Millions of Mexican households are entering the middle class and the country is set to see a surge in consumer spending owed to the rapid expansion.
And consumption by those middle-income households is expected to increase an average of 7 percent annually through 2018, and possibly faster if new economic reforms prove successful at fueling growth.
In a recently released report, “Is It Mexico’s Moment? Preparing for the Inevitable Consumer Boom,” the Boston Consulting Group (BCG) found that the number of middle class Mexican households (those earning between $1,200-$9,000 a month) will increase by roughly 1.6 million by 2018, and these households are projected to account for 90 percent of incremental demand in Mexico.
“The socioeconomic conditions are aligning for Mexico’s takeoff in consumer spending,” said Joel Muñiz, a BCG partner and coauthor of the report. “If the economy can deliver, it will truly be Mexico’s moment.”
Though consumption is expected to increase, Mexican consumers are still budget conscious, according to the report. BCG conducted interviews with more than 3,000 households of all income levels across Mexico, and although 77 percent said they see a bright future, only 17 percent said they’d be spending more in the coming year.
The caution could be related to the country’s recent tax increases and that consumers are waiting to see whether the newly enacted reforms to Mexico’s energy, banking and education sectors will really mean new jobs and sustained economic growth.
But the rapid middle class expansion will still be enough to raise consumer spending to loftier levels, even with only modest economic growth.
The report cited: “A powerful combination of demographic trends and a high degree of social mobility will work in Mexico’s favor. Due to its young and growing population, the number of working-age Mexicans is projected to increase by 19 million over the next two decades. What’s more, around two-thirds of Mexicans currently living in poverty—some 3.9 million households—have the potential to make the leap into the middle class over that period.”
BCG’s analysts looked at Mexico’s historical consumption patterns to see how increased incomes have affected past buying behavior, asked consumers to outline their spending intentions for the year ahead, and found that consumers will be willing to spend money to improve their living standards, health and well-being. Products that offer high value for money, distribution strategies that make the items reachable by interested consumers and branding that stresses the “right message” will experience growth.
“To seize the opportunities in Mexico’s coming consumer boom, companies need to start laying the groundwork now and develop a very deep understanding of consumers’ evolving needs and preferences in order to rethink their product portfolios, brand positioning and route-to-market strategies,” said Muñiz, who leads BCG’s Consumer practice in Mexico. “The companies that are best prepared will capture the biggest rewards when Mexico’s consumer boom hits.”