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Our consumer survey of seven emerging markets
The essence of 13,000 interviews
This report is part of our inaugural Credit Suisse Emerging Consumer Survey 2011. Its aim
is to establish a unique profile of the spending patterns and preferences of a consumer
who is at the heart of a structural shift in global demand. The data and analysis carried out
in these reports, together with the accompanying Emerging Consumer Databook, provide
insights not available from traditional sources of economic information and thus proprietary
to Credit Suisse.
Click on company name for detail company report
To undertake this project, the Credit Suisse Research Institute engaged the leading global
market research firm AC Nielsen to conduct primary research on its behalf, interviewing
close to 13,000 consumers across seven countries that together represent 3.2
billion people. 120 questions, over a range of 11 different subjects, were included in the
survey and put to respondents of varying location, gender and income levels.
The research stretches beyond the larger emerging economies of Brazil, Russia, India
and China to include Egypt, Indonesia and Saudi Arabia. There are clearly parallels
between markets but the analysis also reveals major income and demographic differences,
as well as cultural and social drivers, that combine to form very different spending priorities
in different economies.
This report complements previous reports from the Credit Suisse Research Institute,
notably the Global Wealth Report and Great Brands of Tomorrow. Both have reflected on
the significance of trends in emerging markets. The current survey allows a granular
application of many of the messages in these prior reports – critical for investors both
within and outside of the regions concerned.
Key themes from the seven
emerging markets
We summarise our findings from our consumer survey into eight broad issues:
1) Confidence is high. The survey as a whole reveals consumers in the emerging world
as relatively confident on their outlook for the year ahead, particularly in China and Brazil.
2) The shift towards discretionary spending continues. Demand for essential items
after increasing rapidly tends to stagnate in favour of more discretionary items. Consistent
with this, we find the greatest proportion of spending planned on discretionary items
occurs in relatively rich markets (Saudi Arabia), while spending on essential items is a
major feature of poorer markets (India, Indonesia, Egypt).
3) Inequality of income. Uneven income distribution across all these markets skews this
headline result on essential relative to discretionary spending on goods and services.
Combining data from the Credit Suisse Global Wealth report with data from our survey we
calculate the absolute and relative distribution of households that fit into comparable
income bands across each market. Given their sheer size, China and India. The number of
high income households in India earning greater than US$2,000 per month, for instance, is
more than twice that of Russia despite GDP per capita 80% lower than Russia.
4) Real income growth. Our survey data reveals the detail behind the aggregates:
interestingly, we find that income disparities – that are already wide – are set to increase
as the high income brackets have seen, and are expected to continue to see, much
greater growth. Two broad conclusions: a) over the next year, absolute growth rates look
likely to be best supported at the discretionary end of spending; and b) essential goods
and services look set to achieve better relative growth in Indonesia, China and Brazil.
5) International versus local brands. In line with the transition from essential items
towards discretionary spending, the survey also shows there is a clear and consistent
pattern in consumption of branded goods as income levels improve. International brands
have the upper hand in the premium ratings (cars, perfume and fashion), for essentials
(such as bottled water and dairy products), the preference for international brands over
local brands is not particularly strong.
6) Public versus private: healthcare and education. Aggregate average household
expenditure on healthcare and education is very different when compared across markets.
For example, household expenditure on healthcare in Brazil (9.8% of income) is nearly
twice that of China, at 5.7%. Demographics, public sector expenditure as well as social
and cultural influences help explain the differences. The survey shows that healthcare
spending intentions over the next 12 months are most positive for China, Brazil and
Russia.
7) Consumption map. In order to draw together some of these different ideas and themes
we present the “Emerging Market Consumption Map” (see pages 10-17). This summarises
spending intentions across 14 different types of goods and services for different income
groups across the seven markets. The ongoing strength of demand and real income
growth in China sees healthy demand across the broadest basket of spending. Brazil also
sees a degree of breadth but the focus is towards the genuinely discretionary end.
8) Credit, savings and investment. Finally, we consider some of the financial aspects of
changing consumption patterns. We note the substantial structural differences in the
savings culture across these markets. China and India both exhibit strong savings cultures,
Brazilian households prefer to spend rather than save. The outlook for credit growth
appears to be strong: plans for mortgage-backed property purchases are positive across
the board (particularly strong in Indonesia, China and Brazil) as are plans for creditfinanced
vehicle purchases (a notable feature in Saudi Arabia and Brazil).
Country highlights
Brazil: An appetite for life. The picture painted of Brazilian consumers by our survey sets
them apart from many of their counterparts in other countries. Discretionary spending is far
more prevalent and mirrored in relatively low saving rates. A far greater prioritisation of
healthcare spending is also striking. Our top picks within this market include Amil (the
leading medical insurance provider in the country), Itau-Unibanco (the largest private
sector bank) and MRV (a homebuilder with significant exposure to low-income groups).
China: From saving to spending. The outlook from the Chinese consumer is optimistic.
Confidence in improved immediate prospects for his/her financial position underpins very
positive purchasing intentions. We highlight the potential upside in stocks such as Belle
International Holdings (a leading footwear manufacturer and retailer and sportswear
distributor in China) and Sina Corporation (the largest portal in China in terms of
advertising revenue with 60% pre-exceptional EPS CAGR forecast for the next 3 years).
Egypt: feeling cautious. Egypt is the only country in our survey that registers net
negative expectations for the respondents’ personal finances in the six months ahead.
However, we note that sentiment does not necessarily tally with consumer spending,
which has remained solid. It is likely that macro factors of high inflation and currency
devaluations, and possibly this year’s elections, have negatively influenced consumer
responses to the survey. We recommend exposure to Talaat Moustafa Group (a
residential property developer - well established in middle/high income segment) and GB
Auto (26% share in the Egyptian car market).
India: financial sophistication. The Indian consumer displays relatively broad-based
optimism across the range of income brackets. This is despite high inflation that has
weighed on real income growth over the past year and looks set to do so again over the
next year. Food price inflation has been a major negative. Indian consumers display the
greatest appetite for education spending alongside a considerable propensity to save
coupled with relatively high bank penetration across the retail market. Our top picks in the
Indian market include Everonn, Bharti Airtel and Hero Honda.
