2017. More than 40% of
                                                                                     polar and less globalized in nature, as is currently
                           Asian consumers expect to see their financial
                                                                                     the debate.
                           circumstances improve in the six months ahead.
                                                                                        We hope that our analysis helps our readers
                           We provide a special focus on several key themes
                                                                                     better understand the nature of these dynamic
                           within these countries, the consequences of the
                                                                                     economies and that you enjoy reading the 2017
                           reform to the one-child policy in China or demoneti-
                                                                                     Emerging Consumer Survey.
                           zation and tax reform in India. Generally, there is a
                           noticeable lifestyle "upgrade" underway in Asia.
                               We further observe that pressure has eased for
                           consumers in commodity-sensitive countries such
                           as Russia, South Africa and Brazil. Although con-
                                                                                     Urs Rohner
                           siderable economic fragility and inequality among
                           consumers remains here, a firmer growth outlook
                                                                                     Credit Suisse Research Institute
                           supporting commodities and reduced currency risk
                           offer better consumer prospects for the year ahead.

2 _ Emerging Consumer Survey 2017
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
02     Editorial
                                  05     The emerging consumer in 2016

                                  14     Conscious living

                                  24     E-commerce: New challenges

                                  36     National champions: Local brand

                                  44     Asia in focus

                                  56     Country profiles

                             24          56    Brazil: Outlook to gradually improve
                                         58    China: Lifestyle upgrades
                                         60    India: Still reigning supreme
                                         62    Indonesia: Greater expectations for
                                               the future
                                         64    Mexico: Real incomes under pressure
                                         66    Russia: The future looks brighter
                                         68    South Africa: Challenges remain
                                         70    Turkey: Consumer confidence weakens

                                  73     Appendix 1: Spending heat maps
                             36   75     Appendix 2: Profiling the consumer

                                  76     About the survey

                                  77     Imprint

                                  78     Disclaimer


                                  For more information, please contact:
Cover photo: Credit Suisse

                                  Richard Kersley, Head Global Thematic Research,
                                  Credit Suisse Investment Banking,
                                  Michael O’Sullivan, Chief Investment Officer,
                                  International Wealth Management Division,
                                  Credit Suisse,

                                                                  Emerging Consumer Survey 2017_3
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
Credit Suisse Emerging Consumer Survey 2017
Number of respondents : 13,874, across 8 countries, 69% in urban areas; 31% in rural areas

Mexico (11%*)                        Turkey (11%*)               Russia (11%*)               China (18%*)
No. of respondents: 1,539            No. of respondents: 1,521   No. of respondents: 1,516   No. of respondents: 2,561
Locations: 5                         Locations: 14               Locations: 8                Locations: 10
Urban areas: 70%                     Urban areas: 69%            Urban areas: 67%            Urban areas: 70%
Rural areas: 30%                     Rural areas: 31%            Rural areas: 33%            Rural areas: 30%

Brazil (11%*)                        South Africa (7%*)          India (19%*)                Indonesia (11%*)
No. of respondents: 1,550            No. of respondents: 1,000   No. of respondents: 2,653   No. of respondents: 1,534
Locations: 5                         Locations: 6                Locations: 10               Locations: 10
Urban areas: 70%                     Urban areas: 70%            Urban areas: 71%            Urban areas: 66%
Rural areas: 30%                     Rural areas: 30%            Rural areas: 29%            Rural areas: 34%

Note: % of survey sampled from this country

4_Emerging Consumer Survey 2017
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
The emerging consumer in 2017
In our seventh Emerging Consumer Survey, we find confidence having improved from a year
ago, with consumers in the major Asian economies continuing to reflect the most optimistic
outlook and top our scorecard as 2017 begins. Pressure has alleviated on commodity-sensitive
countries such as Russia, South Africa and Brazil. Political risks in various guises have contrib-
uted to Turkish and Mexican confidence sinking. We reflect on themes driving the nature of
consumer spending throughout the study. It remains clear that the development of an emerging
middle class is ongoing and driving a mixed shift in spending along a discretionary path.

Richard Kersley, Maria Bhatti

A unique perspective                                             The mood of the moment

The Credit Suisse Emerging Consumer Survey pro-                  To summarize the overall mood of consumers, we
vides a granular analysis of the profile, mood and               highlight below the readings for the key parameters
behavior of consumers across eight major emerging                we use for our Emerging Consumer Scorecard,
economies, with an aggregate population ap-                      which focus on five survey questions:
proaching four billion people, representing total
consumption of USD 9.4 trillion and structurally                 1.   "Is now a good time to make a major pur-
growing. The 14,000 face-to-face interviews con-                      chase?"
ducted on our behalf by leading consumer research                2.   "Do you think the state of your own personal
                                                                      finances over the next six months will be
firm Nielsen, provide unique bottom-up insights into
                                                                      better, worse, or about the same?"
specific products and end-markets to set alongside
                                                                 3.   "What do you expect will happen to inflation
and at times challenge the more typical macro
                                                                      (the price of goods and services) in the next
                                                                      12 months?"
    A pure macro focus risks overlooking structural              4.   "In what way do you expect your household
consumer themes that are at work in these econo-                      income to change over the next 12 months?"
mies independent of the cycle (e.g. the develop-                 5.   In what way did your household income
ment of the online economy, which is illustrated by                   change over the last 12 months?"
an average of 76% of our survey respondents now
gaining access to the internet versus only 55% in                    In focusing on these questions, we are seeking to
2013. Additional structural themes include new ac-               capture the immediate perception of the consumer
cess to healthcare or the emergence of new con-                  environment (Question 1); a more medium-term and
sumer brands). In doing so, key investment oppor-                broader assessment of consumers’ financial posi-
tunities and themes are missed. In this chapter, we              tions (Question 2); fears of inflation, given its ability
again examine the mood of the moment from our                    to erode income through food prices in particular
confidence indicators, but also whether the struc-               (Question 3); and income momentum, which is key
tural story that we first laid out in our initial 2010           to ultimate spending (Questions 4 and 5).
study is working. Is the emerging consumer
emerging and, if so, how?

Table 1

Survey sentiment indicators average readings
                        Personal finances        Inflation expectations    Good time to make a       Income expectations        Income change in last
                                                                             major purchase                                          12 months
Indicator              Net balance, better vs.   Net balance higher vs.     Net balance, excellent   Net balance increase vs.   Net balance increase vs.
                               worse                     lower                time vs. bad time             decrease                   decrease

2016                           19.6%                     39.3%                     –10.4%                     19.1%                      -4.2%
2015                           15.3%                     46.4%                     –13.0%                     24.5%                      2.7%
2014                           25.5%                     46.1%                      –7.4%                     31.3%                      10.3%

