BRIC Middle Class

The Emerging Middle Class Corissa Koopmans Pier Levy Paula Pitol Vanessa Meyer Daniel Finamore Martins

Introduction The middle class overview Growing middle class in BRIC’s Main highlights and trends Implications for consumption Challenges Conclusions and Perspectives Agenda

Middle Class?? Per capita income of US$2 and $13 a day at 2005 PPP (Ravallion) Per capita Income of US$6000 and $30,000 a year (app. $16 and $80 a day) in terms of PPP (Goldman Sachs) Households with annual disposable income of US$5,000-15,000 (Euromonitor) Per capita income of US$10-20 a day (World Bank) Income interval from 75% to 125% of the median (Thurow,1987) “A person who could routinely buy items sold at a typical Western-type discount store” (Miller-McCune, 2008) Have1/3 of income left for discretionary spending (Dilip K. Das) (Milanovic and Yitzhaki, 2002)

Middle Class: $2-$13 a day (2005 PPP) 80 million people in developing world joined “western middle class” (i.e. above US poverty line) between 1990 – 2005

Middle Class: Household income of US$5,000-15,000 a year Number of households with annual disposable income of US$5,000-15,000 in selected economies: 2000-2020 The total number of households in this income band for EMEs was expected to reach 331 million in 2010 from 104 million in 2000 Euromonitor

By 2030, roughly 50% (4 Billion) of the world population would fall into the $6,000-$30,000 bracket, up from 29% today

The Tortoise & The Hare… and everybody else

The Tortoise & The Hare By 2020, 1/3 of new entrants to middle class will come The “others”

21% NSE ALTO (A+B) 44% NSE MÉDIO (C) 35% NSE BAIXO (D+E) Brazil’s middle class (class C) monthly household income of US$ 900 – US$ 1,500 (US$10,000 - $18,000/year) Fonte: Nielsen | Homescan e Abep http://www.ted.com/talks/hans_rosling_reveals_new_insights_on_poverty.html

BRIC: Specific Drivers of Growth

Reasons for the Growing Middle Class

Brazil India Income levels expected to triple! Increase in Disposable Income Income Growth USD 1226 USD 1028 2009 2004 19,3% in 5 years

What is BRIC buying? Expenditures of the 10% households with highest annual disposable income in 2006 Source: Euromonitor International from national expenditure

Unemployment Rates Source: IBGE

Change of Lifestyle and Product Awareness “Brands are fueling the rise of the middle class in China. The Chinese have an aching ambition to climb up the ladder of success, and brands are the mark of people who have made it.” - Marketing expert Tom Doctoroff told U.S. News and World Report

Product Awareness: Importance of Advertising Region-Media in Russia identified the seven types of consumers in the market.

Times are changing! In Brazil, the United Arab Emirates, and Russia, the vast majority of college graduates are female. In Russia, 86% of women ages 18 to 23 are enrolled in tertiary education. For every year beyond fourth grade girls attend school, a country’s wages rise by 20% and the child-mortality rate dips by 10%. -The Women’s Learning Partnership The trends within BRIC Source: http://www.newsweek.com/2010/07/06/women-will-rule-the-world.html

Women of BRIC Woman make up between 30 and 50% of BRIC workers as a whole Companies who’d made efforts to empower women in emerging markets, 34% reported increased profits, and another 38% said they expected to see profit as a direct result of those efforts. ,[object Object],[object Object]

This is important as it illustrates dependency on the working population, which will slow growth as the ratio increases. China and Russia are following a similar trend as their dependent population is starting to increase while Brazil and India’s dependent pop. is still decreasing.

