Income and Expenditure Mexico: Low Income Consumers Not to Be Overlooked

With an expanding middle class with rising disposable income and Latin America’s second largest consumer market (behind Brazil), Mexico offers a potentially significant market for international consumer goods companies, as highlighted by Euromonitor International’s Income and Expenditure Mexico Country Briefing. However, income inequality in the country is high and is expected to remain elevated in the long term, which restricts the consumer market potential. Although inequality poses a challenge to companies seeking to conquer the Mexican market, it is clear that there are plenty opportunities for low-cost, basic goods and services.

Mexico has the highest level of income inequality among all OECD economies

Despite the positive impact of social programmes such as “Programa Oportunidades” – a conditional cash transfer programme that started in 1997 to provide support in the form of food, education and healthcare to poor households, Mexico continues to have a highly unequal distribution of income:

• On the whole, Mexico experienced a slight decline in income inequality over the 2009-2014 period but as of 2014, the richest 10.0% of households (decile 1) still accounted for 38.6% of the country’s total annual disposable income, compared to the share of only 1.2% received by the poorest 10.0% of households (decile 1);
• The country’s Gini index – an index ranging between 0% and 100% with 0% indicating absolute equality and 100% indicating total inequality – stood at 50.0% in 2014. With this score, Mexico is the most unequal country among all the OECD economies, and yet it is expected to remain a highly unequal country over the long term, as a few powerful groups continue to concentrate the most productive assets. By 2030, the shares of total annual disposable income enjoyed by decile 10 will still be a high 38.0%, compared to 1.3% received by decile 1.

High income inequality means that a large share of the population belong to lower social classes

• Social class E (the lowest income earners) is prevalent in Mexico, representing 37.8% of the country’s the population aged 15+ in 2014. This is broadly similar to the average for Latin American countries, where social class E accounted for 39.2% of the population aged 15+ in the same year;
• In 2014, most Mexicans in social class E belonged to the age groups 15-19 (due to the country’s predominantly young population and higher unemployment rates for the youth) and 65+ (due to the low levels of disposable income for individuals in this age group);
• Social class E is expected to remain as the largest social class in Mexico over the long term as its share in total population is set to stay at 37.8% by 2030. Due to population ageing, people aged 65+ will become the largest cohort within social class E by 2030.

While high-income earners make up an important consumer segment (with the richest 10.0% of households accounting for nearly a third of the country’s total consumer expenditure) and the burgeoning middle class is a key driver of consumer spending growth, the prevalence of low-income consumers in Mexico is not to be overlooked by businesses. Low-income Mexicans will support long-term demand for low-cost basic products and services in a wide array of sectors, including health goods and medical services.