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September 2012

The Latin American consumer of 2020

With ongoing concerns over the euro, the long-term prospects of the European economy, and a hesitant return to economic health in the United States, growth will continue to come from emerging markets. By 2020 Asia, Latin America, and Africa will have doubled their GDPs from 2010 levels (see exhibit 1), offering attractive prospects to businesses willing to invest in these regions. Looking specifically at Latin America, the region will have a combined GDP of US$ 10,700 billion, equivalent to 9% of the global GDP, and double that of 2010. Private consumption per head will reach US$ 11,143, compared to US$ 6,360 in 2012. By 2020, Latin America will represent 10% of the global population and a total market of 640 million consumers. Businesses can capitalize on this growing consumer demand by anticipating the changing demographics of the region and positioning themselves to reap the benefits of the resulting changes in consumer behavior.

Key demographic trends in the region are changing consumer demand

Latin Americas demographics are changing dramatically: an aging population, a growing workforce, the enhanced role of women in society, and the emergence of a robust middle class, will all deeply impact consumption behavior and the regions economic future.

An ageing population and a growing workforce

The clearest trends are the ageing of the regions population and an increase in the working age population, which have important implications for the regions economy. In 2000 Latin Americas population of seniors (those aged 60 or above) was 43 million; by 2020 it is expected to almost double to 83 million (see exhibit 2). Underfunded pension systems and insufficient public safety nets throughout the region will require people to continue working longer and put off retirement. As a result the region will see a rise in the need for financial services (specifically financial planning), healthcare (primarily outpatient), and other general services targeting an active elderly population. The Latin American workforce continues to increase its base, growing from 170 million in 1990 to approximately 280 million 2010. 1 This trend will continue throughout 2020, concentrated primarily among the 15-24 age group and 25-to-35-year-olds. Although education levels and skills vary between countries, there will be a steadily growing supply of labor businesses can rely on to staff their operations throughout the region.

1 From The World Bank indicators data base, total labor force by country, http://data.worldbank.org/indicator/SL.TLF.TOTL.IN

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Women in the workforce

Participation of women in the workforce throughout Latin America continues to increase, rising from 32% in 1990 to 53% in 2008.2 By the end of 2012, Latin Americas workforce will comprise over 100 million women, with the trend expected to continue in the years ahead. As a result, women are gaining more financial independence and increased decision making autonomy over household consumption, with important implications for where, how, and what Latin American consumer will buy. The trend will be toward consumer goods that increase convenience and make daily life easier, such as automobiles, technology and communication devices, processed foods, prepared beverages, healthcare, and childcare.

A broadening middle class

As the workforce grows and more women become actively employed, the Latin American middle class will broaden and household income will increase. By 2020, the middle class will represent the majority of consumers in the region. While low-end products will still have their place in the market, companies operating in the consumer goods space will have to also offer products that
UNDP and ILO, Work and Family: Towards new forms of reconciliation with social co-responsibility, 2009, http://www.ilo.org/wcmsp5/groups/public/@dgreports/@gender/documents/publication/wcms_111375.pdf.
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focus on value (rather than primarily on cost). In particular, as individual and household purchasing power continue to increase, the financial services, retail, and telecom industries stand to benefit directly, primarily through the proliferation of mobile technology to low-income consumers and easy-to-access consumer credit. Banks and retailers in Mexico have already recognized the profitability of lending small amounts to large numbers of low-income consumers and expect to continue capitalizing on this growing market segment in the coming years. Meanwhile, many middle class families will be able to save additional income, creating opportunities for this underserved segment of consumers.

Consumer behavior patterns for 2020

By 2020, Latin American markets will see an increased demand for higher value brands and services that offer both tangible and intangible value: As their disposable income and purchasing power increase, Latin American consumers will become more discerning, discriminating and demanding in their Principal characteristics of the Latin tastes and expectations. Since American consumer of 2020 consumers will be able to afford More discerning and demanding higher-end products, price-based More likely to make emotionally products will begin to lose appeal. based decisions More focused on value, convenience Emotional considerations, particularly and time saving/efficiency (not just with regard to a products ability to cost) reflect the users sense of individuality, Increased focus on Healthier living will increasingly influence buying and sustainability decisions. Companies will have to Increased reliance on social media consider how to satisfy this desire for and social networks individuality in the way they market products and not just in high-involvement categories such as cars and personal care, but also in more common categories such as food and household products. As Latin American cities continue to grow, so too will peoples commutes and time spent in transit; consequently, the consumers will begin to value time a lot more and will seek out more time-saving products such as communication devices, prepared foods, and ready-made (or more durable) products. More than just a product, the 2020 consumer will be interested in acquiring convenience; companies will need to offer both simultaneously.

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The Latin American consumer of 2020 will be more attentive to the healthiness and safety of the products they purchase, as well as more sensitive to public health issues and societal well being in general. One of the most dramatic changes in consumer behavior over the next several years is likely to be the change in food consumption. In 2008, more than 1.4 billion adults were overweight.3 This problem is becoming a major issue throughout Latin America as access to processed foods spreads and unhealthy lifestyles proliferate (especially in urban areas). As consumers become more aware of the need to combat obesity, they will likely change their diet and lifestyle habits, creating new markets for fresh foods, health supplements, and a host of healthy living products and services. Climate change, environmental sustainability, and social responsibility, once the concern of only a few, will become issues of interest for consumers across the region. As has happened in developed markets, the growth of the middle class in Latin America will increase demands for more transparency regarding food safety (labeling, testing, etc.); greater accountability from corporations to demonstrate their environmental and social responsibility; greater protection for animal welfare; and assurances of safe labor practices in manufacturing processes, among others.

World Health Organization, Media Center, Obesity and overweight, Fact Sheet 311, May 2012, http://www.who.int/mediacentre/factsheets/fs311/en/.
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Implications of changing consumption patterns for businesses investing in Latin America

The evolving demographics throughout Latin America will drastically alter consumer needs and consumption behavior in the region, which in turn will impact how companies operate, what they offer, and how they market themselves to consumers. To be successful, companies will have to narrow their consumer targets and be attentive to emerging consumer trends in order to offer more tailored products. To do business successfully in Latin America, companies nonetheless require critical insight into national markets and targeted market-entry strategies. Latin American may share common demographic and socioeconomic characteristics, but consumer needs still vary significantly by country. Understanding consumer trends and evolving needs is the first step in developing a successful regional strategy. Local research and intelligence are essential throughout the market-entry process.

Guillaume Corpart is the Managing Director of Americas Market Intelligence and a veteran of Latin American competitive intelligence and strategy consulting. gc@americasmi.com | www.americasmi.com

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