Income Growth and Spending on Food in Cities
Consumers in cities with higher per capita incomes tend to spend a smaller proportion of their total income on food. This relationship, known as Engel’s Law, is hugely relevant when it comes to forecasting consumer expenditure.
Food Spending Share in Top and Bottom Five Cities in Terms of Income Per Capita, 2012
Source: Euromonitor International
Note: Graph covers the top and bottom five cities in terms of annual disposable income per capita out of 120 of the world’s major cities. Food expenditure refers to consumer spending on food and non-alcoholic beverages.
Global differences in spending on basic commodities
The share of consumer expenditure on food and non-alcoholic beverages varies greatly across 120 of the world’s major cities. For example, in US cities (San Francisco, New York, Houston) with a per capita annual disposable income of US$39,000-58,000, consumer expenditure on food and non-alcoholic beverages comprised 6% of total expenditure in 2012, leaving a major amount to be spent on other commodities. At the same time, in emerging cities (Douala, Karachi, Lagos) with per capita income of less than US$2,000, between 37-46% of total expenditure went on nutrition, leaving notably fewer resources for non-basic goods and activities.
Within individual countries, their flagship cities tend to distinguish themselves through their lower expenditure on food. In 2012, in 78% of 120 of the world’s major cities, the share spent on food was lower than in the rest of the country. The most conspicuous disparities were seen in emerging cities with a rather high share of spending on food. For example, in 2012, consumers in Manila and Lima devoted more than 30% of their expenditure to food, a share nearly 12 percentage points lower than in the rest of their respective countries. This is a result of per capita annual disposable income in Manila and Lima being twice as high as elsewhere in their respective countries.
Biggest consumer expenditure changes to take place in Asian cities
Engel’s Law can also be applied when predicting the growth of consumer expenditure on non-food products in the world’s 120 major cities. The higher the increase in disposable income per head is expected in the city during 2012-2020, the higher the increase in share of spending on non-food is likely to occur, as demonstrated in the chart below.
Top 20 Growth Cities in Terms of Share of Spending on Non-Food, 2012-2020
Source: Euromonitor International
Note: Chart features top 20 growth cities in terms of share of consumer expenditure on non-food products out of 120 of the world’s major cities. Non-food expenditure refers to consumer spending on items other than food and non-alcoholic beverages.
Over 2012-2020, the most notable increase in share of consumer spending on non-food is expected to be seen in Asian cities, mainly in China and India. Chinese and Indian cities are predicted to see a similar average rise of seven percentage points. These cities will also see some of the biggest increases in annual per capita disposable income.
The growth in share of non-food expenditure in key Indian urban areas is predicted to fall behind that in the rest of the country over 2012-2020, which will result in declining countrywide disparities. In Chinese cities, on the other hand, the surge in share of spending on non-food will be around twice as high as elsewhere in the country, widening the gap in consumer non-food expenditure between urban and rural areas.
Consumer spending makes way for expansion of non-food market
Predicted changes in consumer spending are creating increasing opportunities for the marketing of goods and services that are not basic in nature. Particular consumer spending patterns differ between cities, but supported by economic growth and rising income per head, consumers will be generally able to spend more on discretionary items. This will open doors for businesses such as household goods and services, transportation, hotels and restaurants and recreation and culture.