Indonesia: Looking beyond the essentials. The Indonesian consumer ranks among the
most optimistic in our survey. While incomes may be lower than most countries in the
survey, they have not suffered the same degree of real erosion. Further progression in
incomes should see spending moving beyond the most basic of essentials. Top picks
include Bank Rakyat Indonesia (focussed on rural and micro lending) and Indosat (the
second largest cellular operator).
Russia: The under-banked consumer. Relative to the other BRIC markets, the cyclical
outlook for the Russian consumer is somewhat less optimistic, on the whole, as falling real
incomes have weighed on sentiment. However, two specific features emerge from the
survey. First, the high income consumer looks likely to support discretionary spending.
Second, consumers seem surprisingly under-banked and under-serviced by financial
products. Our recommendations include Sberbank (with 50% of the retail deposit base),
LSR Group (well poised to benefit from a longer-term upswing in mass-market residential
property demand) and M Video (an electronics retailer in a rapidly growing market).
Saudi Arabia: A tale of two consumers. Saudi Arabia has by far the highest GDP per
capita of any of the countries we surveyed but a clearly unequal distribution of this income.
This makes for consumer activity that has potential for growth among lower ticket items,
but also discretionary items and financial services given the pool of liquidity at the high
income end. Our top picks include Etihad Etisalat (a telecom play with strong broadband
and data growth) and Samba Financial Group (best positioned among the picks to
benefit from growth in lending).
Credit Suisse India consumer
survey
The China research team has conducted a comprehensive consumer survey for China for
the seventh year in succession. This year, Credit Suisse has taken the initiative to expand
the survey to seven emerging markets, including India. We have interviewed 2,561
respondents in ten cities to answer more than 100 questions. This report discusses the
key findings and extrapolates them to implications for the market.
Key themes
Buoyant outlook and ‘small town’ optimism
The Indian consumer displays relatively broad-based optimism across the range of income
brackets. Households, on average, expect income growth to double next year, while more
than 70% find the current environment conducive for making major purchases. Smaller
cities are the most optimistic. They also display greater inclination to purchase big-ticket
items. Being relatively insulated from global volatility, they have outperformed larger cities
in terms of growth and could continue to do so. First mover advantage is huge. Companies
with the right products, brands and deep sales/service roots can best capture growth in
these cities. Maruti Suzuki, Hero Honda and Bharti Airtel are the best ways to play this
theme, in our view, given their market leadership (higher share in smaller cities), focus on
semi-urban/rural consumers and wide distribution reach. In the near term, Bharti and Hero
Honda look the most attractive and are similarly placed, with concerns on market share
and margins set to ease in the next few quarters.
Growing comfort with leverage
Indian consumer balance sheets are still significantly underleveraged. However, we see
an increased appetite for credit in big-ticket purchases such as property and cars. Growing
comfort with debt will have an obvious impact on the savings culture – which tends to
decline as economies mature. Financial sophistication will increase as companies widen
their portfolio of products, improve service levels and expand reach. We expect greater
scrutiny at lower income levels and stringent regulations as the government watches out
for consumers’ well-being. We like HDFC Bank for its stronger-than-industry credit growth
combined with declining credit costs leading to rising RoEs. It is also well placed in a rising
rate environment with CASA share at 51% and low leverage to treasury.
Focus on value proposition, even as Indians uptrade
While there is a gradual trend of uptrading within automobiles, we find Indian consumers
excessively focused on ‘value for money’. Image (prestige) and power performance seem
to matter the least. A tough combination of better but reasonably priced cars means India
is not a plug-and-play market. Incumbents with the best cost structure and right products
would benefit the most. New entrants would need to go through investment cycle of setting
up / expanding manufacturing facility within India in order to become profitable. We believe
Maruti is best positioned to cater to the unique needs of the Indian consumer, aided by
strong brands, an efficient cost structure and a wide sales network. We note that despite a
jump in competitive intensity over the last 12 months, market share loss for Maruti has
been negligible (about 100 bp YTD). While our concern on the influence of the parent
company (royalty, currency exposure, export strategy) remains, we believe Maruti is the
best way to play the domestic car market in the near-to-long term horizon.
Education is a key priority
Education is a priority that stands out for the Indian consumer. The allocation of existing
spending is by far the highest at around 7.5% among the countries surveyed. Government
focus on higher education (graduate /post-graduate) has lead to an inverted pyramid
structure in the quality of state education in India. A huge opportunity lies in the underserved
K-12 system (kindergarten to higher secondary). Increasing penetration as well as
innovation in teaching techniques together offer significant potential. In this space, we
highlight Everonn as our top pick. Everonn is differentiated from competitors in the sector
from its end-to-end value positioning. At 10.5x FY3/12 P/E for a three-year EPS CAGR of
about 45%, we find the stock attractively valued. While education is a multi-year theme,
we see short-term catalysts in the form of strong growth and school/college additions in
the December 2010 and March 2011 quarters for Everonn.
Buoyant outlook and ‘small-town’
optimism
The Indian consumer displays relatively broad-based optimism across the range of income
brackets. Households, on average, expect income growth to double next year, while more
than 70% find the current environment conducive for major purchases. Amidst this trend,
we find that smaller cities are the most optimistic. Being relatively insulated from global
volatility, they have outperformed larger cities in terms of growth and could continue to do
so. While the opportunities are big, first movers will stand to gain the most. Companies
with the right products, brands and deep sales/service roots can best capture growth in
these cities. Maruti Suzuki, Hero Honda and Bharti Airtel are the best ways to play this
theme, in our view, given their market leadership (higher share in smaller cities), focus on
semi-urban/rural consumers and wide distribution reach.
Income growth expected to accelerate
While a large segment of the population (46%) expects household income to remain flat in
the next year, there is a significant proportion (27%) that expects more than 10% growth.
The pessimistic category forms a mere 8% of the respondents surveyed. This is despite
high inflation that has weighed on real income growth over the past year and looks set to
do so again over the next year. Food price inflation has been a major negative. In fact,
households, on an average, expect income growth to double in the next 12 months.
However, we note that consumers in the higher income categories have higher
expectations of income growth and seem more optimistic.
