2023 Consumer Trends in Emerging Markets
With inflation on the rise, everyone is keeping a close eye on the consumer trends of 2023. While it is still early days, there is no doubt that emerging market economies will be hugely impacted by inflation.
Over the past year, Africa, Latin America, and Eastern Europe have witnessed a continual inflationary cycle which has taken a substantial toll on their consumer trends and is expected to spike interest rates, which will indefinitely cripple the domestic demands within these regions.
This article will examine how emerging markets drive consumer trends in 2023, focusing on the impact of inflation and government policies. We will also explore the opportunities in emerging markets and what these trends mean for consumer goods companies.
The Impact of Previous Pressures Caused By Inflation
Reflecting upon 2021, transformations and disruptions of supply chains facilitated by the global pandemic caused inflation to skyrocket. In 2022, regions including Africa, Eastern Europe, and Latin America suffered the most due to this extreme inflation.
During that same year, Czechia, Poland, Nigeria, Brazil, and Chile had around a 7% core inflation (based on the previous year); however, this changed once Russia invaded Ukraine, declaring war and worsening inflation rates because supply chains from this region, such as food and energy, were suddenly broken off.
Throwing more complications into the mix, the Federal Reserve started to increase interest rates, depleting currencies from emerging markets. Most commercial emerging market banks hiked their interest rates to reduce a further decrease in currencies and stabilize and limit inflation.
While many emerging market central banks acted fast in response to inflation, the growth of prices still increased during most of 2022, diverting consumers. Thankfully, the pressure of some price increases has reduced recently, especially in markets such as Czechia, Chile, and Brazil.
Meanwhile, Eastern Europe and Latin America have seen some disinflation, but don’t hold your breath as factors such as the war in Ukraine and government spending behavior could suddenly cause price pressures to worsen and rise again, particularly energy prices in Eastern Europe.
Every country part of the ASEAN-6: Vietnam, the Philippines, Indonesia, Malaysia, Thailand, and Singapore, saw less than 2% in core inflation at the beginning of 2022. In contrast, recent market research has shown that the region’s inflation has increased slightly as consumer demands sprung back.
Despite these consumer behaviors, Asia has showcased far lower core inflation than most emerging markets.
Impact of Inflation on Consumer Trends
Inflation has been a significant challenge for emerging market economies in Africa and Latin America. As prices rise, consumers are forced to adapt their behaviors and choose what to purchase and how much to spend.
In a recent Rwazi consumer tracker, consumers in Nigeria and Kenya indicated that gasoline, mobile data, and food prices had been most strongly impacted. Within food categories, meat prices are mentioned most often.
The effects of inflation are felt by consumers across various categories, with the costs of food and gasoline being prevalent.
The continued rise of inflation is having a significant impact on consumer behavior. 90% of consumers plan to change their shopping habits in response to these increasing prices.
As prices continue to rise, some consumers opt to purchase smaller package sizes (58%) to curb their spending. However, more consumers are instead seeking out lower-priced alternatives, opting to "trade down" to less expensive products (87%). In addition, many consumers are looking for products offered at a promotional price or a discount to offset the impact of rising prices on their wallets (65%).
One trend that has emerged in response to this situation is the increasing popularity of local labels. Consumers are increasingly seeking locally sourced, manufactured products to support their local economy and potentially save money on transportation and shipping costs. Local brands are often more affordable for consumers, as they do not need to include the same markups associated with importing goods from other countries.
Over the next few months, inflation is expected to have an impact on spending. While some individuals may choose to buy smaller package sizes, a majority are opting for cheaper alternatives instead.
Almost 90% said they would do at least one of these things because of higher prices.
In countries like Brazil and Chile, core inflation was around 7% in 2022, which made it difficult for consumers to maintain their standard of living. In Eastern Europe, the war between Russia and Ukraine disrupted supply chains for food and energy, leading to even higher inflation rates.
While some countries like Czechia, Chile, and Brazil have reduced inflationary pressures, there is still the risk of rising inflation due to factors like the war in Ukraine and government spending behavior. Rising prices have led to reduced consumer spending, hindering the growth of consumer goods companies in these regions.
In contrast, regions like Asia and the Middle East have maintained lower levels of inflationary pressure and stable interest rates, presenting growth opportunities for consumer goods companies. However, the impact of inflation on consumer trends must be addressed, and companies operating in emerging markets must adapt their strategies to meet changing consumer preferences and behaviors.
Impact of Government Policies on Consumer Trends
Governments in emerging markets have responded to the cost-of-living crisis by implementing policies to support their populations. For example, in countries like Czechia, Brazil, Chile, Indonesia, Hungary, and the Philippines, governments implemented policies to reduce the impact of inflation on consumer spending. These policies include initiatives to increase social spending, support small businesses and subsidies for essential goods.