Source: Emerging Consumer Survey 2017

                                                                                                                          Emerging Consumer Survey 2017_5
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
Figure 1                                                                                             As we look at the average readings across the
Net percentage of respondents replying "Yes" to "Is now a good                                  survey, the picture is one of broadly improving sen-
time to a make a major purchase?"                                                               timent when compared to our 2016 report, which
 20                                                                                             had been struck against a backdrop of weak cur-
                                                                                                rencies, weak stock markets and a tougher eco-
                                                                                                nomic environment globally, not least a growing
                                                                                                slowdown in China. Tumbling commodity prices
-10                                                                                             stemming from the latter were compounding issues
                                                                                                for the commodity exporting countries in our survey
                                                                                                – Brazil, South Africa and Russia.
                                                                                                     We have seen many of these pressures abate
-40                                                                                             since then and negative sentiment ease accord-
-50                                                                                             ingly. In Table 1, we show the aggregate readings
                                                                                                for these questions across the survey. The ques-
              India       China     Indonesia   Mexico   South     Russia     Turkey   Brazil   tions on personal finances and the judgement as
                                                         Africa                                 to whether now is a good time to make a major
        2014          2015         2016                                                         purchase have all improved and concerns about
                                                                                                future inflation have moderated. Income momentum
Source: Emerging Consumer Survey 2017
                                                                                                is a weak point. 2016 was a poor year with the ma-
                                                                                                jority of survey respondents reporting falling in-
Figure 2                                                                                        comes. Hopes of a recovery do exist for 2017, alt-
Net percentage of respondents expecting an improvement in                                       hough in modest terms.
their personal finances in the next six months                                                       Figures 1 to 5 break the variables down by
 60                                                                                             country and show how they feed into our summary
                                                                                                scorecard below. We would highlight the following:
                                                                                                First, the Asian economies stand out best with
 40                                                                                             regard to the benchmarks of personal finances and
                                                                                                the judgement of whether now is a good time to
 30                                                                                             make a major purchase, particularly India on the
                                                                                                latter. We would note some recovery in Brazil and
                                                                                                also South Africa and Russia to a degree. The net
 10                                                                                             commodity-exporting characteristics of these
                                                                                                countries is a common link. Second, the improve-
                                                                                                ments we have seen in inflation expectations have
-10                                                                                             been particularly pronounced in India, Russia, Brazil
           India       Indonesia     Brazil     China    South     Mexico     Russia   Turkey   and Indonesia. The reversal of the currency weak-
        2014           2015          2016                                                       ness in the latter three is doubtless influential here.
                                                                                                Better monsoon conditions will be important for
Source: Emerging Consumer Survey 2017
                                                                                                Indian food prices. South Africa and Mexico reflect
                                                                                                the more negative perceptions on inflation both
Figure 3                                                                                        versus the other countries and versus their own
Net percentage of respondents expecting inflation to increase in                                history.
the next 12 months                                                                                   Third, income momentum has been an Asian
70                                                                                              phenomenon, with Latin America a marked con-
                                                                                                trast. Looking ahead, while income expectations in
60                                                                                              the other Asian countries remain robust relative to
                                                                                                other survey countries, we do see a marked drop in
                                                                                                sentiment about future incomes in India after the
40                                                                                              rapid rise in 2016's survey. The demonetization
                                                                                                event may be an influence here though our Indian
                                                                                                analysts also reflect later in the report downward
20                                                                                              pressures on agricultural incomes among low-
                                                                                                income consumers. Expectations for income
                                                                                                prospects among Brazilian consumers have risen
  0                                                                                             sharply (if surprisingly so). Turkish consumers see
           India       Turkey        Brazil     Russia   China    Indonesia   Mexico   South    little let-up in the pressure on them amid the geo-
       2014        2015      2016                                                               political concerns that prevail.

Source: Emerging Consumer Survey 2017

 6 _ Emerging Consumer Survey 2017
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
Figure 4                                                                                      Figure 5
Net percentage of respondents who expect household                                            Net percentage of respondents who have seen house-
income to increase over the next 12 months                                                    hold income increase over the last 12 months
  70                                                                                           40

  60                                                                                           30

  50                                                                                           20

  40                                                                                           10

  30                                                                                             0

  20                                                                                           -10

  10                                                                                           -20

   0                                                                                           -30

 -10                                                                                           -40
         Indonesia Brazil    China   South      India       Mexico   Russia       Turkey              Indonesia China       India   South    Turkey   Russia   Mexico   Brazil
                                     Africa                                                                                         Africa
    2014       2015   2016
                                                                                                     2014    2015       2016

Source: Emerging Consumer Survey 2017                                                         Source: Emerging Consumer Survey 2017

Emerging Consumer Scorecard                                                   continues to boast the best income momentum
                                                                              among the countries we surveyed. While some of
Our Scorecard draws these factors together in a                               China's readings have marginally softened, we
very simple manner to provide an overall assess-                              would flag the very sharp rise in house price expec-
ment of the mood of consumers in each country.
                                                                              tations, which we do not include as a factor here,
For each question, we rank each country relative
                                                                              but which is highly relevant to China and a positive
to the survey countries as a whole. Each factor is
                                                                              development (we highlight this in our China focus
given an equal weight, although the two income
                                                                              later in the report).
questions are treated as one factor, with the
future/past income questions given a 50:50 weight                                  Brazil and South Africa have moved out of the
to form an overall ranking. We then take an aver-                             bottom three to be replaced by Turkey and Mexico.
age of the rankings across the questions to provide                           Of these two countries, Turkey has seen the most
a composite score.                                                            notable reverse in circumstances since last year,
    Similar to last year, the Asian economies occupy                          falling from a ranking of fifth last time. The poor
the top three places in the scorecard, with India in                          income momentum referred to above is also mirrored
the lead. The weaker expectations with regard to                              in the readings on the perception of the consumers’
future income in India is negative in our scorecard,                          personal finances and whether now is a good time to
but the sharp decline in inflation expectations is a                          make a major purchase (indeed, the net commodity-
major positive in the overall assessment. Indonesia                           exporting countries were all trending up in our

Table 2

Emerging Consumer Survey Scorecard 2017
Rankings (6−12-             Personal            Inflation            Time for a             Household           Income                Rank
month horizon)              finances          expectations             major                 income              history
                                                                     purchase              expectations

India                            1                      1                     1                   5                     3             1       

Indonesia                        2                      6                     3                   1                     1             2       

China                            4                      5                     2                   3                     2             3       

Brazil                           3                      3                     8                   2                     8             4       

South Africa                     5                      8                     5                   4                     4             5       

Mexico                           6                      7                     4                   6                     7             6       

Russia                           7                      4                     6                   7                     6             6       

Turkey                           8                      2                     7                   8                     5             6       

Source: Emerging Consumer Survey 2017

                                                                                                                                                Emerging Consumer Survey 2017_7
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
Figure 6                                                                                                                                                                           scorecard). Clearly, the prevailing political backdrop
Commodity exports and current account balance (both as a % of                                                                                                                      can only weigh on consumer confidence in Turkey.
GDP)                                                                                                                                                                               The fallout from the US elections is a political factor
                                    -10                                                                                                                                            of a different nature, but a damper on confidence in
Commodity exports / GDP (2015, %)

                                                                                                                                                     Thailand                      Mexico nonetheless, particularly given the unhelpful
                                      -5                                                                               China                                                       protectionist and anti-immigration rhetoric that has
                                                                                                                                          Less vulnerable
                                                      Mexico                                                                             to dollar strength                        emerged. The principal transmission mechanism of
                                            0                                                                                                                                      political risk to the consumer is typically the cur-
                                                           South                                                               Malaysia                                            rency. Hence it is no accident that Turkey and
                                                                                              Brazil                                                                               Mexico experienced the worst currency experience
                                                                    Indonesia                                                                                                      as well as the sharpest fall in sentiment.
                                    10                                                                                                                                                We would not present this scorecard as an
                                                                                                                                                                                   overly scientific exercise and, by only being an an-
                                    15                                                                                                            Size of bubble =
                                                            More vulnerable                                                     Russia             2017E foreign                   nual snapshot, much can change throughout the
                                                           to dollar strength                                                                     debt (% of GDP)                  year in the macro and political environment.
                                                  -8                        -4                         0                       4                 8             12
                                                                                                                                                                                   However, we believe it provides a reflection of the
                                                                                                                                     2017E current account (% GDP)                 factors of most relevance for the consumer and
                                                                                                                                                                                   genuine bottom-up perceptions of them. Where
Source: Credit Suisse research
                                                                                                                                                                                   there has been robust and, importantly, stable
                                                                                                                                                                                   readings in these factors, consumer stocks have
Figure 7                                                                                                                                                                           generally performed well in the equity market.
Purchase intentions this year versus consumption in the last                                                                                                                       China and India have been good cases in point.
year                                                                                                                                                                                  We provide an assessment of where a range of
                                                  100                                                                                                                              key consumer macro indicators currently sit for our
       Consumers that intend to buy or increase