Robust consumption outlook
The optimism in income outlook extends to purchase decisions, where more than 70% of
survey respondents find the current environment conducive for major purchases. The
intention to increase spends or make purchases seems more pronounced at the lower end
of the consumption spectrum – 60-70% of respondents intend to increase expenditure on
skin care and dairy products.
The small city phenomenon
Regional data reveals much higher optimism in the smaller cities of Bhubaneshwar,
Ahmedabad, Lucknow. For instance, Bhubaneshwar gained the most in income levels
(about 7% in average) in the last 12 months and also stands out as the most optimistic
state with income growth expectations as high as 12%. On the other end, Kolkata happens
to be the most pessimistic with income expected to be almost flat over the next 12 months.
This is also mirrored in the consumption outlook within these regions, where the inclination
to purchase big-ticket items such as property and cars is higher than some of the larger
cities.
Growing comfort with leverage
Indian consumer balance sheets are still significantly underleveraged. Growing comfort
with debt will have an obvious impact on the savings culture – which tends to decline as
economies mature. Financial sophistication will increase as companies widen their
portfolio of products, improve service levels and expand reach. We expect greater scrutiny
at lower income levels and stringent regulations as the government watches out for
consumers’ well-being. We like HDFC Bank for its stronger-than-industry credit growth
combined with declining credit costs leading to rising ROEs.
Appetite for credit has grown significantly
We observe that appetite for credit in big-ticket purchases (property and cars) has
markedly increased. We believe this is aided by both, better availability of financing
options (larger participation by banks and wider array of products) and structural reduction
in retail financing costs over the last few years (notwithstanding the short-term cyclicality in
interest rates).
Cash purchases higher in rural areas
Cash purchases represent a significant portion of cars bought in the country, more so in
rural areas (which are largely agrarian). Low financing penetration and the cash flow cycle
of farming (linked to harvest season) explains the ‘cash’ nature of rural areas. However,
we note that both vehicle and property financing are influenced by income levels and rise
sharply in higher income groups.
Credit card usage remains low
While financing penetration in big-ticket items looks set to increase, credit card usage still
remains low. In our survey, 13% of respondents possessed a credit card and among them,
a large proportion restricted their usage to 5% of their total expenditure.
Focus on value proposition, even as
Indians uptrade
A tough combination of better but reasonably-priced cars means India is not a plug-andplay
market. Incumbents with the best cost structure and right products will benefit the
most in our view. New entrants would need to go through the investment cycle of setting
up/expanding manufacturing facilities within India in order to become profitable and have
price flexibility at the same time. We believe Maruti is best positioned to cater to the
unique needs of the Indian consumer, aided by strong brands, an effiicient cost structure
and a wide sales network.
An under-penetrated market
India has one of the most under-penetrated car markets in the world, with rural penetration
even lower (half that of urban as per our survey). Responses on car spends and factors
affecting purchase decisions show that demand for cars in India is still largely utilitarian in
nature. While there is a small shift up the value chain, consumers excessively focus on
‘value for money’.
Slight uptrading in cars
A majority of consumers (over 60%) currently own cars priced in the Rs0.1mn to 0.4mn
range – not surprising given that small cars form 80% of annual passenger car sales in
India. For future purchases, while Indian consumers continue to prefer small and cheap
cars, there is a slight but marked increase in purchase values as consumers move
towards the higher end of the spectrum.
‘Value for money’ is most important
In their car purchase decisions, consumers place excessive emphasis on price/value, fuel
economy and ease of use (more reflective of functional usage), while image and power
performance (lifestyle/aspirational factors) seem to be of relatively less importance.
Education is a key priority
A priority that stands out for the Indian consumer is education. While consumers in nearly
all the countries in our survey register an intention to increase their spending on education,
in India the allocation of existing spending is by far the highest at around 7.5%.
Government focus on higher education (graduate/post-graduate) has lead to an inverted
pyramid structure in the quality of state education in India. A huge opportunity lies in the
underserved K-12 system (kindergarten to higher secondary), given the tremendous focus
on education in India. We highlight Everonn as our top pick in this space.
Increasing penetration as well as innovation in teaching techniques together offer
significant potential in this industry. The market is large, with an addressable population of
460 mn children and annual spending higher than US$50 bn.
High illiteracy points to unmet needs
Using the standard measure of adult literacy rate (in the 15 years and above age group),
India fares quite low compared to other emerging economies. With the huge population
base in India, this also means that India has the highest illiterate adult population in the
world.
While the average education level in males remains higher than that in females, there is a
clear correlation with income.
Various sources place the number of schools in India at 1.1-1.4 mn, and the number of
school-going children at around 200-220 mn. Responses from the our survey point to
government school enrolment at just 9%, significantly lower than official estimates at 70-
80%. Income levels, therefore, have a clear influence on the nature of school enrolment
among households. Higher income groups prefer private and English-medium schools.
The government’s attitude towards private participation in the education sector is
changing. While we are still to see significant change in education regulations, there is a
greater acceptance of the private sector participation in nearly all areas that were once
limited to government enterprises, such as air travel, power sector, telecoms, etc. Even in
the education sector, a start has been made by seeking the help of the private sector in
introducing computer-aided learning in government schools, outsourcing teacher training
to the private sector, etc.
Survey findings
In the following sections, we present other interesting findings that emerge from the survey
across different sectors. While some have existing direct plays (personal care, food,
branded jewellery, airlines, insurance), others could soon emerge as the next big
investible themes in the consumer space (tourism, internet, electronics).
Sample population
We have interviewed 2,561 respondents in ten cities within India to answer over 100
questions. Within these cities, about 70% respondents belong to urban areas, with the rest
being from suburbs/rural locations. The average household size of our sample population
is about four, each having on an average one working member (1.55) and one child (1.65).
Figure 30: Sample population – key statistics
No. of respondents 2561
No. of cities surveyed 10
Male:Female ratio 59%:41%
Urban:Rural ratio 70%:30%
Average household (HH) size 4.03
Avg no. of working members per HH 1.55
Avg no. of children per HH 1.65
Source: Credit Suisse India Consumer Survey 2011
Of the survey respondents, a majority belong to the income groups ranging Rs10,000 to
Rs30,000 per month. The lowest income group of less than Rs5,000 forms 2% of the
population, while the highest income group of more than Rs50,000 per month forms 4% of
the population.
