Mintel Key Market Size Analysis

MINTEL KEY MARKET SIZE ANALYSIS

Mintel’s team of global analysts evaluate the markets of four key economies – Brazil, China, UK and US.

Why? To provide you with an overview of consumer expenditure, market opportunities and hidden potential in key sectors around the world. BRAZIL • CHINA • UK • US MINTEL KEY MARKET SIZE ANALYSIS MINTEL KEY MARKET SIZE ANALYSIS

IN-HOME FOOD Generally, the higher the standard of living, the lower FOODSERVICE* the proportion spent on life’s necessities: so in China – A NECESSITY BUT in-home food accounts for a fifth of expenditure (19.9%), – CULTURE MEETS ECONOMICS compared with less than 6% (5.6%) in the US. Given the WITH TRADING growth in consumer economies in Brazil and China, it UP POTENTIAL should follow that the share devoted to this area would be declining while in the US and UK it would be steady. However, while Brazil and the US conform to the model (the share of spend fell from 10.6% to 8.7% in Brazil and from 5.7% to 5.6% in the US between 2008 and 2013), the share devoted to food has remained quite steady in This sector naturally goes hand in hand with the in-home the price differential between getting take-out or a meal China and in the UK it rose. This is largely because the food market and there are a host of cultural, social and in a restaurant and eating at home is quite low. This increasing numbers of urban Chinese consumers have economic factors which determine its importance to contrasts with Britain where the costs are much higher been trading up to Western foods and products with household budgets. The US accounts for the largest share - the share is just 3.1% in the UK. In three countries the health benefits and an assurance of safety. The UK, which of spend (4.5%), as consumers eagerly return to dining foodservice share of expenditure has been steady, but in of the four countries is most reliant on food imports, has out on a regular basis, fueling rapid growth of the fast China it has fallen. Although the data refers to consumer been hit by global price increases and rising VAT on many casual segment. Thus, well-known, fast casual brands, expenditure only, excessive business spend reduction packaged products in a time when, for many households, such as Panera, Chipotle and Corner Bakery, continue has meant that full service restaurants have had to woo real incomes were falling. to lead with innovation and growth and are joined by a the consumer with price cuts. Additionally, they have had proliferation of “better” burger and quickly prepared pizza to compete with more rapidly growing fast food formats chains. The US is, of course, the birthplace of the giant where prices are lower. IN-HOME FOOD SHARE OF SPEND, 2008-13(%) global brands of McDonald’s and Subway. Furthermore,

*(eating out and non-alcoholic drinks) 2008 6.1 10.6 5.7 20

2009 7.1 10.7 5.8 19.6

2010 7.2 9.9 5.8 19.7

2011 7.3 9.3 5.7 19.6 FOODSERVICE SHARE OF SPEND, 2013(%)

2012 7.4 9.0 5.6 19.5

2013 7.3 8.7 5.6 19.9 3.1 3.3 4.5 3.4 UK BRAZIL US CHINA UK BRAZIL US CHINA

NON-ALCOHOLIC DRINKS ALCOHOLIC DRINKS - FIZZ IN THE MARKET - PRODUCT MIXERS

This sector accounts for around 1- 2% of the household As with the components of the main drinks within this budgets of all four countries. Carbonated soft drinks market, so there is wide diversity in how much consumers dominate the markets in Brazil, US and UK, while in are willing to spend on the products, ranging from 1.8% China bottled water is top, in part reflecting the fears in the US to 4.9% in China. The Chinese consumer over food safety and the standard of tap water. However, alcohol market more than doubled between 2008-12. whereas Brazilians devote 2% of expenditure on the Although it slowed in 2013 with more subdued economic area it is just 1.1% in the US. This is despite US per growth, drinking out of home remains popular among capita consumption being well over twice of that of Brazil urban consumers in China. Meanwhile, imported spirits and is largely due to the much higher prices per litre of NON-ALCOHOLIC DRINKS with premium prices are also appealing. While there is carbonated soft drinks in the latter. SHARE OF SPEND, 2013(%) some evidence that these may be past their peak, total per capita spirits consumption in China is still much higher than in the other countries, largely due to on-trade sales. The amount devoted to this area is also linked to cost. ALCOHOLIC DRINKS In the UK, where taxes are high, the difference between SHARE OF SPEND, 2008-13(%) 1.8 2.0 1.1 1.8 prices on- and off-trade are large. UK BRAZIL US CHINA UK BRAZIL US CHINA