                                                      90                                                                                                                           countries from our emerging market (EM) strategists
                                                      80                                                                                                                           on pages 12 and 13 to add some top-down flavor.
                                                      70                                                                      Fashion                                              However, as we have implied and politics aside,
                   spending (%)

                                                                                                                   Holidays                                                        what can stir the relative rankings of our consumer
                                                                                                  Perfume                                                      Dairy               countries most top-down are currency and com-
                                                                                       Sports shoes
                                                                                                                                                     Bottled water                 modities. Figure 6 gives a sense of the countries
                                                                                                                         Cosmetics                     Carbonated drinks           most exposed to these influences and potential
                                                              Jewelery Education                                                                Smartphones                        volatility should they emerge by analyzing their com-
                                                      20 Foreign                                                Beer
                                                                           Watches Spirits                  Cars
                                                                                                                                                       Property                    modity exposure and current account vulnerabilities.
                                                      10 holidays         LCD TV
                                                       Tablets      Notebook PC
                                                                      Mobile phones (basic)
                                                       0                                                                                                                           What's hot and what's not?
                                                           0                     20                        40                   60                   80                   100
                                                                                                            Consumers that own or have bought each item (%)
                                                                                                                                                                                   Whereas the scorecard focuses on country compari-
                                                                                                                                                                                   sons, we illustrate in Figures 7 and 8 the pattern of
Source: Emerging Consumer Survey 2017                                                                                                                                              spending by category across our countries. Figure 7
                                                                                                                                                                                   charts the intention to spend more on an item
                                                                                                                                                                                   (y-axis) relative to those who own or have bought the
Figure 8
                                                                                                                                                                                   item in the last year (x-axis). Figure 8 again charts
Spending intentions versus momentum (2016 vs. 2015)                                                                                                                                the spending intentions, but compares the same
                                                                                                                                                                                   reading with a year ago to reflect the effective
                                                                                                                                                                                   momentum of increases (not necessarily reductions
      Momentum % (2016 vs. 2015)

                                                                                                                                                                                   in absolute terms).
                                    6                                                                                                                                                  Discretionary categories such as sports shoes,
                                                                         LCD TV
                                                                                                                                                              Holidays             holidays and fashion show among the strongest
                                                                             Education                                                                                             intentions. Of these, holidays particularly stand out
                                                      Desktop computer               Property
                                                                                                                                                                                   with positive readings having increased versus a
                                    2                      Foreign holidays
                                                                                                                         Cosmetics         Perfume                                 year ago. However, we note that holidaying re-
                                                               Notebook PC
                                    0                            Tablet                                                                                                            mains a domestic phenomenon. Foreign holiday
                                                                                                                                        Sports shoes
                                                  Mobile phone (basic) Watches                                                               Dairy                                 intentions remain weak. China is the exception,
                                    -2                                                                                Carbonated drinks                                            showing genuine momentum in foreign holidays.
                                                                                      Beer                                                                               Fashion
                                                                                            Smartphones*
                                                                                                                          Bottled water                                            In fact, the Chinese tourist is now becoming a more
                                                  0                 10                20
                                                                                               (-19.6 momentum)
                                                                                                       30                40               50               60           70
                                                                                                                                                                                   important international traveler than the Russian
                                                                                                                                                          Spending intentions      tourist. We believe the strength in the sports shoes
                                                                                                                                                                                   category (and weaker markets in the category of
Source: Emerging Consumer Survey 2017                                                                                                                                              alcohol) fall under the theme of healthy living, on
                                                                                                                                                                                   which we focus in our analysis of the "conscious

8 _ Emerging Consumer Survey 2017
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
consumer" in the next chapter. The fact that dairy is   Figure 9
the strongest staple category tells the same story in   Percentage of respondents owning a smartphone tracked against
our view.                                               smartphone shipments (China)
    On the weak side, a category that stands out is
smartphones. The market still continues to grow,        140000                                                                                                                      100%
but ownership rates among consumers have risen
                                                        120000                                                                                                                      90%
dramatically (70% of respondents either own or
have bought one in the last year) and the momen-
                                                        100000                                                                                                                      80%
tum is weakening accordingly. Smartphones display
the weakest momentum of all our categories as                  80000                                                                                                                70%
shown in Figure 8.
    We would stress that the question we are meas-             60000                                                                                                                60%
uring is "do you intend to spend more on
smartphones?" so that lower momentum can                       40000                                                                                                                50%
reflect trading down to lower price points rather
than necessarily lower volumes in every instance.              20000                                                                                                                40%
However, our survey has equally proved to be
                                                                                             0                                                                                      30%
something of a barometer for market size and
                                                                                                 Q1    Q3    Q1    Q3     Q1   Q3   Q1    Q3     Q1   Q3    Q1    Q3    Q1    Q3
shipments. In that respect, Figure 9 suggests a                                                  10    10    11    11     12   12   13    13     14   14    15    15    16    16
country such as China is potentially running out of
                                                                                                      Smartphone shipments ('000) - lhs
headroom as an end-market for shipment growth.
                                                                                                      % of respondents who own a smartphone - rhs
Moreover, as we explore later, this maturity in the
market is coinciding with more robust challenges
                                                        Source: Emerging Consumer Survey 2017
from local smartphone makers in China, with their
brand recognition improving. There is a legitimate
reason to expect significant pricing risks to emerge
against such a backdrop for the international play-
                                                        Figure 10
    (We provide a disaggregation of the spending
patterns by category and country in Appendix 1          Food and recreation spending versus GDP per capita 1929–2012
of the report together with a breakdown by age.
The role of the younger consumer in consumption                                             140
                                                         Volume of consumption per capita

patterns has been a theme that we have tracked
over time. Our individual country summaries begin-                                          120
ning on page 56 also provide added color.)
The structural themes…are they working?                                                                  Food and beverage
                                                                                                                                                       1980            1990
                                                                                             80                                       1960
As we analyze the immediate readings from the
survey, a key question is how do the survey develop-
                                                                                             60                      1929      1943
ments fit with the structural direction of travel? In
                                                                                                                  1935         Healthcare
our 2011 report, we set out the template for how
the emerging consumer theme should evolve by                                                 40
displaying the consumption patterns of developed
economies as they moved from their emerging                                                  20
consumer status. The thesis was that as Gross
Domestic Product (GDP) per capita and the income                                              0
profile of consumers change, so should their spend-                                               0               10000         20000              30000           40000           50000
ing patterns. The starting point for income levels is
                                                                                                                                             GDP per capita (PPP adjusted in 2010 prices)
key. Income rising from a low GDP per capita basis
should typically first benefit more staple categories   Source: Company data, Credit Suisse estimates
such as food before giving way to more discretionary
   Figure 10 displays how this pattern played out in
the USA as we chart the US consumer's spending
development from the early 20th century to the 21st.