How India spends
Our survey shows that Indian households save about 17% of income (national average
according to RBI is 28%). Among expense items, housing and food are the two biggest
categories, followed by education (Indian consumers spend the highest on education in
the region). While monthly expenditure on food tapers off beyond a point, that on housing,
autos and education grows at a fast pace.
Food and beverages
Food constitutes the biggest segment (about 50%) of the Indian FMCG industry (estimated
at US$25 bn). In addition to affordability, demand for food and beverages is significantly
influenced by cultural factors and regional preferences.
For instance, meat consumption in India is impacted by a large vegetarian population (30-
40% as per our survey). Even among the non-vegetarian population, a significant
proportion restricts meat consumption to less than 5% of food intake.
Alcohol consumption is similarly influenced by cultural factors and has traditionally been
low. However, income growth plays a big role in this category that is currently growing at
15-16% in volume terms.
Our survey indicates high usage of dairy products (about 80%), which is almost uniform
across income categories. In addition, there is clear preference for home grown brands
(Amul, Mother Dairy, other private labels).
Personal care
Within the personal care category, we take a closer look at the relatively less penetrated
and higher end of the market. We note that usage of skin care is high at 70%, compared to
an estimated 23% average for the country. Feminine hygiene is a fast-growing segment,
with increasing awareness and usage in the low income and rural segments as well. This
is also possibly aided by increasing presence of products across a wide price range.
Diaper usage in baby care, however, still largely remains an urban concept – restricted to
the higher income population.
Travel
Holidays in India are largely limited to domestic destinations – more than 70% of survey
respondents have travelled to places within the country. International travel (2%) is still a
nascent phenomenon – perceived as luxury even among higher income groups. Given
that a large part of the population spends holidays at home, we believe there is still huge
scope for growth in domestic tourism (which increases rapidly with income), before we
start witnessing any meaningful increase in international leisure trips.
Air travel is still an under-penetrated category in India with just over four trips/person
compared to 12-14 in other Asian countries such as Indonesia, China etc. This is reflected
in the low usage of air as a mode of travel for consumers in our survey (about 5%).
However, we see that air travel increases rapidly with income. Over the last five years,
passenger traffic has doubled as the industry grew at an accelerated pace of 18%. This
has been a result of increased affordability, driven by rising incomes as well as lower air
fares.
Finance
India’s propensity to save, though lower than China, is substantially high at 17%. While our
survey may be influenced by vagaries of sampling , responses suggest a striking
sophistication in the savings culture – more than 90% respondents have a bank account
and 66% have invested in life insurance.
The Indian insurance market is the seventh-largest in the world and is one of the fastest
growing. More importantly, we observe that the investment in life insurance increases with
income levels. A similar trend is observed in stock market participation (less than 10% on
average), which rises sharply in high income groups.
Luxury goods
Cultural factors play a significant role in the type of luxury items consumed and the amount
spent thereon. Regional disparities apart, Indians tend to avoid any obvious display of
wealth. While luxury categories such as fashion articles, watches and perfumes have seen
a spurt in demand, jewellery remains, by far, the most important luxury item.
India is the largest consumer of gold (mostly bought in the form of jewellery), which has
traditionally been used for both consumption and investment purposes. Jewellery is
typically passed across generations and is hardly ever sold – mortgaging, though, is much
more accepted and offers significant business opportunity. We note that jewellery demand
– both in terms of volume (number of consumers) and value (amount spent) increases
rapidly with income. The jewellery market is primarily unbranded and highly fragmented,
consisting of more than 350,000 traditional jewellers. However, with the entry of several
organised jewellery retailers (Tanishq, Asmi etc), there has been a marked shift towards
branded jewellery.
In contrast to jewellery, watches have a large branded segment according to our survey.
The unbranded segment is mostly concentrated at the lower end of the market (watches
below Rs 500) and has a large presence of Chinese players. Titan is the clear market
leader with a share of 50% (including its Sonata brand).
Electronic goods and communications
Mobile phones, DVD players and personal computers form a majority of electronic goods
purchased. Even among these, purchases are skewed to the more basic/lower end of the
market (cheaper mobile phones, desktops in PCs). While mobile phone ownership is
significantly high (uniform across income levels), PC penetration is still low.
Even among PC users, multiple PC ownership is negligible. Overall ownership, however,
rises with income levels.
India has an estimated 80 mn internet users, placing penetration at 7% of the country’s
population. Internet penetration in the ten cities surveyed is close to 17%, which highlights
the significant potential for growth in different parts of the country. Given that a large
segment of users access internet at home, connectivity is linked to PC ownership. These,
in turn, not only depend on income levels but also on electricity supply – there are still very
few parts in the country which receive 24-hour power supply (also one reason why DVDs
and CDs are more popular than satellite TV).
Internet usage is dominated by social networking, instant messaging and gaming, while
online purchasing is largely restricted to banking transactions and travel bookings.
Property
Home ownership, according to our survey, is fairly high at 72% and is uniform across
income segments. However, only 13% of respondents intend to purchase property in the
next two years. Within that segment, purchase intentions are understandably higher in the
higher income groups and more interestingly, higher in the Tier II cities of Ahmedabad,
Pune and Bhubaneshwar.
While a large part of property demand is from first-time buyers (49% as per our survey),
there is a significant proportion which is looking for investment (21%) and for upgrade
(15%). The latter two would mean secondary sale at some point in time.
Healthcare
Penetration of western medicine in India is estimated at just about 50%, while there are
just six doctors for every 10,000 people. Under-investment by the government and low
income levels are two key reasons for the relatively poor state of healthcare. In that
context, data from our survey shows that access to government (subsidised/free)
healthcare in India is very low (lower in rural areas). We note that with rising incomes,
households tend to prefer private healthcare – a likely indicator of perceived poor quality of
government healthcare services and infrastructure.
This is also reflected in the difference in the healthcare services used – private institutions,
across the range of services, are preferred to government institutions.
We note that patients in India largely pay out of their own pockets. Medical insurance in
India still remains very low in comparison to other countries. This, however, rapidly
changes with income levels – a result of better awareness among consumers and higher
participation of insurance companies in this income range.
