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Smaller Packs for Bigger Sales? Part One: Capturing Value in Lower-Income Demographics

With increasingly competitive landscapes and maturity of consumption levels in much of the Western world, packaging companies are looking to alternative consumer bases in order to drive growth. One group which should prove to be particularly valuable is lower-income individuals in emerging markets.

Small Budgets but Big Potential

While emerging markets, such as the BRIC and MINT nations, yield demographic groups with the same purchasing power as Western consumers, the majority of residents in these countries operate on a far lower budget. Despite this, the sheer number of untapped households in these countries makes them a potentially valuable group. Additionally, capturing these consumers early gives manufacturers the opportunity to move them onto more valuable products as wages and disposable incomes rise in these territories. If manufacturers are able to grow these customers and move them onto more valuable pack sizes, the brand loyalty accrued through this process should make purchasers more receptive to new or unfamiliar product or pack types, providing further opportunities.

Forecast Increase in Disposable Incomes of Selected Asian Countries: 2013-2018

Source: Euromonitor International

Indonesia’s Shifting Demographics

Indonesia is a prime example of a country where taking this approach of mining lower-income consumers can prove hugely lucrative. Currently, 39% of Indonesian households operate on a household budget below US$5,000, meaning their potential value to both brand owners and packagers is limited.

Climbing the Pyramid: Forecast Change in Disposable Income Band by Household in Indonesia

 

Source: Euromonitor International

However, Euromonitor International expects that the number of households with between US$0-4,999 in disposable income will decline over the forecast period, despite the number of Indonesian households growing year-on-year. While the columns relating to incomes between US$0-US$1,749 and US$1,750-US$4,999 display a downward trend over 2013-2018, the number of households with a disposable income in the region of US$7,500-US$14,999 is expected to swell by over five million. This trend towards increasing levels of disposable income means there will there be more consumers living on an income which surpasses the threshold at which purchases of packaged food/beverages are made, creating an opportunity for intelligently-priced goods. Furthermore, this swift move through the disposable income bands provides an opportunity to transfer consumers from trial, or entry-level, packs onto more valuable sizes.

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