However, these policies have yet to translate into increased consumer spending. In Chile and Czechia, for example, retail sales declined in the latter half of 2022, and other countries have seen stagnant consumerism. While these policies have provided some relief to households, they have not been enough to reverse the trend of reduced consumer spending.
Companies operating in emerging markets must be mindful of government policies' impact on consumer behaviors and preferences. While approaches to support the population may provide some relief, they may only sometimes lead to increased consumer spending.
Opportunities in Emerging Markets
Emerging markets are becoming increasingly important drivers of global consumer trends, with rapidly growing populations, rising incomes, and changing consumer preferences. As a result, companies that can successfully navigate the challenges and risks of investing in these markets benefit significantly from the growing demand for consumer goods.
Companies looking to succeed in 2023 should adjust to current consumer purchasing habits driven by rising inflation. To address this challenge and continue to drive growth, companies can consider the following strategies:
1. Offer smaller package sizes.
Rising inflation makes it harder for consumers to afford larger purchases, so offering smaller package sizes can effectively maintain sales and market share. By distributing smaller package sizes of their products, companies can appeal to cost-conscious consumers and avoid the need to reduce prices.
Offering smaller package sizes in response to rising inflation is a strategy that can help fast-moving consumer goods (FMCG) companies maintain sales and market share in emerging markets. Many consumers in these markets are facing financial pressure due to inflation. According to the Rwazi consumer tracker, 58% of consumers seek ways to reduce their expenses without sacrificing the products they rely on.
By offering smaller package sizes, FMCG companies can meet the needs of cost-conscious consumers who may be unable to afford more significant purchases, which can be an effective way to maintain sales volume and market share, as it allows companies to continue selling their products without having to reduce prices, which could negatively impact profit margins.
Furthermore, offering smaller package sizes can help FMCG companies reach a wider audience. Due to inflation, many consumers often cannot purchase larger packages because of financial constraints. By offering smaller sizes, companies can appeal to this underserved segment of the market. This can be an effective way to grow market share and expand the customer base, which can help to drive long-term growth. Data shows that successful FMCG companies in emerging markets tend to focus more on going for market share than maximizing short-term profitability.
Finally, offering smaller package sizes can also help FMCG companies to differentiate themselves in the market. By offering a wider range of package sizes, companies can provide greater flexibility and convenience to consumers, which can help to build brand loyalty and increase customer satisfaction.
This is a valuable strategy for FMCG companies looking to succeed in emerging markets in 2023. By meeting the needs of cost-conscious consumers, reaching a wider audience, and differentiating themselves in the market, companies can maintain sales volume and market share and position themselves for long-term growth.
2. Introducing affordable product lines
Introducing affordable product lines is a crucial strategy for fast-moving consumer goods (FMCG) companies looking to succeed in emerging markets in 2023, where rising inflation can impact consumers' purchasing power. This approach recognizes that many consumers in these markets may be facing financial constraints. According to the Rwazi consumer tracker, 87% of consumers are looking for more affordable options when making purchasing decisions.
By introducing more affordable product lines or expanding existing ones, FMCG companies can offer a wider range of price points to cater to price-sensitive consumers. This can help companies maintain or increase sales volume and market share by offering products accessible to a broader range of consumers.
3. Utilizing data analytics
Utilizing data analytics is an essential strategy for fast-moving consumer goods (FMCG) companies looking to succeed in emerging markets in 2023. This approach recognizes that data can provide valuable insights into consumer preferences and behaviors, which can be used to develop products and marketing strategies tailored to local needs and preferences.
By analyzing data such as sales trends, consumer demographics, and purchasing habits, FMCG companies can better understand the local market and consumer preferences. This can help companies to identify opportunities to develop new products, adjust pricing, and tailor their marketing strategies to meet the needs of local consumers better.
Data analytics can also help FMCG companies to identify emerging trends and market opportunities. By analyzing data on emerging consumer preferences, FMCG companies can develop innovative products and marketing strategies that differentiate them in the market and help them to gain a competitive edge.
Additionally, data analytics can help FMCG companies to optimize their supply chain and inventory management. By analyzing data on sales trends and consumer behavior, companies can develop more accurate demand forecasts, which can help them to optimize their inventory levels and ensure that they have the right products in the right places at the right time.
Finally, data analytics can help FMCG companies to enhance their customer experience. By analyzing customer behavior and preferences data, companies can develop more personalized marketing strategies and product offerings, improving the customer experience and increasing customer loyalty.
In summary, FMCG companies looking to succeed in emerging markets in 2023 must adapt to the changing consumer purchasing habits driven by rising inflation. To achieve profitable growth, they should focus on offering smaller package sizes, introducing more affordable product lines, focusing on local relevance, utilizing data analytics to understand consumer preferences and behaviors better, and going for market share over short-term profitability. By adopting these strategies, FMCG companies can build strong brand awareness and loyalty, develop a broader product portfolio that meets local consumer needs, and establish a distribution network that reaches a broader audience. These strategies can help to drive long-term growth and profitability in emerging markets.