2008

3.7 3.4 1.8 4.4

2009

3.9 3.3 1.9 4.5

2010

3.9 3.3 1.8 4.8

2011

4.0 3.3 1.8 4.9

2012

4.0 3.5 1.8 5.1

2013

3.9 3.6 1.8 4.9

BEAUTY & PERSONAL CARE CLOTHING & ACCESSORIES - CHANGE IN THE MAKE-UP - THE PRICE OF FASHION

On face value, the Brazilians live up to their body-beautiful Although this could be counted as an essential, there is a image, being one of the few markets where expenditure huge discretionary element in the market. It is true that the on bodycare products outweighs spend on facial skincare. share of spend is higher in Brazil and China than in the Overall, cosmetics and personal care accounts for 1.9% US and UK. Nevertheless, the trends across the countries of Brazil’s sales in 2013, compared with 1.6% in China, are at odds. Undoubtedly, the Chinese market is the 1.5% in the UK and a mere 1.2% in the US. While the most dynamic. This is an area where growth has reached most expansionary Brazilian categories are deodorants, beyond the major Eastern urban areas to lower tier cities shampoos and conditioners, the highest spend is on the and where online retail has been a major contributor to relatively expensive fragrances, making Brazil the largest spreading fashion across the country. Consequently, fragrance market in the world. In contrast, colour nine RMB in every 100 is spent on clothing, footwear and cosmetics comes fairly low down the list, whereas it is accessories, as opposed to just over US$4 out of every the top-selling category in the UK and the US. China, 100. Prices are very competitive, particularly in low-priced meanwhile, is notable for its devotion to facial skincare, accessories which have proved popular. This contrasts and it is by far the largest market for this category. with the UK where, after years of very low inflation, A clue to the comparatively overall low spend in the US is prices have soared in recent years, pushing up the share the fact that many prestige brands are available in mass of spend. This is going in the other direction in Brazil market retailers at competitive prices. (although the market is still recording healthy growth) where clothing prices have not risen as fast as other areas which have captured spend, such as housing.

CLOTHING & ACCESSORIES SHARE OF SPEND, 2008-13(%)

UK BRAZIL US CHINA

2008 5.1 8.0 4.2 7.7

2009 BEAUTY & PERSONAL CARE 5.8 7.4 4.1 7.5 SHARE OF SPEND, 2013(%) 2010 5.9 7.5 4.1 7.7

1.5 1.9 2011 UK BRAZIL 6.0 7.3 4.2 8.0

2012 6.1 7.1 4.2 8.6

1.2 1.6 2013

OTC PHARMACEUTICALS HOUSEHOLD CARE - DIFFERENT WAYS OF - A CLEAN SWEEP TAKING THE MEDICINE ACROSS THE WORLD

Given the diversity in healthcare provision and attitudes This is a small but stable part of consumer spend in to health and wellbeing across the four countries, it is not most countries. The exception is China where not only surprising to see the differences in importance placed does it have the greatest percentage of spend but it has on the area within the household budget. The Chinese been slowly growing (from 1.4% in 2008 to 1.8% in 2013). are proportionally the biggest spenders. Government A major part of this is the hardware associated funding only covers the most basic prescriptions and with with household chores, such as basic cleaning tools. increased health awareness and an ageing population, But as households become better equipped, so areas the market has prospered. Brazil, although counting for such as machine washing detergents and specific, often considerably less proportionally, still accounts for 2.6% proprietary, cleaners grow. as few medicines are provided free of charge. This contrasts sharply with the UK, where a minute 0.3% is devoted to the area. The vast majority of drugs are supplied on prescription by the National Health Service and a huge proportion of the users are completely exempt from payment.