                                                                                                                                                        Emerging Consumer Survey 2017_9
Research Institute - Emerging Consumer Survey 2017 - Credit Suisse
Figure 11                                                               We laid this out in our 2011 study (we provide a
                                                                        more detailed breakdown segment by segment in
Food versus entertainment expenditure in China indexed to 2010          the next chapter). The vagaries of survey data and
                                                                        the intervention of macro/political events of the like
 China, expenditure in USD PPP (2010=100)                               mentioned previously makes it unrealistic to expect
 160                                                                    that we could accurately mirror every aspect of this
                                                                        macro story in our bottom-up dataset. However, we
                                                                        do find enough effective "real world" data points
 140                                                                    from our survey that seem to suggest we are fol-
                                                                        lowing a large degree of the route map set out
                                                                            At a very simple level, the fact that the scatter
 110                                                                    charts in Figures 7 and 8 show the strength in
 100                                                                    more discretionary categories outweighing the more
                                                                        staple areas suggests the bias one might expect to
                                                                        be seeing in a consumer whose incomes are rising.
   80                                                                   However, delving deeper into the regional mix as
   70                                                                   we do in the heat maps in Appendix 1, where we
                                                                        look at countries with differing GDP per capita
            2010      2011         2012     2013   2014   2015   2016   levels, we find this discretionary bias more pro-
                                                                        nounced in the higher income countries such as
             Food           Entertainment
                                                                        China, Russia and Brazil. In contrast, three of the
                                                                        top four categories in terms of spending intentions
Source: Emerging Consumer Survey 2017                                   in Indonesia are staples categories (e.g. dairy,
                                                                        carbonated drinks, bottled water). While Brazil is
                                                                        top for educational spending intentions, Indonesia is
                                                                            Taking this argument beyond this one-year
Figure 12                                                               snapshot, we contrast the spending patterns of
Food versus entertainment expenditure in Indonesia indexed to           China and Indonesia through the life of our survey,
2010                                                                    tracking the level of spending on a classic staple
                                                                        and discretionary item – food and entertainment.
 Indonesia, expenditure in USD PPP (2010=100)                           While both countries have seen improving incomes
 140                                                                    this decade and been consistently among our more
                                                                        optimistic countries, the pattern of consumption
                                                                        along these lines is very different (Figures 11 and
 120                                                                    12).
 110                                                                        China has seen a rapid acceleration in entertain-
                                                                        ment spending among our respondents relative to a
                                                                        more stable trend in expenditure on food. As we
  90                                                                    show in our China summary, food expenditure now
  80                                                                    consumes 17% of the monthly income of our
                                                                        Chinese respondents versus 19% in 2011. Travel
                                                                        and entertainment now represents 11% of monthly
  50                                                                        In Indonesia, with its low GDP per capita, ex-
  40                                                                    penditure on food has been the focus, representing
            2010     2011         2012      2013   2014   2015   2016   35% of total spending. Spending on food has in-
            Food         Entertainment                                  creased by 1.4 times the rate in China between
                                                                        2010 and 2016. It is not that non-staples spending
                                                                        of any nature in Indonesia is not at work. For exam-
Source: Emerging Consumer Survey 2017
                                                                        ple, ownership of "two-wheelers" has risen from
                                                                        75% to 89% since 2011. However, it is still only in
                                                                        the early stages of the discretionary theme playing
                                                                        out elsewhere, whereas China is beginning to follow
                                                                        the US trajectory seen in Figure 10. That notwith-
                                                                        standing, low GDP per capita countries such as India
                                                                        and Indonesia offer plenty of investment opportuni-
                                                                        ties if in other categories of spending and at differing
                                                                        price points.

10 _ Emerging Consumer Survey 2017
The emerging middle class is still on the move         Figure 13

As well as tracking the changing nature of spend-      Household income distribution (USD/month)
ing, we have been following the changing demo-         350000
graphic and income profile of the consumer influ-
encing this spending. Age has been a key theme         300000

and specifically the role of the young consumer as     250000
we have shown in previous studies. However, over-
laying that has been the change in income distribu-    200000

tion in the emerging world – the theme of "the         150000
emerging middle class."
    With the benefit of knowing the prevailing         100000
household income of our respondents, the size of
the family unit from which they come and factoring
in the income structure by decile in these econo-             0
                                                              0-499           500-999        1000-1499        1500-1999      2000-2499         2500-2999
mies sourced from the World Bank, we can make
an up-to-date estimate of the distribution of house-       Mexico     Turkey        South Africa    Russia      Indonesia    India     China      Brazil
hold income across each country (note that we do
make some adjustments to take into account the         Source: World Bank, Emerging Consumer Survey 2017, Credit Suisse estimates
limitations in our sampling in the representation of
very low-income areas). The conclusion from this
                                                       Figure 14
analysis in recent surveys has been that the emerg-
ing consumer has been on the move. But is this still   Household income distribution
the case?
    Having standardized incomes on a 2016 USD
purchasing power parity (PPP) basis, Figure 14          90%

builds up an aggregate income distribution curve        80%
from our survey, overlaying each country. We            70%
measure the number of households by income              60%
band as per the income data provided by our             50%
respondents. We have cut off the chart at a             40%
monthly income level of USD 3,000, but we note,         30%
however, that there is a considerable tail of house-
holds that stretch well beyond this income cut-off.
For simplicity of presentation, we have not included
this tail in the chart                                      0-499            500-999         1000-1499       1500-1999       2000-2499         2500-2999
    While potentially stating the obvious, given the
wide divergence of GDP per capita across our                Mexico        Turkey     South Africa    Russia      Indonesia     India     China      Brazil

countries, the chart underlines how different the      Source: World Bank, Emerging Consumer Survey 2017, Credit Suisse estimates
potential emerging consumer end-markets are, and
the relevance of the analysis on spending patterns
above. For example, over 400 million households in     Figure 15
our surveyhave monthly incomes in PPP terms
                                                       Aggregated household income distribution
below USD 1,000.
    In Figure 15, we compare distribution now with     350000
last year and the year two years before. The chart
is continuing its move to the right. If we look at
households in the USD 1,000–2,000 per month            250000
bracket, they have increased by 82 million in our
surveyed countries in the last three years. Around
1.25 billion people in our survey countries now sit    150000
in this territory. Of course our survey does not
replicate the emerging world as a whole, with          100000

sizable countries in Latin America and Africa           50000
notably absent. This would scale this story further.
However, on the basis of what represents con-                 0
                                                              0-499                500-999           1000-1499            1500-1999            2000-2499
sumption in end markets of four billion people, we
remain confident that the building of a middle class               2013            2015             2016
with its changing consumption patterns continues.
                                                       Source: World Bank, Emerging Consumer Survey 2017, Credit Suisse estimates

                                                                                                                      Emerging Consumer Survey 2017_11
Figure 1                                                                                      EM consumer through a macro lens
EM8 consumer confidence (versus post 2010 range)
                                                                                              Alexander Redman, Arun Sai

