Brighter Future Ahead for Urban Consumers in Eastern Europe

The coming years promise notable opportunities for consumer goods businesses in Eastern European metropolises thanks to forecasts of accelerating consumer expenditure as a result of improved economic performance. Eastern European cities will outperform their Western European counterparts, indicating generally better potential in developing markets.

Top 10 Growth Cities for Per Household Consumer Expenditure in Europe

Source: Euromonitor International

Note: Chart refers to average annual growth of real consumer expenditure per household over 2012-2020. Displayed are the top 10 cities in terms of both per household and total consumer expenditure growth.

Households in Eastern European Cities to Stand Out in Terms of Spending Growth

Eastern European metropolises are expected to see annual real growth in per household consumer expenditure accelerate to 4.1% over 2012-2020, up from 2% over 2005-2012. Meanwhile, Western European cities will record relatively modest growth of 1.2% per annum over the forecast period. Among European metropolises, the top 10 growth cities for spending (both total and per household) will all be located in Eastern Europe (see the chart above).

In fact, the latter cities also stand out in their respective countries. They not only feature higher per household consumer expenditure levels but are also expected to record more rapid growth than their respective countries over 2012-2020 (with the exception of Vilnius and Riga). Growth will be significantly higher in Minsk and Kiev, which are expected to be the two fastest growing markets among the world’s 120 major cities in terms of per household consumer expenditure over 2012-2020.

Transport, Healthcare and Communications to Gain Weight in Consumer Budgets

In line with rising expenditure, consumers’ spending habits are about to shift towards discretionary items in Eastern European metropolises. Expenditure on education, healthcare, communication, transportation, hotels and catering is about to increase the most in the top 10 growth cities for consumer spending over 2012-2020. Education is forecast to be the fastest growing category, highlighting solid opportunities for education providers, with Minsk, Kiev and Tbilisi featuring some of the fastest growth rates globally. Health goods and medical services will also increase significantly in cities, where the rising middle class is spending more on this category.

Fuelled by rising incomes and increasing car ownership, the rise of transport share in total consumer spending is expected to be particularly strong, especially in Kiev and St Petersburg. For instance, over 2005-2012, the number of passenger cars per 1,000 people rose by 57% in St Petersburg and 46% in Kiev. Between 2012 and 2020, Kiev is also forecast to be the strongest market for growth of spending on communications, both in terms of average household spending and consumer budget share, encouraged by the rapid spread of ICT in Ukraine in general.

Rise of Consumer Spending by Category in Top 10 Growth Cities

Source: Euromonitor International

Note: Chart refers to average annual growth of real consumer expenditure by category over 2012-2020. Chart features the top 10 growth cities for consumer expenditure.

On the other hand, the top 10 growth cities for consumer spending over 2012-2020 will see their share of total spending on alcoholic beverages and tobacco as well as clothing and footwear decline. In Eastern European cities, spending on alcohol and tobacco generally accounts for a larger share of the household budget than in other cities in the world. However, over the forecast period this category is predicted to decline in importance in consumer budgets, although still accounting for a relatively large share of 7-8% in Minsk, Novosibirsk, St Petersburg and Vilnius in 2020. At the same time, the proportion of expenditure on clothing and footwear is expected to drop most sharply in Russian cities and Kiev, reflecting the increasing role of discretionary spending.