There are a wide variety of consumption patterns for fast-moving consumer goods around the world. What explains the differences in consumption levels among countries? And what are the implications for global businesses as they consider investing in different markets?
As a starting point, income is the most important demand driver for consumer goods. As income grows, demand typically does not increase linearly. Instead, the relationship between demand and income resembles an S-curve that can be broken into three phases.
Now, for two countries with similar income growth rates, how should we expect them to compare in terms of demand growth? The S-curve serves as a benchmark to forecast demand. Since consumers in different phases of the S-curve have different income elasticities, countries that sit on different phases of the S-curve should expect different demand growth rates. This difference in demand growth will result in different strategic plans for global companies as they consider their focuses in various markets.
In addition to income, we need to examine other factors that can affect demand in each market. These factors could include but are not limited to: demographics, competition, distribution, and pricing as well as other unique local factors. However, the S-curve serves as a powerful starting point for businesses as they think about their global strategic positioning.
* Unit for category consumption: Beer (in liter per capita), 2009; Car (per 1,000 people), 2010; Cash point / ATM (per 100,000 people), 2012; Insurance (non-life insurance penetration in % of GDP), 2003; McDonald’s (per 1 million people), 2004; Mobile cellular subscriptions (per 100 people), 2013
** All categories except insurance use income per capita, in constant PPP$ (2005); insurance uses GDP per capita, in constant PPP$ (2005)
Source: WHO, International Road Federation, World Road Statistics, Sigma, The World Bank, IMF; McDonald’s