The FINANCIAL — The expanding middle class meets rising food prices. The convergence of these two mega trends is set to dramatically and permanently reshape the consumer landscape, according to The Nielsen Company.
With the global middle class growing by 70 million each year, and food prices expected to more than double within 20 years, the world is entering an unprecedented period of rising demand, economic pressure and aspirationally driven buying behavior.
So what’s the key to success in these uncharted waters? Companies looking to fulfill their economic growth expectations shouldn’t focus solely on the middle class, which is often defined by income parameters that are either too high or too low for universal acceptance, according to new research from Nielsen. In fact, the findings reveal that differences in buying intentions for food products with regard to what we buy, where we shop and our perceived spending flexibility is driven more by aspirations and cultural norms than by income alone.
The Nielsen Global Survey of Inflation Impact polled more than 29,000 Internet respondents in 58 countries to understand how respondents around the world of all income ranges were coping with rising food prices.
"While measuring the global middle class carries real-world implications, the broadest income classification is too low and the narrowest classification is too high to represent real-world buying potential," said James Russo, senior vice president, Global Consumer Insights, Nielsen. "A more accurate measure is to look at consumer diversity, spending flexibility and the demand landscape in order to understand how to scale goods and services that meet the needs of consumers in both developed and developing markets around the world,” he added.
When evaluating the impact of inflation among respondent households that earned incomes reflective of middle-class income parameters, Nielsen found that in times of rising food prices, no single group was immune from pain. The buying sentiment for both discretionary and non-discretionary food and beverage categories among “middle-class” households compared with all other households, on average, was not dramatically different. In other words, income isn’t the only standard for measuring financial stability.
Another measure of buying power is spending flexibility, or the elasticity in the household budget to afford a rise in food prices without having to make difficult spending choices elsewhere, according to research from Nielsen. In the survey of inflation impact, we segmented respondents into three spending capacities: those with enough money to spend freely, live comfortably, or just meet the basics for food and shelter.
The findings revealed that the notion of spending was relative to many factors, including household composition, in-country spending opportunities, aspirations and cultural diversity. For example, respondents in the Middle East/Africa region reported the highest percentage (49%) of households earning an income under $5,000 per year, yet this region also reported the highest percentage of respondents (17%) able to spend freely. What’s more, the average Middle East/Africa household size was comparatively larger than those in other regions. One-third (31%) of households in the Middle East/Africa region reported living with six or more people in the home, compared with the global average of only 8 percent.
At the opposite extreme, respondents in North America reported the highest percentage (46%) of households earning an income above $50,000 (compared with the global average of 22%), but reported the lowest percentage (9%) able to spend freely. The average household size in North American was also the smallest of the surveyed regions, as more than three-quarters (76%) lived with three people or fewer in the same house.
On average, 42 percent of all respondents said they were able to live comfortably and bought some things just because they liked them, while 44 percent only had enough money for the basics—food and shelter. Only 14 percent said they were able to spend freely. Nine of the top 10 countries with the least spending flexibility hailed from Europe. More than three-quarters of respondents not able to afford a rise in prices were from Greece (87%), Croatia (82%), Romania (81%), Hungary (77%), Ukraine (77%) and Bulgaria (77%), according to The Nielsen Company.
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