Mexico: It’s all about the Middle Class

Maximizing the growing influence of the middle class in Mexico both as a consumer force, but also as a driver of growth and stability, is crucial in fostering the country’s economic potential. Hear us speak about the importance of the Mexican middle class at the 13^th Mexico Business Summit (Cumbre de Negocios).

A snapshot of the Mexican middle class

The Mexican middle class has seen significant growth in the past 15 years. In fact it is both the fastest-growing and the largest single segment in Mexico. As such, in 2015 it totalled 14.6 million households – 47% of the total households in the country.

Looking ahead, the middle class is set to continue to grow, with a further 3.8 million households expected to join its ranks by 2030. In this year it will total more than 18 million – a huge number, equivalent to all the households in Spain.

Household Income Distribution in Mexico: 2000/2015/2030

Source: Euromonitor International from national statistics

So, what does it really mean to be middle class in Mexico?

Middle class households are likely to be educated, urban, dual income and have members working in the formal economy. They are also likely to be smaller in size than low-income households with fewer children. Being middle class means being able to devote almost half of a household budget to discretionary goods and services. In particular, compared to the poor and low-income earners, this means spending significantly more on education, eating out, communications and leisure.

Spending of a Middle Income Household in Mexico: 2014

Source: Euromonitor International from national statistics

Note: Data refer to spending of a decile 5 household. Deciles are calculated by ranking all of the households in a country by disposable income level, from the lowest-earning to the highest earning. The ranking is then split into 10 equal sized groups of households. Decile 5 refers to the middle-earning 10% of households.

Nevertheless there remains a huge gulf between the rich and the middle-income earners. The spending patterns of middle income earners remain closer to those of the poor than they are the rich. For example, for every $100 spent by a high-income household, almost $10 will be spent on leisure. For a middle income household this figure is $2.

Inside the middle class home

A middle-income household is very likely to own a colour TV, a refrigerator and a cell phone. Despite Mexico’s global renown as an automotive manufacturer, slightly less than half of middle-income households own a car. Dishwashers remain a rare luxury. This is a similar pattern to emerging markets with comparable median incomes – Poland, Malaysia, and Turkey for example – and also in Brazil.

Household Possession of Selected Durable Goods in Mexico: 2014

Source: Euromonitor International from national statistics

Note: Deciles are calculated by ranking all of the households in a country by disposable income level, from the lowest-earning to the highest earning. The ranking is then split into 10 equal sized groups of households. Decile 1 refers to the lowest-earning 10%, decile 5 to the middle-earning 10% through to decile 10, which refers to the highest-earning 10% of households.

Winning middle class hearts and minds

According to Euromonitor’s middle class home survey we see that over 60% of respondents feel strongly that financial security is important to them and 55% plan all purchases in advance. Yet consumption does not convey status for the Mexican middle classes – 39% do not believe that their possessions show others that they are successful – against 26% that believe they do.

Although financial security remains a priority for middle class consumers, over half of Mexican respondents would prefer to spend time with their family than make more money. In fact, one in four respondents would turn down a promotion at work if it meant time away from their personal life.

So what do middle class households want from business? They want quality products and services, offering convenience. They demand a high level of customer service. Value is a watchword – value doesn’t mean cheap though – it means quality and good design sold at the right price.

Middle Class Attitudes to Consumerism in Mexico: 2013

Source: Euromonitor International Middle Class Home Survey, 2013

Note: Showing percentage of respondents rating statement a 4 or 5 on a 5 point scale from “1 = Strongly Disagree” to “5 = Strongly Agree”. 

And from government? A social safety net, healthcare, education, law and order and stable economic growth.

A broad push to boost the middle class

Knowing this is one thing, but what are the factors which drive the expansion of the middle class? Where should the government’s priorities lie?

• Ensuring strong and sustainable economic growth – economic growth has been a key driver behind the growth of the middle class.
• Increasing educational attainment – the middle class tend to have at least a secondary education.
• Expanding (well-managed) urbanisation – the middle class are generally urban.
• Boosting female labour participation – the middle class tend to have two income earners.
• Supporting the development of the formal economy – the middle class tend to be employed in the formal sector.
• Increasing social mobility – an important driver of middle class growth around the world.
• Improving social safety nets – which allow low-income earners to have access to vital services, enabling them to earn more and offering them security in times of need.
• Utilising and expanding on targeted anti-poverty measures – such as conditional cash transfers such as the government’s Progresa/Oportunidades programme.
• Increasing productivity – which will allow Mexico to gain in global competitiveness.
• Boosting innovation – moving Mexican industry up the value chain.
• Improving the business environment – which will encourage investment, boosting the labour market and economic growth.

The key for government and business alike is to really understand the middle class. Walk in their shoes – know who they are, where they are, their lifestyles, their aspirations and motivations. You can’t go wrong.

This is an excerpt from my forthcoming contribution to the Mexico Business Summit (Cumbre de Negocios) in Guadalajara 25^th-27^th October 2015.

The Mexico Business Summit has established itself as the premier national and regional economic meeting, addressing Mexico’s and the region’s strategic challenges. As an impartial, non-partisan event, the Summit is a unique platform for outcome-oriented discussions on the policy options and the corporate initiatives that will boost Mexico’s and the region’s growth and will expand the country’s connections on the global scene. The 13th Summit will bring together 1,200 participants from Mexico and abroad with the government of Mexico present at the highest level.