HOUSEHOLD CARE SHARE OF SPEND, 2013(%)

OTC PHARMACEUTICALS 0.5 0.7 0.5 1.8 SHARE OF SPEND, 2013(%) UK BRAZIL US CHINA

0.3 2.6 0.4 4.5 UK BRAZIL US CHINA

TECHNOLOGY & LEISURE & ENTERTAINMENT COMMUNICATIONS - HAVING FUN - PLUGGED IN These areas seems to defy possible global stereotyping, in that the Chinese devote proportionally the most Here there is a sharp divide between China and Brazil, spend; and the Brazilians the least. However, closer with China allocating some 7.2% of all spend to this examination reveals that the higher share of spending area, in contrast to Brazil’s 4.0%. However, the latter is in China is contributed to by both the variety of leisure catching up although the sector has been hindered by pursuits (such as karaoke, lottery, health clubs) and the lack of industry regulation, comparatively high prices and relatively higher price-to-income ratios of paid venues fragmentation within the sector. Comparing the US and and services (such as cinemas and theme parks). When UK it can be seen that not only do the Americans spend Brazilians look to entertainment, it is often not of the proportionally more than the British, but it has gradually formal type and generally involves little expenditure, such increased its share. This is despite the fact that generally as entertaining at home or watching television. The UK prices are lower on the Western side of the Atlantic. and US lie between these two countries, with the US Indeed, the British market seems to have been hit by the ahead. Membership dues for clubs, and fees associated recession with share of spend peaking in 2009. with sports arenas, parks and museums form a major part of American spend. In the UK, the recession put pay to TECHNOLOGY & COMMUNICATIONS the increases in shares of spend on this area, but didn’t stop progress at all. However, the mainstay has been SHARE OF SPEND, 2008-13(%) gambling, particularly online. UK BRAZIL US CHINA

2008 5.6 3.0 6.4 7.3

2009 6.1 3.1 6.4 7.6

2010 6.0 2.4 6.5 7.6

LEISURE & ENTERTAINMENT 2011 SHARE OF SPEND, 2013(%) 5.8 3.7 6.5 7.2

2012 5.5 3.9 6.5 7.2

2.5 1.6 3.4 4.2 2013 UK BRAZIL US CHINA 5.2 4.0 6.6 7.2

HOME & GARDEN TRANSPORT - FARE RISES - THE DREAM HOME

This is a segment where China lags behind other countries, with car ownership well behind the countries Here the market shares almost show the opposite pattern covered here. Much travel is by public transport which except that the US share is higher than that for Britain. tends to be low cost. In contrast, for many Brazilians The property boom in Brazil has meant that there has public transport is very expensive and suffers from chronic been a lot of activity in the housing market; and new infrastructure problems - yet they have no alternative. For homes have to be equipped and furnished. This has been those that can afford it, the private car provides the only encouraged by government incentives and accessible option, but ownership is still much lower than in the US or credit. In China, while urbanisation continues, many Western Europe. In the UK, public transport costs are also urban households are now equipped with the major relatively high with the government withdrawing or cutting appliances. Furthermore, the government subsidies for back funding on services. Additionally, the cost of fuel has consumer appliances in rural areas ended in 2012 and risen to such an extent that the government has cancelled while home owners are looking to décor to express wealth automatic increases on fuel duty which are already among and status, only just over 3% of expenditure is allocated the highest in Europe. Accordingly, the share of spend TRANSPORT for this. The UK and US represent mature markets and has increased. In the US, the automobile is king. While SHARE OF SPEND, 2008-13(%) while individual designs and appliances become popular, this sector was severely hit by the recession, car sales the overall share of expenditure is quite steady. have bounced back. However, the share of expenditures UK BRAZIL US CHINA dedicated to transportation has not yet recovered to 2008 levels as drivers look for ways to reduce miles and are consequently spending less on fuel. 2008