 102                                                                                          To set alongside our feedback from the field, we provide
 100                                                                                          a snapshot of where the prevailing macro indicators for
                                                                                              the emerging consumer sit for each of the eight countries
                                                                                              (EM8) in the survey. While our survey indicators compare
  96                                                                                          countries against each other, here we look at how each
                                                                                              country stands versus its own post-2010 historical range
           Brazil         China   India     Indonesia   Mexico   Russia   S Africa   Turkey   on six consumer focused metrics. We establish a score-
                    Max               Min               -12m              current             card of relative strength. We also compare these country
Source: OECD Main Economic Indicators, Credit Suisse research                                 scores with those of a year ago. Note that we would not
Figure 2                                                                                      expect the rankings to mirror our survey scorecard earlier
EM8 real retail sales growth (versus post 2010 range)                                         given the differing methodology, although they do provide
  30%                                                                                         a sense of domestic momentum.
                                                                                                  On this macro scorecard, China and Indonesia offer
                                                                                              the most robust consumer environment against their own
                                                                                              history ranked in first and second place, respectively, up
                                                                                              from second and fifth place last year. Turkey and Mexico
                                                                                              follow in third and fourth place, respectively, with the for-
 -20%                                                                                         mer—this year's largest score decliner—down from being
 -30%                                                                                         ranked top last year, while Mexico retains not only its
           Brazil         China   India     Indonesia   Mexico   Russia   S Africa   Turkey
                                                                                              ranking year-on-year, but almost exactly the same score.
                    Max              Min                -12m              current
                                                                                              In fifth place comes India, down from third in 2016, while
Source: Thomson Reuters, Credit Suisse research
                                                                                              South Africa, Russia and Brazil retain their sixth, seventh
Figure 3                                                                                      and eighth positions in the rankings, respectively.
EM8 real wage growth (versus post 2010 range)
  20%                                                                                         1. Consumer confidence
                                                                                              While the latest local consumer confidence surveys reveal
                                                                                              that only China, India and Indonesia are at levels in the
                                                                                              more positive half of their post-2010 historical ranges,
                                                                                              there is nevertheless a significant year-on-year improve-
                                                                                              ment in confidence across the EM8 countries with the
  -5%                                                                                         notable exception of Mexico and Turkey (which under-
 -10%                                                                                         went significant reversals). Measured against their re-
          Brazil    China      India    Indonesia       Mexico   Russia   S Africa   Turkey
                                                                                              spective 7-year histories, China, Indonesia and India ap-
Source: Oxford Economics, Credit Suisse research
                                                                                              pear as the more optimistic surveys closest to their post-
Figure 4
                                                                                              2010 highs, while consumer confidence in South Africa
EM8 real interest rates (versus post 2010 range)                                              languishes at the weaker end of its 7-year range.
  6%                                                                                          2. Retail sales growth
  4%                                                                                          Year-on-year real retail sales growth remained broadly
  2%                                                                                          stable across five of the EM8 countries, while recording a
                                                                                              noteworthy increase of 8 p.p. in Russia (as the country
                                                                                              recovers from a consumer recession deeper than that
                                                                                              during the global financial crisis) and of 6 p.p. in Mexico
           Brazil         China   India     Indonesia   Mexico   Russia   S Africa   Turkey   (the weakening of the currency has led to an appreciation
                    Max               Min               -12m              current             of US dollar remittances in peso terms). The single
Source: Central bank data, Credit Suisse research                                             noticeable drop in the growth of real retail sales (by 6
Figure 5
                                                                                              p.p.) across the EM8 countries was in Turkey – mirroring
                                                                                              the correction in confidence post the July 2016 at-
EM8 private sector credit growth (versus post 2010 range)
                                                                                              tempted coup. Brazil, Russia and Turkey are the only
                                                                                              three countries in the EM8 where year-on-year real retail
  30%                                                                                         sales growth is in negative territory – although Brazil
  20%                                                                                         posted only a modest 2 p.p. improvement from 2016.
                                                                                              3. Wage growth
   0%                                                                                         Wage growth (in year-on-year inflation-adjusted terms) is
 -10%                                                                                         positive across the EM8 countries – with the exception of
           Brazil         China   India     Indonesia   Mexico   Russia   S Africa   Turkey   Brazil (at –1.7%) – although for South Africa this is mar-
                    Max               Min               -12m              current
                                                                                              ginal (just 0.4%). For China, India, Indonesia and Turkey,
Source: BIS, Credit Suisse research

12 _Emerging Consumer Survey 2017
real wage growth remains at robust levels in the range of      Figure 6
5.0% to 6.1%, with China leading the pack, albeit at the       EM8 real house price growth (versus post 2010 range)
lower end of its own 7-year range. Growth has main-             20%
tained broadly stable levels (within 1.3 p.p.) for the EM8
group save Russia, which recorded a hefty 8.2 p.p.
acceleration to 0.6% from –7.6% in Q1 2016.
4. Interest rates
There has been a considerable fluctuation in real interest
rates across the EM8 group of countries over the past          -30%
                                                                           Brazil         China         India      Indonesia   Mexico      Russia     S Africa     Turkey
year. Brazil (at 6.9%) and Russia (at 5.2%) have
                                                                                Max                       Min                  -12m                   current
recorded real rate tightening of around 300 bp and 180
                                                               Source: BIS, Credit Suisse research
bp, respectively, since last March – both on account of
                                                               Figure 7
swift disinflation outpacing central bank easing. Despite
                                                               Emerging market consumer heat map
real rates for these two countries being now at the very
top of their respective 7-year historical ranges – typically                                   Real                                       Real
                                                                                                           Real        Real Priv. sec.
                                                                               Consumer        retail                                    house              Average -
anathema for consumption – there is ample scope for            Country                                     wage      interest credit              Average             Direction
                                                                               confidence      sales                                      price               12m
                                                                                                          growth       rates  growth
moderation in 2017. India and Mexico have also under-                                         growth                                     growth

gone a tightening in real interest rates (both by around       China                55%           70%      69%        79%      51%       58%        64%      49%         ↑
                                                               Indonesia            67%           76%      58%        40%      13%       37%        49%      39%         ↑
100 bp) since last March – the latter case due to central
                                                               Turkey               4%            14%      59%        89%      36%       75%        46%      63%         ↓
bank measures to defend the peso. The only EM8 coun-                                                                                                                     ↔
                                                               Mexico               2%            80%      24%        27%      59%       73%        44%      43%
try to have undergone a significant decline in real rates is   India                75%           35%      56%        14%      20%       49%        42%      48%         ↓
Indonesia (to 0.9%), although absolute levels for South        South Africa         25%           35%      18%        50%      15%       19%        27%      36%         ↓
Africa (0.4%), China (–1.0%) and Turkey (–2.1%) are            Russia               18%           9%       22%         3%       8%        6%        11%      15%         ↓
                                                               Brazil               34%           8%        6%         1%       2%        2%        9%       13%         ↓
more stimulative.
                                                               Source: OECD Main Economic Indicators, Thomson Reuters, Oxford Economics, Central bank
5. Private sector credit growth                                data, BIS, Credit Suisse research
Only in Mexico among the EM8 has private sector credit
growth noticeably accelerated over the past 12 months
                                                               Emerging consumer macro scorecard
to 17% year-on-year at the top of the country's 7-year
                                                               We consolidate these six consumer metrics into a score-
historical range and the highest among the EM8 group of
                                                               card for the EM8 countries displayed as a heat map in
countries. Mexico's credit to GDP of 42% is low for
                                                               Figure 7. For each metric, we calculate the current per-
emerging markets and responding to a November 2013
                                                               centile position from lowest to highest across the entire
package of financial reforms targeted specifically at stim-
                                                               eight country 7-year historical range. For real interest
ulating credit growth across multiple sectors of the econ-
                                                               rates (where a high number is indicative of consumer
omy. In contrast, the pace of credit growth in Brazil,
                                                               strain), we invert the percentile ranking. To achieve an
Russia and Turkey slowed markedly since last March – all
                                                               overall country score in the heat map, we calculate a
with a deceleration of more than 10 p.p. which, in the
                                                               simple average of the percentile ranks for the six metrics
case of Brazil, has resulted in no credit expansion over
                                                               for each country for the current situation and that from 12
the year and the lowest rate in the EM8. China, India and
                                                               months ago.
Indonesia have delivered respectable growth of 15%,
                                                                   At an average of 64%, China appears to have the most
9%, and 8%, respectively, but all toward the lower end of
                                                               buoyant consumer environment among the EM8 countries.
their post-2010 ranges.
                                                               Moreover, it has improved year-on-year from an average-
                                                               metric score of 49% last March. China scores particularly
6. House price growth
                                                               well for growth in real retail sales and wages, together with
At 6%, Turkey has registered the strongest year-on-year
                                                               real interest rates. In second place, Indonesia, averaging
real house price appreciation among the EM8 countries –
                                                               49%, has also recorded a year-on-year improvement from
although this places price growth only mid-range for
                                                               39%, propelled by consumer confidence and real retail
Turkey versus the past seven years, having slipped from
                                                               sales growth. In third place, Turkey, averaging 46%, has
10% year-on-year 12 months ago. In stark contrast,
                                                               dropped from last year's strongest average score of 63%,
house prices in Brazil have depreciated by an alarming
                                                               by far the largest annual decline among the EM8 group,
20% over the past 12 months in real terms, the largest
                                                               while Mexico at 44% is flat on the year. India, South Africa,
fall measured across the EM8 countries and at the ex-
                                                               Russia and Brazil have all recorded year-on-year declines in
treme lower end of Brazil's 7-year range. Russia (–12%)
                                                               their average scores across the six metrics, with Brazil and
and South Africa (–2%) have also recorded real house
                                                               Russia retaining their positions as weakest and second
price depreciation, but of a magnitude that is mid-range
                                                               weakest on the emerging market consumer heat map,
historically. Mexico (+5%) and China (+3%) have also
                                                               respectively. The Brazilian consumer appears particularly
posted robust real gains in house prices, the former right
                                                               constrained by a mixture of high real interest rates,
at the top of its post-2010 range, while house prices in
                                                               unappealing real growth in wages and credit, and declining
India and Indonesia were broadly unchanged.
                                                               real house prices.