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Our consumer survey of seven emerging markets
The essence of 13,000 interviews
This report is part of our inaugural Credit Suisse Emerging Consumer Survey 2011. Its aim
is to establish a unique profile of the spending patterns and preferences of a consumer
who is at the heart of a structural shift in global demand. The data and analysis carried out
in these reports, together with the accompanying Emerging Consumer Databook, provide
insights not available from traditional sources of economic information and thus proprietary
to Credit Suisse.
Click on company name for detail company report
Credit Suisse: Buy Everonn Education
Click on company name for detail company report
To undertake this project, the Credit Suisse Research Institute engaged the leading global
market research firm AC Nielsen to conduct primary research on its behalf, interviewing
close to 13,000 consumers across seven countries that together represent 3.2
billion people. 120 questions, over a range of 11 different subjects, were included in the
survey and put to respondents of varying location, gender and income levels.
The research stretches beyond the larger emerging economies of Brazil, Russia, India
and China to include Egypt, Indonesia and Saudi Arabia. There are clearly parallels
between markets but the analysis also reveals major income and demographic differences,
as well as cultural and social drivers, that combine to form very different spending priorities
in different economies.
This report complements previous reports from the Credit Suisse Research Institute,
notably the Global Wealth Report and Great Brands of Tomorrow. Both have reflected on
the significance of trends in emerging markets. The current survey allows a granular
application of many of the messages in these prior reports – critical for investors both
within and outside of the regions concerned.
Key themes from the seven
emerging markets
We summarise our findings from our consumer survey into eight broad issues:
1) Confidence is high. The survey as a whole reveals consumers in the emerging world
as relatively confident on their outlook for the year ahead, particularly in China and Brazil.
2) The shift towards discretionary spending continues. Demand for essential items
after increasing rapidly tends to stagnate in favour of more discretionary items. Consistent
with this, we find the greatest proportion of spending planned on discretionary items
occurs in relatively rich markets (Saudi Arabia), while spending on essential items is a
major feature of poorer markets (India, Indonesia, Egypt).
3) Inequality of income. Uneven income distribution across all these markets skews this
headline result on essential relative to discretionary spending on goods and services.
Combining data from the Credit Suisse Global Wealth report with data from our survey we
calculate the absolute and relative distribution of households that fit into comparable
income bands across each market. Given their sheer size, China and India. The number of
high income households in India earning greater than US$2,000 per month, for instance, is
more than twice that of Russia despite GDP per capita 80% lower than Russia.
4) Real income growth. Our survey data reveals the detail behind the aggregates:
interestingly, we find that income disparities – that are already wide – are set to increase
as the high income brackets have seen, and are expected to continue to see, much
greater growth. Two broad conclusions: a) over the next year, absolute growth rates look
likely to be best supported at the discretionary end of spending; and b) essential goods
and services look set to achieve better relative growth in Indonesia, China and Brazil.
5) International versus local brands. In line with the transition from essential items
towards discretionary spending, the survey also shows there is a clear and consistent
pattern in consumption of branded goods as income levels improve. International brands
have the upper hand in the premium ratings (cars, perfume and fashion), for essentials
(such as bottled water and dairy products), the preference for international brands over
local brands is not particularly strong.
6) Public versus private: healthcare and education. Aggregate average household
expenditure on healthcare and education is very different when compared across markets.
For example, household expenditure on healthcare in Brazil (9.8% of income) is nearly
twice that of China, at 5.7%. Demographics, public sector expenditure as well as social
and cultural influences help explain the differences. The survey shows that healthcare
spending intentions over the next 12 months are most positive for China, Brazil and
Russia.
7) Consumption map. In order to draw together some of these different ideas and themes
we present the “Emerging Market Consumption Map” (see pages 10-17). This summarises
spending intentions across 14 different types of goods and services for different income
groups across the seven markets. The ongoing strength of demand and real income
growth in China sees healthy demand across the broadest basket of spending. Brazil also
sees a degree of breadth but the focus is towards the genuinely discretionary end.
8) Credit, savings and investment. Finally, we consider some of the financial aspects of
changing consumption patterns. We note the substantial structural differences in the
savings culture across these markets. China and India both exhibit strong savings cultures,
Brazilian households prefer to spend rather than save. The outlook for credit growth
appears to be strong: plans for mortgage-backed property purchases are positive across
the board (particularly strong in Indonesia, China and Brazil) as are plans for creditfinanced
vehicle purchases (a notable feature in Saudi Arabia and Brazil).
Country highlights
Brazil: An appetite for life. The picture painted of Brazilian consumers by our survey sets
them apart from many of their counterparts in other countries. Discretionary spending is far
more prevalent and mirrored in relatively low saving rates. A far greater prioritisation of
healthcare spending is also striking. Our top picks within this market include Amil (the
leading medical insurance provider in the country), Itau-Unibanco (the largest private
sector bank) and MRV (a homebuilder with significant exposure to low-income groups).
China: From saving to spending. The outlook from the Chinese consumer is optimistic.
Confidence in improved immediate prospects for his/her financial position underpins very
positive purchasing intentions. We highlight the potential upside in stocks such as Belle
International Holdings (a leading footwear manufacturer and retailer and sportswear
distributor in China) and Sina Corporation (the largest portal in China in terms of
advertising revenue with 60% pre-exceptional EPS CAGR forecast for the next 3 years).
Egypt: feeling cautious. Egypt is the only country in our survey that registers net
negative expectations for the respondents’ personal finances in the six months ahead.
However, we note that sentiment does not necessarily tally with consumer spending,
which has remained solid. It is likely that macro factors of high inflation and currency
devaluations, and possibly this year’s elections, have negatively influenced consumer
responses to the survey. We recommend exposure to Talaat Moustafa Group (a
residential property developer - well established in middle/high income segment) and GB
Auto (26% share in the Egyptian car market).
India: financial sophistication. The Indian consumer displays relatively broad-based
optimism across the range of income brackets. This is despite high inflation that has
weighed on real income growth over the past year and looks set to do so again over the
next year. Food price inflation has been a major negative. Indian consumers display the
greatest appetite for education spending alongside a considerable propensity to save
coupled with relatively high bank penetration across the retail market. Our top picks in the
Indian market include Everonn, Bharti Airtel and Hero Honda.