1 Newservices CreditCardOwnership in Brazil 50%ClassC1 36%Class C2 2 Differentproduct categories TV Computer 98%ClassC2 99%ClassC1 14%ClassC2 34%ClassC1 Middle classes are increasing access and developing new needs… (Latin Panel, Brazil, 2007) (Nielsen, China, 2010) (Trendsniff, India, 2010)

% Permanent Expenditures in Brazil (Food, Transportation and Household) 52% 54% AB1 B2 55% 58% C1 59% C2 D 67% E …consequence of more available income “The money they earn is either saved or spent on things like televisions, household appliances and education for their children” (Nielsen, China 2010) (Latin Panel, Brazil, 2007) (Nielsen, China, 2010)

…since basic needs are being met… Penetration of Goods (FAO, 2001) (World Bank, 2008)

…the penetration of new categories is growing faster “R$ 20 bi in electronics in 2010” (PNAD, Brazil, 2010)

…and Internet users are increasing throughout BRIC’s Internet Users in Brazil % of total population Internet Users: % of total population USA: 78% Millions of users 2 x Brazilian Population PNAD (2010), ITU (2010) INTERNET WORLD STATS (2010)

Companies are investing in Market Research & Segmentation for Middle Class… Unilever – Laundry Powder Chocolate Brands in Brazil (same company) “Data popular was establish to build unparalleled knowledge on low-and medium-income consumers” Class A Class C …and adapting brands and products (Data Popular, 2010)

Innovations...and developingnewPackaging & Promotionsstrategies R$ 1,00 Coke 1 literbeerbottle PlasticReturnableBottle (Brazilian Examples, 2010)

The same is happening in Mobile Industry % of households with telephone In Brazil, 84% of the Middle Class has a mobile Pre-Paid system Many people have 2 or 3 “SIM CARDs” from different companies to enjoy promotions Households with telephone Both Just lend line Just cell phone ,[object Object]

Citibank launched its mobile banking services in Russia

without any additional applications to be installed on their mobile.,[object Object]

Growth tendencies are very impressive among retailers… Bharti-Walmart opened 59 stores in Northern India in 2010 Expected to open 10-15 wholesale locations by 2013 Planning to add 10-15 new brands to its community family shopping centers in Bangalore. Retail Sales Expectation Us$ 674 bi 2014 US$ 393 bi 72% 2011

Change of Habits Less “monthly” purchases More reposition purchases Development of small and local retailers ...thatneeded to adapttheirstores... PLANO REAL Inflation control “Local companies will maintain leads in smaller cities in China” (Nielsen) ...but small and local retailers are alsoincreasing (Nielsen, Brazil, 2008) (Nielsen, China, 2010)

…they also adapted the European Cash & Cary into “Atacarejo” in Brazil From 86 to 291 stores in Brazil (2000-2009) (Revista no Varejo, 2010)

McDonald’s in India Vegetarianism predominance Previous multinational food companies failure ,[object Object]

Maharaja Mac replaced Big Mac, Chicken Patty instead of Beef

Initial focus on metros- Mumbai, Delhi

Entered into two 50:50 JVs with local companies

Adaptation on production processThe chain had 170 stores in 2010 and was due to open other 120 in that year

Credit plays important role, but in different ways... 22% of the middle class borrow credit cards from friends and family 66% prefer retailers to finance their consumption, since they don’t like banks Long-term payment Paying in advance for later retrieval of goods Highest savings rate of any major country Chinese consumers are much less leveraged than others Cash society: most cards used solely for ATM or debit purposes By April 2006, 40 million credit cards had been issued in China FidelityCard (Data Popular, 2009)’

In Brazil, the number of Undergraduate studentsgrewfrom 3,6 to 5,8 millionsbetween 2002 and 2009 theyspend 60% of theirincomemonthy more than 2.000 universities (90% private) …helping the BRIC’s university “boom” 350.000 of engineers are graduating in India and 700 .000 in China – in USA, this number is around 70.000 University students by social class in Brazil 2002 2009 (Business Week, 2006) (Mundo do Marketing, 2010)

80 million Brazilians were building or reestructuring their houses in 2010 15% of Brazilians live in unfinished households 5,2 times was the increase in decoration expenditures from 2002 to 2010 Construction “boom” ,[object Object]

Construction represent 16% of China’s GDP

BRIC Middle Class

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