Cuba Libre: Latin America’s Final Consumer Frontier?
With the thaw in relations between Cuba and the USA, multinationals are likely to be planning their strategies in the new year to boost business in this frontier market. Even before the thaw, we identified Cuba as a Consumer Market of the Future. In 2013, consumer expenditure totalled US$38.6 billion, and with a population of 11.3 million, albeit in slow decline, the market offers real promise for multinationals. Although the US embargo has not yet been lifted, the time might be right to re-evaluate Cuba’s potential as a consumer market.
Low-income consumers underpin the market
Outside of tourism, the most immediately obvious market is for alcohol and soft drinks. We forecast that these markets will increase by 51.6% and 34.8% in nominal terms between 2014 and 2018. This will be driven by increasing tourist arrivals and rising incomes supported by remittances. Although Cuba has a relatively old demographic profile – the median age was 40.3 in 2013, 10 years higher than Brazil, it has a large proportion of working age population – 70.5% were aged 15-64 in 2013 which contributes to this income growth. The market is currently constrained by rationing and subsidised prices however. Other fast-growing markets in the future include home care and tissue and hygiene. Durable goods such as consumer electronics and appliances are likely to see slower growth. One explanation for this, and something to remember across markets, is that despite growth, overall incomes are low – per capita GDP stood at US$6,788 in 2013, roughly comparable to Peru and Ecuador. Although price-sensitive, Cuban consumers can be targeted with the “traditional” smaller packet sizes aimed at bottom of the pyramid consumers around the globe but also through innovation. As in the rest of Latin America, an approach based on tailoring to local tastes and aspirations, whilst striving to build brand and in some cases category awareness, is likely to have the most success.
Forecast Growth Rates of Selected Markets in Cuba: 2014-2018
Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources
History lesson from Eastern Europe
Lessons can be learned from experiences following the fall of the iron curtain in Eastern Europe and the fall of the Berlin Wall, which celebrated its 25th anniversary in November of this year. In addition a look at Myanmar and China could yield insights. However, these lessons cannot be transferred to Cuba in their entirety – rather they should be used to inform strategies in Cuba. Cuban consumers have their unique tastes and preferences so a holistic approach, taking in a thorough knowledge of the market, consumers, economic backdrop, business environment, competitors and partners is crucial for optimum success.
A Cuba strategy should also be seen as a long-term one, gains and change will not be realised overnight. Resistance to commercialism will also be seen in some segments and the mind-set of “being at war” with the USA could take a generation to change. It would also be wrong to see Cuba as an entirely virgin market. Cuba trades heavily with China and Spain and companies from these countries have first-mover advantage in some sectors. It also suffers from serious economic challenges – including crumbling infrastructure, low productivity and a lack of investment – and its economic development should be monitored closely.