Indonesia: Looking beyond the essentials. The Indonesian consumer ranks among the
most optimistic in our survey. While incomes may be lower than most countries in the
survey, they have not suffered the same degree of real erosion. Further progression in
incomes should see spending moving beyond the most basic of essentials. Top picks
include Bank Rakyat Indonesia (focussed on rural and micro lending) and Indosat (the
second largest cellular operator).
Russia: The under-banked consumer. Relative to the other BRIC markets, the cyclical
outlook for the Russian consumer is somewhat less optimistic, on the whole, as falling real
incomes have weighed on sentiment. However, two specific features emerge from the
survey. First, the high income consumer looks likely to support discretionary spending.
Second, consumers seem surprisingly under-banked and under-serviced by financial
products. Our recommendations include Sberbank (with 50% of the retail deposit base),
LSR Group (well poised to benefit from a longer-term upswing in mass-market residential
property demand) and M Video (an electronics retailer in a rapidly growing market).
Saudi Arabia: A tale of two consumers. Saudi Arabia has by far the highest GDP per
capita of any of the countries we surveyed but a clearly unequal distribution of this income.
This makes for consumer activity that has potential for growth among lower ticket items,
but also discretionary items and financial services given the pool of liquidity at the high
income end. Our top picks include Etihad Etisalat (a telecom play with strong broadband
and data growth) and Samba Financial Group (best positioned among the picks to
benefit from growth in lending).
Credit Suisse India consumer
survey
The China research team has conducted a comprehensive consumer survey for China for
the seventh year in succession. This year, Credit Suisse has taken the initiative to expand
the survey to seven emerging markets, including India. We have interviewed 2,561
respondents in ten cities to answer more than 100 questions. This report discusses the
key findings and extrapolates them to implications for the market.
Key themes
Buoyant outlook and ‘small town’ optimism
The Indian consumer displays relatively broad-based optimism across the range of income
brackets. Households, on average, expect income growth to double next year, while more
than 70% find the current environment conducive for making major purchases. Smaller
cities are the most optimistic. They also display greater inclination to purchase big-ticket
items. Being relatively insulated from global volatility, they have outperformed larger cities
in terms of growth and could continue to do so. First mover advantage is huge. Companies
with the right products, brands and deep sales/service roots can best capture growth in
these cities. Maruti Suzuki, Hero Honda and Bharti Airtel are the best ways to play this
theme, in our view, given their market leadership (higher share in smaller cities), focus on
semi-urban/rural consumers and wide distribution reach. In the near term, Bharti and Hero
Honda look the most attractive and are similarly placed, with concerns on market share
and margins set to ease in the next few quarters.
Growing comfort with leverage
Indian consumer balance sheets are still significantly underleveraged. However, we see
an increased appetite for credit in big-ticket purchases such as property and cars. Growing
comfort with debt will have an obvious impact on the savings culture – which tends to
decline as economies mature. Financial sophistication will increase as companies widen
their portfolio of products, improve service levels and expand reach. We expect greater
scrutiny at lower income levels and stringent regulations as the government watches out
for consumers’ well-being. We like HDFC Bank for its stronger-than-industry credit growth
combined with declining credit costs leading to rising RoEs. It is also well placed in a rising
rate environment with CASA share at 51% and low leverage to treasury.
Focus on value proposition, even as Indians uptrade
While there is a gradual trend of uptrading within automobiles, we find Indian consumers
excessively focused on ‘value for money’. Image (prestige) and power performance seem
to matter the least. A tough combination of better but reasonably priced cars means India
is not a plug-and-play market. Incumbents with the best cost structure and right products
would benefit the most. New entrants would need to go through investment cycle of setting
up / expanding manufacturing facility within India in order to become profitable. We believe
Maruti is best positioned to cater to the unique needs of the Indian consumer, aided by
strong brands, an efficient cost structure and a wide sales network. We note that despite a
jump in competitive intensity over the last 12 months, market share loss for Maruti has
been negligible (about 100 bp YTD). While our concern on the influence of the parent
company (royalty, currency exposure, export strategy) remains, we believe Maruti is the
best way to play the domestic car market in the near-to-long term horizon.
Education is a key priority
Education is a priority that stands out for the Indian consumer. The allocation of existing
spending is by far the highest at around 7.5% among the countries surveyed. Government
focus on higher education (graduate /post-graduate) has lead to an inverted pyramid
structure in the quality of state education in India. A huge opportunity lies in the underserved
K-12 system (kindergarten to higher secondary). Increasing penetration as well as
innovation in teaching techniques together offer significant potential. In this space, we
highlight Everonn as our top pick. Everonn is differentiated from competitors in the sector
from its end-to-end value positioning. At 10.5x FY3/12 P/E for a three-year EPS CAGR of
about 45%, we find the stock attractively valued. While education is a multi-year theme,
we see short-term catalysts in the form of strong growth and school/college additions in
the December 2010 and March 2011 quarters for Everonn.
Buoyant outlook and ‘small-town’
optimism
The Indian consumer displays relatively broad-based optimism across the range of income
brackets. Households, on average, expect income growth to double next year, while more
than 70% find the current environment conducive for major purchases. Amidst this trend,
we find that smaller cities are the most optimistic. Being relatively insulated from global
volatility, they have outperformed larger cities in terms of growth and could continue to do
so. While the opportunities are big, first movers will stand to gain the most. Companies
with the right products, brands and deep sales/service roots can best capture growth in
these cities. Maruti Suzuki, Hero Honda and Bharti Airtel are the best ways to play this
theme, in our view, given their market leadership (higher share in smaller cities), focus on
semi-urban/rural consumers and wide distribution reach.
Income growth expected to accelerate
While a large segment of the population (46%) expects household income to remain flat in
the next year, there is a significant proportion (27%) that expects more than 10% growth.
The pessimistic category forms a mere 8% of the respondents surveyed. This is despite
high inflation that has weighed on real income growth over the past year and looks set to
do so again over the next year. Food price inflation has been a major negative. In fact,
households, on an average, expect income growth to double in the next 12 months.
However, we note that consumers in the higher income categories have higher
expectations of income growth and seem more optimistic.