13.9 15.1 12.1 3.8

2009

15.7 15.4 10.5 3.7

2010

16.1 15.4 11.0 3.5 HOME & GARDEN SHARE OF SPEND, 2013(%) 2011

15.9 15.2 11.7 3.6

2012

16.1 15.1 11.9 3.7

3.6 5.7 4.1 3.3 2013 UK BRAZIL US CHINA 15.7 15.4 11.8 3.6

PERSONAL FINANCE & HOUSING - BUILDING CREDIT TRAVEL & TOURISM A major area of expenditure for all countries, there is still - HOME AND AWAY considerable difference in how much personal finance PERSONAL FINANCE & HOUSING and housing accounts for. It is the British which spend SHARE OF SPEND, 2013 (%) This is an area where the Chinese share of spend is the most, largely because of an underlying situation of more than the sum of the other three countries together. demand for property exceeding supply. The crash of 2008 UK BRAZIL US CHINA However, while international travel has gained ground TRAVEL & TOURISM hit the housing and finance market hard and, although the vast majority of expenditure is on domestic travel. SHARE OF SPEND, 2013 (%) the share of spend has recovered, it is still considerably 2008 Much of this occurs at the major holiday events, such as under that of 2008. Interest rates have remained low, 44.0 34.1 27.4 21.3 New Year, when vast numbers of urban Chinese return but rents and utility costs have soared. Brazil has also to their rural roots, aided by the improved transport experienced a housing boom which has increased debt 2009 network in the country. China has realised the potential and the amount that the sector accounts for in spend. 37.6 34.0 27.8 22.4 of tourism and there is now a National Tourism Day In the US, just over a quarter of household budgets go on May 19th to capitalise on the trend. For the UK, it on to this area. This has been relatively steady; low 2010 is the international segment which makes it relatively interest rates have largely been balanced by sharply 37.0 34.9 27.4 23.1 important in household budgets. True, the recession higher rental costs. The finance sector was also hit hard saw declines, and there was a campaign by domestic in 2009, but has bounced back as consumer confidence 2011 suppliers for “staycations”, but low cost airlines have returns. In China home ownership remains a goal of most 36.8 35.1 27.1 21.9 helped to ensure that holidaying abroad remains consumers, but the difference in prices and incomes competitive. In Brazil and the US, shares are shorter is too wide for many to fulfil their dreams. The housing 2012 and foreign travel is a low priority. In the latter the low market has stabilised in the last couple of years and while 36.7 35.3 26.8 20.8 paid time off entitlement is a restraining factor while in insurance products are doing well in a more open market, Brazil it is largely confined to the highest income groups. 3.4 1.5 2.2 9.2 it has not been enough as the share devoted to this 2013 UK BRAZIL US CHINA segment continues to slowly decline. 38.1 35.4 26.7 20.2

MISCELLANEOUS - THE MOVE TO SERVICES

By far the outstanding feature is the high share The segment is comprised of mainly services and many of American spend devoted to this area. This is of these are still at early development stages in China, overwhelming due to medical services being included. hence the low share of spend it takes. The UK, at just Although the much debated PPACA (Patient Protection over 7%, is the second largest share but dwarfed by and Affordable Care Act), frequently nicknamed the US as the National Health Service keeps spend on “Obamacare”, is designed to cut the costs for the lowest medical services low. The main part of the growth in this paid, its full effects have not yet been felt and for many, sector in Brazil has been education, helped by the growth medical costs account for a large part of their budgets. in numbers of the highest income groups in the country.

MISCELLANEOUS SHARE OF SPEND, 2013(%)*

7.1 6.8 26.0 5.4 UK BRAZIL US CHINA

*For UK, inclusive of Newsagents Goods, for US inclusive of Medical Care.

GLOBAL OVERVIEWS BREAKDOWN OF CONSUMER EXPENDITURE, 2013 UK BRAZIL US CHINA Although we are all part of the global village there are The other life necessity, food, features highly: in-home major differences in the priorities when consumers come food is number three in the UK and Brazil and two in to spend their money. Nevertheless, the basic necessity China, where incomes are low and trading up is a major IN-HOME FOOD of housing (along with finance) is the number one priority feature.However, clothing has been a big success story in 7.3% 8.7% 5.6% for all countries. Transport is number two in Brazil and China, with fashion being a major feature and the Chinese 19.9% the UK where public transport is expensive or inadequate taking online purchasing to heart. FOODSERVICE 3.4% and car ownership is relatively high but costly. In the US 3.1% 3.3% 4.5% car ownership is high and transport is number three, after However, expenditure patterns are constantly changing, NON ALCOHOLIC DRINKS the miscellaneous segment which accounts for over a creating opportunities for all those suppliers to a huge 1.8% 2.0% 1.1% 1.8% quarter of expenditure mainly due to medical expenses. chunk of world expenditure. ALCOHOLIC DRINKS 3.9% 3.6% 1.8% 4.9% BEAUTY & PERSONAL CARE 1.5% 1.9% 1.2% 1.6%

