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Top 5 Bottom of the Pyramid Markets: Diverse Spending Patterns and Future Potential

March 4th, 2017

Euromonitor International has identified India, Nigeria, China, Indonesia and South Africa as the top five bottom of the pyramid (BOP) markets. This selection was based on the evaluation of the BOP in total number of adults living on an annual disposable income below US$5,000 (on a purchasing power parity, PPP, basis) and a net wealth of less than US$10,000 (PPP), and also as a share of the adult population. Although these top five markets all have in common a substantial consumer base at the bottom of the pyramid, each is unique in terms of BOP consumer spending pattern, market potential and future forecast. In-depth insights into the key BOP markets can help companies and corporations seeking to target low-income consumers achieve long-term success.

1. India: The world’s largest BOP is shrinking

Thanks to strong economic growth and rising incomes, India’s BOP is set to shrink significantly, from 379 million adults in 2015 to 145 million adults in 2030:

  • Marketers looking to target the Indian BOP should note that in their spending habits, Indian BOP consumers prioritise savings and the accumulation of wealth (usually in the form of gold jewellery) whenever it is possible. In 2015, India’s poorest 10% of households (decile 1) devoted 12.2% oftheir total budget to miscellaneous goods and services – a spending category that includes jewellery. In comparison, spending on food and non-alcoholic drinks took up 50.5% of decile 1’s spending, with housing accounting for 11.2% in 2015;
  • Companies targeting the Indian BOP need a long-term strategy that focuses on building brand loyalty in order to retain BOP consumers after they have exited the BOP.

2. Nigeria: The BOP is a substantial but very challenging market

Nigeria is one of the most important BOP markets, thanks to its large size in both proportional and absolute terms. As the country’s BOP is not set to shrink through to 2030, companies can adopt a stable, long-term BOP strategy.

Nigeria’s Bottom of the Pyramid: 2015-2030

Source: Euromonitor International’s Income and Wealth Distribution Model

Note: Data for 2016-2030 are forecast

Yet, doing business at Nigeria’s BOP is full of challenges:

  • The basics of food and non-alcoholic beverages occupy the largest part of household expenditure (71.2% of decile 1’s spending in 2015). However, much of these goods are purchased at informal, open markets, not suited for companies relying on high-volume business models;
  • A more prevalent lack of access to key infrastructure like electricity and water supply in Nigeria than in many other developing economies seriously affects demand in many FMCG categories. For example, if poor households have no access to electricity, they will be highly unlikely own a refrigerator and thus will not buy chilled products.

3. China: Dramatic decline in BOP consumers offers huge potential

  • The BOP in China presents substantial opportunities, thanks its large size (239 million adults in 2015), making it the world’s second biggest BOP market. Moreover, the greatest potential that the Chinese BOP has to offer lies in its future dramatic decline, as BOP consumers’ purchasing power is rising significantly. In other words, target this consumer segment now, cultivate their brand loyalty and reap substantial rewards in the near future;

China’s Bottom of the Pyramid: 2015-2030

Source: Euromonitor International’s Income and Wealth Distribution Model

Note: Data for 2016-2030 are forecast

  • Through to 2030, China’s decile 1 is set to record the largest increase in discretionary spending capacity compared to all other income types, given their strong real income gains. Therefore, to unlock the potential of the BOP in China, companies need to think beyond basic necessities such as food and non-alcoholic drinks and focus more on discretionary goods and services;
  • Businesses that can win the loyalty and trust of today’s Chinese BOP consumers will be rewarded with a new, substantial consumer base. Over the period of 2015-2030, the number of adults at the BOP in China is set to shrink by 189 million, which would mean that the equivalent of nearly the entire population of Brazil will exit poverty and enter the Chinese middle class.

4. Indonesia: BOP is of strategic importance due to rising inequality

  • In 2015, 56.8 million adults or a third of the adult population belonged to the bottom of the pyramid in Indonesia. This is set to fall to 23.5 million (11.1% of the adult population) in 2030;
  • Despite rising incomes and a shrinking BOP, income inequality in Indonesia is set to increase considerably between 2016 and 2030. Rising income inequality polarises the country’s market into a high-income group and a large low-income segment with long-term strategic importance for consumer goods companies;
  • Beyond the basic necessities, the most important categories for Indonesian low-income consumers are: hotels and catering (mainly eating out at the simplest roadside stalls or warung ); transport (with poor infrastructure making transport expensive, inefficient and time consuming); and alcoholic beverages and tobacco (mainly tobacco). Collectively, these categories absorbed 1 in 5dollars spent by BOP households in Indonesia in 2015. Such a spending pattern highlights opportunities beyond the basics at the BOP in Indonesia.

5. South Africa: Alcohol and tobacco spending is higher than housing

For companies seeking to tap South Africa’s BOP, it is worth noting that low-income consumers in the country spend more on alcoholic beverages and tobacco than on the essential category of housing. In 2015, while housing accounted for 9.3% of total consumer expenditure, alcoholic beverage and tobacco absorbed as much as 11.2%. This points to a huge opportunity for businesses to attract low-income consumers away from illicit unsafe alcohol and tobacco (as they are frequently contaminated with harmful substances) towards low-cost safe products.

Source: Euromonitor International from national statistics

Note: “Other Categories” include Miscellaneous Goods and Services; Clothing and Footwear; Household Goods and Services; Communications; Hotels and Catering; Leisure and Recreation; and Education.

Compared to the other top BOP markets, South Africa’s bottom of the pyramid is not substantial in absolute terms. In 2015, the number of adults living at the BOP stood at only 11.2 million, but as this represented nearly a third of the country’s adult population, the BOP represents a strategic market for companies doing business in South Africa. In 2030, 9.1 million adults – the equivalent of 22.6% of the adult population – are expected to remain at the BOP in the country.

For the full Strategy Briefing Unlocking Potential at the Bottom of the Pyramid in Emerging Markets, click here.

Strategy Briefings offer unique insight into emerging trends worldwide. Aimed squarely at strategists and planners, they draw on Euromonitor International’s vast information resources and add new intensive research to give top line insight across markets and within consumer segments.

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An Hodgson

An Hodgson joined Euromonitor International in 2006. She manages research into income and expenditure as well as industry, infrastructure and environment. Her strategic analysis helps businesses gain important insight into global, regional and key emerging market trends and thereby allowing them to make more informed commercial decisions.

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