Robust consumption outlook
The optimism in income outlook extends to purchase decisions, where more than 70% of
survey respondents find the current environment conducive for major purchases. The
intention to increase spends or make purchases seems more pronounced at the lower end
of the consumption spectrum – 60-70% of respondents intend to increase expenditure on
skin care and dairy products.
The small city phenomenon
Regional data reveals much higher optimism in the smaller cities of Bhubaneshwar,
Ahmedabad, Lucknow. For instance, Bhubaneshwar gained the most in income levels
(about 7% in average) in the last 12 months and also stands out as the most optimistic
state with income growth expectations as high as 12%. On the other end, Kolkata happens
to be the most pessimistic with income expected to be almost flat over the next 12 months.
This is also mirrored in the consumption outlook within these regions, where the inclination
to purchase big-ticket items such as property and cars is higher than some of the larger
cities.
Growing comfort with leverage
Indian consumer balance sheets are still significantly underleveraged. Growing comfort
with debt will have an obvious impact on the savings culture – which tends to decline as
economies mature. Financial sophistication will increase as companies widen their
portfolio of products, improve service levels and expand reach. We expect greater scrutiny
at lower income levels and stringent regulations as the government watches out for
consumers’ well-being. We like HDFC Bank for its stronger-than-industry credit growth
combined with declining credit costs leading to rising ROEs.
Appetite for credit has grown significantly
We observe that appetite for credit in big-ticket purchases (property and cars) has
markedly increased. We believe this is aided by both, better availability of financing
options (larger participation by banks and wider array of products) and structural reduction
in retail financing costs over the last few years (notwithstanding the short-term cyclicality in
interest rates).
Cash purchases higher in rural areas
Cash purchases represent a significant portion of cars bought in the country, more so in
rural areas (which are largely agrarian). Low financing penetration and the cash flow cycle
of farming (linked to harvest season) explains the ‘cash’ nature of rural areas. However,
we note that both vehicle and property financing are influenced by income levels and rise
sharply in higher income groups.
Credit card usage remains low
While financing penetration in big-ticket items looks set to increase, credit card usage still
remains low. In our survey, 13% of respondents possessed a credit card and among them,
a large proportion restricted their usage to 5% of their total expenditure.
Focus on value proposition, even as
Indians uptrade
A tough combination of better but reasonably-priced cars means India is not a plug-andplay
market. Incumbents with the best cost structure and right products will benefit the
most in our view. New entrants would need to go through the investment cycle of setting
up/expanding manufacturing facilities within India in order to become profitable and have
price flexibility at the same time. We believe Maruti is best positioned to cater to the
unique needs of the Indian consumer, aided by strong brands, an effiicient cost structure
and a wide sales network.
An under-penetrated market
India has one of the most under-penetrated car markets in the world, with rural penetration
even lower (half that of urban as per our survey). Responses on car spends and factors
affecting purchase decisions show that demand for cars in India is still largely utilitarian in
nature. While there is a small shift up the value chain, consumers excessively focus on
‘value for money’.
Slight uptrading in cars
A majority of consumers (over 60%) currently own cars priced in the Rs0.1mn to 0.4mn
range – not surprising given that small cars form 80% of annual passenger car sales in
India. For future purchases, while Indian consumers continue to prefer small and cheap
cars, there is a slight but marked increase in purchase values as consumers move
towards the higher end of the spectrum.
‘Value for money’ is most important
In their car purchase decisions, consumers place excessive emphasis on price/value, fuel
economy and ease of use (more reflective of functional usage), while image and power
performance (lifestyle/aspirational factors) seem to be of relatively less importance.
Education is a key priority
A priority that stands out for the Indian consumer is education. While consumers in nearly
all the countries in our survey register an intention to increase their spending on education,
in India the allocation of existing spending is by far the highest at around 7.5%.
Government focus on higher education (graduate/post-graduate) has lead to an inverted
pyramid structure in the quality of state education in India. A huge opportunity lies in the
underserved K-12 system (kindergarten to higher secondary), given the tremendous focus
on education in India. We highlight Everonn as our top pick in this space.
Increasing penetration as well as innovation in teaching techniques together offer
significant potential in this industry. The market is large, with an addressable population of
460 mn children and annual spending higher than US$50 bn.
High illiteracy points to unmet needs
Using the standard measure of adult literacy rate (in the 15 years and above age group),
India fares quite low compared to other emerging economies. With the huge population
base in India, this also means that India has the highest illiterate adult population in the
world.
While the average education level in males remains higher than that in females, there is a
clear correlation with income.
Various sources place the number of schools in India at 1.1-1.4 mn, and the number of
school-going children at around 200-220 mn. Responses from the our survey point to
government school enrolment at just 9%, significantly lower than official estimates at 70-
80%. Income levels, therefore, have a clear influence on the nature of school enrolment
among households. Higher income groups prefer private and English-medium schools.
The government’s attitude towards private participation in the education sector is
changing. While we are still to see significant change in education regulations, there is a
greater acceptance of the private sector participation in nearly all areas that were once
limited to government enterprises, such as air travel, power sector, telecoms, etc. Even in
the education sector, a start has been made by seeking the help of the private sector in
introducing computer-aided learning in government schools, outsourcing teacher training
to the private sector, etc.
Survey findings
In the following sections, we present other interesting findings that emerge from the survey
across different sectors. While some have existing direct plays (personal care, food,
branded jewellery, airlines, insurance), others could soon emerge as the next big
investible themes in the consumer space (tourism, internet, electronics).
Sample population
We have interviewed 2,561 respondents in ten cities within India to answer over 100
questions. Within these cities, about 70% respondents belong to urban areas, with the rest
being from suburbs/rural locations. The average household size of our sample population
is about four, each having on an average one working member (1.55) and one child (1.65).
Figure 30: Sample population – key statistics
No. of respondents 2561
No. of cities surveyed 10
Male:Female ratio 59%:41%
Urban:Rural ratio 70%:30%
Average household (HH) size 4.03
Avg no. of working members per HH 1.55
Avg no. of children per HH 1.65
Source: Credit Suisse India Consumer Survey 2011
Of the survey respondents, a majority belong to the income groups ranging Rs10,000 to
Rs30,000 per month. The lowest income group of less than Rs5,000 forms 2% of the
population, while the highest income group of more than Rs50,000 per month forms 4% of
the population.