OTC PHARMACEUTICALS 0.3% 2.6% 0.4% 4.5% HOUSEHOLD CARE 0.5% 0.7% 0.5% 1.8%

CLOTHING & ACCESSORIES 6.0% 6.8% 4.2% 9.0% TECHNOLOGY & COMMUNICATIONS 5.2% 4.0% 6.6% 7.2%

LEISURE & ENTERTAINMENT 2.5% 1.6% 3.4% 4.2%

HOME & GARDEN 3.6% 5.7% 4.1% 3.3%

TRANSPORT 3.6% 15.7% 15.4% 11.8% TRAVEL & TOURISM 3.4% 1.5% 2.2% 9.2%

PERSONAL FINANCE & HOUSING

20.2% 26.8% 38.1% 35.4%

MISCELLANEOUS 7.1% 6.8% 5.4%

26.0%

ONES TO WATCH

While each of the consumer markets in Brazil, China, UK and the US present opportunities, here we ask Mintel’s lead consumer analysts in each country to highlight their ‘ones to watch’:

CHINA - Ruyi Xu BRAZIL - Sheila Salina UK - Ina Mitskavets US - Fiona O’Donnell

“China is still a dynamic market where we see growth “Categories related to personal interests such as “In the UK, as consumer confidence recovers there will “Essentials such as housing, transportation and food opportunities in every consumer market. Looking at leisure, on-premise alcoholic drinks, technology and be more willingness to spend on leisure, entertainment (at home) are among the largest spending categories for the next five years, the most exciting market sectors communication (including smartphones, laptops, and the and holidays, especially as these are the area where the US. However, the greatest 2012-13 gains occurred for will be those that can take advantage of people’s Internet) have all promising growth forecasts. They are Britons had cut their expenditure during the downturn. non-essential categories such as dining out, alcohol on- increasing willingness to spend on improving health and mainly associated with consumption by young adults aged These sectors will benefit from people’s desire for a break premises, technology and communications, vacations and the quality of their leisure time. Specifically, we expect 25-35 - Brazil’s fastest-growing age group - who have a from their daily routines, as is the case with cinema, tourism, and leisure and entertainment. Total expenditures that sectors such as food and holidays will enjoy great busy routine with work and starting or improving a home. music concerts and spectator sports. Going forward, the are forecast to grow by 20% over the next five years to growth rates. Another important reason that makes these They are looking for quality of life through products and gambling segment is projected for particularly strong exceed $12 trillion in 2018. Over this period, we expect sectors interesting is consumers’ changing values and services related to leisure, either for themselves or to be growth, as the FIFA Football Cup 2014 is expected to leisure and entertainment as well as vacations and consumption habits that fuel new opportunities shared with friends. Sporting events will be an important attract more footfall into betting shops. Also, aided by the tourism to see the greatest gains. This is the result of both for businesses. Chinese consumers are not only driver for this.” rising adoption of smartphones and tablet computers, improving economics, as well as demographic shifts.” looking for basic functional fulfilment, but also online gaming and betting is expected to grow by an expecting new experiences and enjoyment... impressive 72% in the next five years.” and to make a statement with such spending that they are living a better life.”

© 2014 Mintel© 2014 Group Ltd. All rights reserved. Confidential to Mintel. 20 21 TO FIND OUT MORE ABOUT THE REPORTS: ff Brazilian Consumers 2014: Changing Consumption Habits - BRAZIL 2014 ff China Consumers 2014 - CHINA 2014 ff American Consumers 2014: Looking Forward - US 2014 ff British Consumers 2014: The British Dream - UK 2014

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