                                                                                                                                Emerging Consumer Survey 2017_13
14_Emerging  Consumer
   14 _ Emerging       Survey
                 Consumer     2017
                          Survey 2017   Photo:
Conscious living
The results of this year's Emerging Consumer Survey confirm that the emerging middle class
continues to expand and the pattern of consumer spending in the emerging world is chang-
ing with it. Running through this change in consumption is a lifestyle change. Consumers
across our surveyed emerging economies are starting to adopt a more conscious spending
profile. This is apparent through a greater focus on skin care, good food, sportswear and
using car-sharing services rather than owning vehicles. The brand implications cannot be
underestimated and we highlight some of the types of companies that are most geared to
these trends.

Eugene Klerk

Spending patterns change as income grows                 strength in growth in these categories that would
                                                         be expected at different levels of GDP per capita
As we highlighted in the previous chapter, the mix       on the basis of our previous analysis.
of products and services consumed changes sub-              In countries such as India and Indonesia, demand
stantially as income increases. Spending patterns
                                                         growth is likely to be strongest for basic apparel,
for consumers in emerging market (EM) countries
                                                         food and beverages, and education services. On the
with below-average income per capita tend, for
                                                         other hand, in the case of countries with higher
example, to be focused more on basic goods and
                                                         disposable income such as China, Mexico, Turkey,
services. As income levels rise, discretionary
spending then kicks in. In Table 1 below, we dig         Brazil and Russia, we expect demand for relatively
deeper into specific categories of spending framed       more expensive items such as tourism, credit
in the context of this story. We show the relative       services or beauty products to be stronger.

Table 1

Growth potential in spending categories based on GDP per capita
GDP per capita 2016E                                                              Growth potential
                                  Country                 High               Medium                                    Low
                                                         Cereals              Apparel                Beverages                     Education
                                  India               Two wheelers             Meat                  Healthcare                 Consumer credit
Below USD 2,000
                                                                                                       Cars                     Beauty products
                                                                                                 PCs/laptops                        Tourism
                                                         Apparel             Beverages                              Healthcare
                                                          Meat           Cars/two-wheelers                        Consumer credit
USD 2,000 – 5,000                 Indonesia                                   Cereals                                Tourism
                                  South Africa         Beverages               Meat                                   Cereals
                                  Mexico                  Cars                Apparel                              Two wheelers
USD 5,000 –10,000                 Brazil                  PCs                Healthcare
                                  China              Beauty products      Consumer credit
                                  Russia                                      Tourism
                                                        Education              Cars                                   Cereals
                                                       Healthcare               PCs                                Two wheelers
USD 10,000 – 25,000               Turkey                Tourism              Beverages                                 Meat
                                                     Consumer credit                                                  Apparel
                                                     Beauty products

Source: Credit Suisse estimates, IMF

                                                                                                                 Emerging Consumer Survey 2017_15
Health deteriorates as income grows                                                          a change in diet, together with a frequently ob-
                                                                                                                          served less-active lifestyle (brought about to some
                             Rising levels of disposable income may result in                                             degree as economies shift from manufacturing to
                             changes to spending behavior as described above.                                             become more service focused) explains a large part
                             However these have also contributed to undesirable                                           of this phenomenon, in our view.
                             secondary effects. More specifically, we observe                                                With the exception of Mexico, where average
                             that general health conditions appear to be worsen-                                          BMI is already relatively high, we find that average
                             ing as income levels increase. In our view, this topic                                       BMI readings are likely to rise in all the countries
                             is particularly relevant for key emerging economies,                                         we surveyed if spending power increases further
                             considering the potential strong increase in associ-
                                                                                                                          and there are no significant lifestyle changes in
                             ated healthcare costs.
                                                                                                                          terms of health and physical fitness. The need to
                                                                                                                          ensure that such changes are enacted becomes
                             Consumers become bigger as income
                                                                                                                          obvious when considering potential healthcare-
                                                                                                                          related costs (both public and private). For example,
                             For example, data from the World Bank and the                                                the International Diabetes Federation estimates that
                             World Health Organisation show that average Body                                             the number of people suffering from Type-2 diabe-
                             Mass Index (BMI) readings tend to increase as                                                tes (often related to being overweight or obese)
                             GDP per capita rises (Figure 1). A BMI reading                                               might increase by around 50% from levels seen in
                             above 25 suggests that a person is overweight,                                               2015 to reach 600 million by 2040. The main part
                             while a reading above 30 indicates obesity. The                                              of this increase is expected to occur in Asia, the
                             combination of increased calorie intake through                                              Middle East and Northern Africa (Figure 2).

Figure 1

Average body mass index (BMI) increases as GBP per capita rises
Average BMI



                                                                                                                                                                                            United States

                                                                                                 Egypt, Arab Rep.                       Mexico
                                                                                                                                                                                    New Zealand
28                                                                                                                                                                                  United Arab Emirates
                                                                                                                                                        Chile     Greece
                                                                                                              Jordan                                                  Bahrain
                                                                                                                          Peru                          Uruguay
                                                                                                    Fiji                                                             Saudi Arabia        Germany
27                                                                                                                         Cuba                                                         United Kingdom
                                                                                                                                  Colombia                       Israel
                                                                                                           South Africa                    Slovak Republic                 Austria
                                                                                                      Iran                                              Cyprus            Finland
                                                                                          Tunisia                 Lebanon      Brazil
                                                                                                                                     Croatia Czech Republic
                                                                                                           Serbia    Bulgaria Hungary           Portugal Spain
                                                                                                                                         Lithuania                             Sweden
                                                                                                                              Russia                              Belgium
                                                                                        Macedonia, FYR          Mauritius             Poland
                                                                                                                                                              Italy         Netherlands
                                                                                                                                         Latvia                                 Denmark

                                                                                                                                                                Estonia             France
                                                                    Kyrgyz Republic                                       China        Romania
                                                                          Ghana                                                              Malaysia

                                                                        Pakistan                                                                                                             Singapore

                            Gambia     Madagascar                                                  Indonesia


     100                                               1000                                                                        10000                                                            100000
                                                                                                                                                                                           GDP/Capita (USD)