How India spends
Our survey shows that Indian households save about 17% of income (national average
according to RBI is 28%). Among expense items, housing and food are the two biggest
categories, followed by education (Indian consumers spend the highest on education in
the region). While monthly expenditure on food tapers off beyond a point, that on housing,
autos and education grows at a fast pace.
Food and beverages
Food constitutes the biggest segment (about 50%) of the Indian FMCG industry (estimated
at US$25 bn). In addition to affordability, demand for food and beverages is significantly
influenced by cultural factors and regional preferences.
For instance, meat consumption in India is impacted by a large vegetarian population (30-
40% as per our survey). Even among the non-vegetarian population, a significant
proportion restricts meat consumption to less than 5% of food intake.
Alcohol consumption is similarly influenced by cultural factors and has traditionally been
low. However, income growth plays a big role in this category that is currently growing at
15-16% in volume terms.
Our survey indicates high usage of dairy products (about 80%), which is almost uniform
across income categories. In addition, there is clear preference for home grown brands
(Amul, Mother Dairy, other private labels).
Personal care
Within the personal care category, we take a closer look at the relatively less penetrated
and higher end of the market. We note that usage of skin care is high at 70%, compared to
an estimated 23% average for the country. Feminine hygiene is a fast-growing segment,
with increasing awareness and usage in the low income and rural segments as well. This
is also possibly aided by increasing presence of products across a wide price range.
Diaper usage in baby care, however, still largely remains an urban concept – restricted to
the higher income population.
Travel
Holidays in India are largely limited to domestic destinations – more than 70% of survey
respondents have travelled to places within the country. International travel (2%) is still a
nascent phenomenon – perceived as luxury even among higher income groups. Given
that a large part of the population spends holidays at home, we believe there is still huge
scope for growth in domestic tourism (which increases rapidly with income), before we
start witnessing any meaningful increase in international leisure trips.
Air travel is still an under-penetrated category in India with just over four trips/person
compared to 12-14 in other Asian countries such as Indonesia, China etc. This is reflected
in the low usage of air as a mode of travel for consumers in our survey (about 5%).
However, we see that air travel increases rapidly with income. Over the last five years,
passenger traffic has doubled as the industry grew at an accelerated pace of 18%. This
has been a result of increased affordability, driven by rising incomes as well as lower air
fares.
Finance
India’s propensity to save, though lower than China, is substantially high at 17%. While our
survey may be influenced by vagaries of sampling , responses suggest a striking
sophistication in the savings culture – more than 90% respondents have a bank account
and 66% have invested in life insurance.
The Indian insurance market is the seventh-largest in the world and is one of the fastest
growing. More importantly, we observe that the investment in life insurance increases with
income levels. A similar trend is observed in stock market participation (less than 10% on
average), which rises sharply in high income groups.
Luxury goods
Cultural factors play a significant role in the type of luxury items consumed and the amount
spent thereon. Regional disparities apart, Indians tend to avoid any obvious display of
wealth. While luxury categories such as fashion articles, watches and perfumes have seen
a spurt in demand, jewellery remains, by far, the most important luxury item.
India is the largest consumer of gold (mostly bought in the form of jewellery), which has
traditionally been used for both consumption and investment purposes. Jewellery is
typically passed across generations and is hardly ever sold – mortgaging, though, is much
more accepted and offers significant business opportunity. We note that jewellery demand
– both in terms of volume (number of consumers) and value (amount spent) increases
rapidly with income. The jewellery market is primarily unbranded and highly fragmented,
consisting of more than 350,000 traditional jewellers. However, with the entry of several
organised jewellery retailers (Tanishq, Asmi etc), there has been a marked shift towards
branded jewellery.
In contrast to jewellery, watches have a large branded segment according to our survey.
The unbranded segment is mostly concentrated at the lower end of the market (watches
below Rs 500) and has a large presence of Chinese players. Titan is the clear market
leader with a share of 50% (including its Sonata brand).
Electronic goods and communications
Mobile phones, DVD players and personal computers form a majority of electronic goods
purchased. Even among these, purchases are skewed to the more basic/lower end of the
market (cheaper mobile phones, desktops in PCs). While mobile phone ownership is
significantly high (uniform across income levels), PC penetration is still low.
Even among PC users, multiple PC ownership is negligible. Overall ownership, however,
rises with income levels.
India has an estimated 80 mn internet users, placing penetration at 7% of the country’s
population. Internet penetration in the ten cities surveyed is close to 17%, which highlights
the significant potential for growth in different parts of the country. Given that a large
segment of users access internet at home, connectivity is linked to PC ownership. These,
in turn, not only depend on income levels but also on electricity supply – there are still very
few parts in the country which receive 24-hour power supply (also one reason why DVDs
and CDs are more popular than satellite TV).
Internet usage is dominated by social networking, instant messaging and gaming, while
online purchasing is largely restricted to banking transactions and travel bookings.
Property
Home ownership, according to our survey, is fairly high at 72% and is uniform across
income segments. However, only 13% of respondents intend to purchase property in the
next two years. Within that segment, purchase intentions are understandably higher in the
higher income groups and more interestingly, higher in the Tier II cities of Ahmedabad,
Pune and Bhubaneshwar.
While a large part of property demand is from first-time buyers (49% as per our survey),
there is a significant proportion which is looking for investment (21%) and for upgrade
(15%). The latter two would mean secondary sale at some point in time.
Healthcare
Penetration of western medicine in India is estimated at just about 50%, while there are
just six doctors for every 10,000 people. Under-investment by the government and low
income levels are two key reasons for the relatively poor state of healthcare. In that
context, data from our survey shows that access to government (subsidised/free)
healthcare in India is very low (lower in rural areas). We note that with rising incomes,
households tend to prefer private healthcare – a likely indicator of perceived poor quality of
government healthcare services and infrastructure.
This is also reflected in the difference in the healthcare services used – private institutions,
across the range of services, are preferred to government institutions.
We note that patients in India largely pay out of their own pockets. Medical insurance in
India still remains very low in comparison to other countries. This, however, rapidly
changes with income levels – a result of better awareness among consumers and higher
participation of insurance companies in this income range.
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