Source: WHO, World Bank, Credit Suisse Research

16 _ Emerging Consumer Survey 2017
Aging is set to add pressure on healthcare               Figure 2
spending                                                 The number of people suffering from Type 2 diabetes might reach
                                                         600 million by 2040
Another factor that is likely to increase the pressure
on healthcare costs and thereby raise the potential
for a (forced) change in consumer behavior is
                                                          200                                                                                                                                 +62m
aging. Emerging markets are projected to age at
approximately twiceas fas t as citizens in developed      150
markets. As a result, by 2035, the share of the                                                                                                                             +62m
population aged 65 or older in countries such as          100
China and Russia should be similar to that in coun-                                                                                         +37m
tries such as the UK and the USA (Figure 3), which                       50
increases demand for healthcare services (although
a much lower total spending power increases                                                 0
pressure on governments to fund this).                                                                       NA &                South &            MENA           Europe         South East         Western
                                                                                                           Caribbean             Central                                             Asia            Pacific
    In order to provide an estimate of the potential                                                                             America
healthcare costs that countries in our survey might
                                                                                                      2013          2015         2035E         2040E
face, we have run a simple scenario. Assuming that
total healthcare costs increase to developed market      Source: International Diabetes Federation, Credit Suisse Research
levels (approximately 10% of GDP) and assuming
average GDP growth rates of approximately
4%–5% for the next 15 years, we forecast that            Figure 3

China, for example, could be facing healthcare           Longevity in EMs is increasing, causing healthcare costs to rise
costs of USD 2.3 trillion by 2030, up from USD
611 billion in 2015 (Figure 4). It is our belief that                                                     35%
                                                          Percentage of population aged 65+ (2035E)

                                                                                                                      Bubble size proportional to size
these costs are unlikely to be covered either                                                                         of 2035E 65+ population                         Japan              Germany
privately or publicly, which in our view increases the                                                                                                             Korea
likelihood that consumers will have to start leading                                                      25%
healthier lifestyles.                                                                                                               China                                                       USA
    Our healthcare team notes that these potential                                                                                                  Russia
challenges to healthcare provisions might already                                                         15%                        Brazil
be occurring. While they believe that a significant                                                                                                        Malaysia
                                                                                                          10%          India
opportunity remains within the emerging markets,
                                                                                                                                                                                         Saudi Arabia
they do highlight a projected slowing of the level of                                                     5%
pharma sales growth in emerging markets too.
This year, our survey reports year-on-year declines
                                                                                                                0              10              20            30         40           50        60
in reported access to state healthcare in the key                                                                                                                 GDP per capita (2015, '000 USD PPP)
markets of China, Brazil and Mexico. This highlights                                                  Middle East          Europe           Asia       Americas        Africa
the continuing economic pressures in the Latin
                                                         Source: Credit Suisse
American countries and could underline increased
healthcare cost sensitivity from the Chinese govern-
ment over the last year. Findings from the survey        Figure 4
align with slowing growth in EM sales reported by        Total healthcare spending (USD bn) to grow quickly in a no-
international EU Pharma for 2016. They are also          change scenario
further supported by IMS forecasts which project a       2500                                                                                                                                             18%
slowing in growth of medicines sales in the EMs
particularly in China and Brazil.
                                                         2000                                                                                                                                             14%


                                                                500                                                                                                                                       4%
                                                                                                                                     276    238              207
                                                                                                                              98        148                            178         129                    2%
                                                                                                                                                                94           72          39     49 28
                                                                                                      0                                                                                                   0%
                                                                                                           China         India       Brazil     Indonesia Russia       Mexico      Turkey Sth.Africa
                                                                                               2030E              2015      CAGR (r.h.s.)

                                                         Source: World Bank, IMF, Credit Suisse Research

                                                                                                                                                                           Emerging Consumer Survey 2017_17
Figure 5                                                                                             Are EM consumers becoming more
Year-on-year change in car ownership (p.p.)
                                                                                                     Owing to the potential healthcare costs described
10                                                                                                   earlier, we believe that EM consumers might want
                                                                                                     to/have to adopt a more conscious lifestyle. We
 8                                                                                                   use our survey to review how consumers feel about
                                                                                                     products and services related to environmental
                                                                                                     awareness (e.g. car usage), nutrition, personal care
 4                                                                                                   and more active lifestyles in order to judge whether
                                                                                                     a conscious lifestyle is being adopted.

                                                                                                     Consumers may start buying only what
                                                                                                     they need
                                                                                                     Owning a car is typically seen as a bad investment
 -4                                                                                                  decision considering the ticket size, strong depreci-
                                                                                                     ation and the on-average low usage (we estimate
        Mexico        Turkey     South        Russia   Indonesia       India   China        Brazil   less than 5% of the time). Therefore, signs that
                                 Africa                                                              the trend in car ownership might be changing could
      2016   2015         2014                                                                       be seen as an indicator that consumers are starting
                                                                                                     to change their appetites. This argument would
                                                                                                     become stronger in cases where, at the same time,
Source: Emerging Consumer Survey 2017                                                                consumers become more open to using car-sharing
                                                                                                     services such as Uber, Lyft, Didi Chuxing (formerly
                                                                                                     known as Didi Kuaidi) and Zipcar.
                                                                                                         While not fully conclusive, our survey data does
                                                                                                     show that growth in car penetration rates is starting
Figure 6                                                                                             to slow across a number of our surveyed countries.
Share of consumers that expect to use car sharing schemes signifi-                                   This is true for countries such as China, India and
cantly or slightly more                                                                              Mexico. At the same time, we also observe an
                                                                                                     increase in the share of consumers intending to use
                                                                                                     car-sharing services more. In Brazil, for example,
                                                                                                     the share of consumers intending to use services
                                                                                                     like Uber rose from 4% in last year's survey to
                                                                                                     21% this year. In China, a country with a competi-
                                                                                                     tive sharing market (e.g. Uber and Uber and Didi
                                                                                                     Chuxing), almost a quarter of the consumers
                                                                                                     surveyed intend to use these services.

                                                                                                     Consumers are switching from “bad” to
                                                                                                     “good” food

                                                                                                     A more conscious consumer should also imply that
                                                                                                     the consumption of “bad” food products declines.
                                                                                                     External sources such as Nielsen's Global Health
                                                                                                     and Ingredient Sentiment Survey (August 2016)
                 Brazil                   China                India                   Russia        suggest that consumers across emerging countries
                                                                                                     are much more focused on what they eat than con-
      2015   2016
                                                                                                     sumers in developed markets. For example, almost
                                                                                                     40% of consumers in the Asia-Pacific (APAC)
Source: Emerging Consumer Survey 2017                                                                region follow a low-fat diet (nearly twice the level
                                                                                                     seen in Europe or North America). While not as
                                                                                                     extreme, we also observe a higher uptake for low
                                                                                                     sugar and low-carbohydrate diets across Latin
                                                                                                     America, Africa and APAC than in Europe or North

18 _ Emerging Consumer Survey 2017
We reviewed our survey results to see if they also      Figure 7
suggest that a more healthy approach is adopted by      Percentage of respondents who say they follow a special diet that
our consumers, which is indeed the case. For ex-        limits or restricts specified foods or ingredients
ample, consumption of beer, spirits and the use of
cigarettes is down year-on-year across most of the
countries surveyed (Figure 8). At the same time,        40%
we also notice that a majority of consumers in all      35%
the countries with the exception of Russia have
started to switch from “less-healthy” or sugary
products to “healthier” options (Figure 9).             25%

Increased focus on personal care                        15%

Another consumer product that may indicate              10%
whether emerging consumers are becoming more             5%
conscious about their lifestyles relates to demand       0%
for personal and skin-care products. We note from                         Low Fat              Sugar Conscious     Low Carbohydrate      Wheat/Gluten free
the survey that a majority of consumers in all coun-          Latam           Asia Pacific    Africa/MENA    Europe     Nth.America
tries already buy these products. On a positive
note, we find that this share of purchasing consum-     Source: Nielsen, Global Health and Ingredient Sentiment Survey, Q1 2016
ers rose in five out of eight countries last year. In
addition, the share of consumers that intend to
spend more on personal and skin-care products           Figure 8

this year rose in six out of eight countries.           Year-on-year change in share of consumers who had bought
                                                        these products in the past 3 months (%)









                                                                      Brazil          China        India      Russia    South Africa   Turkey     Mexico
                                                              Beer       Spirits      Cigarettes

                                                        Source: Emerging Consumer Survey 2017

                                                        Figure 9
                                                        Percentage of consumers eating less sugary or “non-healthy”
                                                        products and eating “healthier” options









                                                                     Brazil          China         India    Indonesia     Russia       Turkey     Mexico

                                                        Source: Emerging Consumer Survey 2017

                                                                                                                           Emerging Consumer Survey 2017_19
Figure 10                                                                                                                            Figure 11
Young consumers in China, Turkey and Mexico have                                                                                     …we observe the same change for the middle-aged con-
reduced consumption of unhealthy products most over                                                                                  sumers in these countries. Russian consumers appear to
the past 12 months…                                                                                                                  have a different lifestyle
                                                                  18–29 year olds                                                                                                                        56–65 year olds
                         6                                                                                                                                    10

                                                                                                                                      Momentum 2016 vs 2015
Momentum 2016 vs 2015

                         4                                                                                                                                                                                                                         Russia
                                                      India                                           Russia                Brazil
                         2                                                                                                                                     5

                         -4                                                                                                                                                                                                               Turkey
                                                      China                                                        Turkey                                      -5
                                                                                       Turkey                  China                                                                                China
                         -8                                                                                                                                                                                     Mexico
                                                                                   Turkey                                                                     -10
                                                                                                                                                                                           Turkey                            China
                        -10                                                                                                                                                                                                                    China
                                                                                    China                                                                                                                        Mexico
                                                                          Mexico                                                                                                         Turkey        Mexico
                        -12                                                                                                                                   -15
                        -14                                               Mexico

                        -16                                                                                                                                   -20
                              0          10              20              30           40           50             60          70                                     0              10                 20            30          40                50            60

                                                                                                Purchases in the last 3 months                                                                                                   Purchases in the last 3 months
                          Beer        Cigarettes              Spirits                                                                                         Beer          Cigarettes       Spirits

Source: Emerging Consumer Survey 2017                                                                                                Source: Emerging Consumer Survey 2017

                                                               When reviewing consumption patterns by age                                                                      Our survey shows that the intention to spend more
                                                               group, we find that the trend away from unhealthy                                                               on personal and skin-care products is broad-based,
                                                               products appears to be most broad-based in China,                                                               which enhances our call on the conscious con-
                                                               Mexico and Turkey. In addition, we also note that                                                               sumer. For example, the share of low-income con-
                                                               this trend does not appear to be ”youth-led” as mo-                                                             sumers who have indicated a desire to spend more
                                                               mentum among middle-aged consumers appears to                                                                   has risen strongly over the past few years and is
                                                               be as negative as that of the ”millennials” (Figures                                                            now similar to the share of high-income consumers.
                                                               10 and 11).

Figure 12                                                                                                                            Figure 13
Percentage of respondents who bought personal and skin- Percentage of respondents that intend to spend more on
care products in the past 3 months                      personal and skin-care products
100                                                                                                                                  100
         90                                                                                                                             90
         80                                                                                                                             80
         70                                                                                                                             70
         60                                                                                                                             60
         50                                                                                                                             50
         40                                                                                                                             40

         30                                                                                                                             30

         20                                                                                                                             20

         10                                                                                                                             10

                   0                                                                                                                              0
                              India      South           Brazil         Turkey      Russia       China       Mexico    Indonesia                                    India        South         China        Turkey   Indonesia   Brazil       Mexico        Russia
                                         Africa                                                                                                                                  Africa
                        2015      2016                                                                                                                        2015       2016

Source: Emerging Consumer Survey 2017                                                                                                Source: Emerging Consumer Survey 2017

20 _ Emerging Consumer Survey 2017
Figure 14                                                                          Figure 15
 Percentage of respondents that intend to spend more                                Skin-care penetration and momentum in the last 3
 on personal and skin-care products                                                 months: low income vs. high income consumers
 50                                                                                  20%

 45                                                                                  15%
                                                                                                                                      Mexico         Turkey
 40                                                                                                                                                 Mexico
                                                                                     10%                                           China
 35                                                                                                                                Russia             Russia          India
                                                                                                                              China               South Africa
 30                                                                                                                                                              South Africa
 20                                                                                                                          Indonesia                Brazil
   5                                                                                                                                  Indonesia

   0                                                                                -25%
                     Low income        Medium income           High income                 0%               20%        40%            60%                80%                  100%
       2013        2016                                                                 Low income       High income

 Source: Emerging Consumer Survey 2017                                              Source: Emerging Consumer Survey 2017

Healthier through a more active lifestyle                            lifestyles might also be found through purchase
                                                                     behavior in terms of sportswear and indications of
Finally, we also review whether consumers are                        whether consumers have started to exercise more.
likely to start leading more active lifestyles. External                 The market for sportswear has indeed expanded
indicators from sources such as market research                      aggressively over the past five years. While we
company Euromonitor suggest that this is the case.                   would not necessarily attribute all of this growth to
For example, consumption of sports drinks during                     consumers using sportswear to start exercising, we
the past five years has been growing strongest                       do see this as additional “evidence” of a broader
across most of the economies we surveyed (Figure                     trend toward a more conscious lifestyle. In this
16). Sport-nutrition consumption (e.g. protein prod-                 regard, data from Euromonitor (see charts below)
ucts) has also grown very strongly for most of our                   not only shows that the market for sportswear is
surveyed markets (Figure 17). The exceptions here                    growing most strongly across key emerging
include Russia and South Africa, where total con-                    markets, but that the increase in sportswear spend-
sumption has declined between 2011 and 2016.                         ing remains far stronger across global emerging
Indications that consumers may be starting to lead                   markets than developed markets (Figure 18).
more active and therefore healthier or conscious

 Figure 16                                                                          Figure 17
 Change in consumption of sports drinks, 2016 vs. 2011:                             Change in total sales of sport nutrition, 2016 vs. 2011:
 India, Indonesia and China leading                                                 China and India lead, Russia weakest
          India                                                                               China
    Indonesia                                                                       United Kingdom
        China                                                                                   India
  South Africa                                                                                  USA
     Australia                                                                                World
          USA                                                                                Turkey
        World                                                                              Germany
       Mexico                                                                              Australia
   Switzerland                                                                          Netherlands
      Sweden                                                                              Indonesia
       Russia                                                                                Finland
     Germany                                                                                 France
       France                                                                                 Spain
        Spain                                                                              Denmark
         Brazil                                                                              Mexico
       Finland                                                                                 Brazil
        Japan                                                                                 Japan
           Italy                                                                        South Africa
  Netherlands                                                                                Russia
              -100%       -50%    0%   50%     100%    150%   200%   250%    300%                    -50%         0%   50%        100%         150%            200%           250%

 Source: Euromonitor, Credit Suisse research                                        Source: Euromonitor, Credit Suisse research

                                                                                                                                  Emerging Consumer Survey 2017_21
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