Food purchases driven by more than income, research

Posted by AFN Staff Writers on 23rd October 2013

The expanding middle class and rising food prices are set to “dramatically and permanently” reshape the consumer landscape, according to global market research organisation Nielsen, but buying choices are driven by more complex factors than just income.

With the global middle class predicted to grow by 70 million each year and food prices expected to more than double within 20 years, Nielsen said “the world is entering an unprecedented period of rising demand, economic pressure and aspirationally driven buying behaviour”.

According to Nielsen, companies looking to fulfill their economic growth expectations should not focus solely on the middle class, which is often defined by income parameters that are either too high or too low for universal acceptance. In fact, Nielsen’s recent findings revealed that differences in buying intentions for food products with regard to what consumers bought, where they shopped and their perceived spending flexibility was driven more by aspirations and cultural norms than by income alone.

The Nielsen Global Survey of Inflation Impact polled more than 29,000 respondents online in 58 countries to understand how respondents around the world of all income ranges were coping with rising food prices.

“While measuring the global middle class carries real-world implications, the broadest income classification is too low and the narrowest classification is too high to represent real-world buying potential,” said James Russo, Senior Vice President, Global Consumer Insights at Nielsen.

“A more accurate measure is to look at consumer diversity, spending flexibility and the demand landscape in order to understand how to scale goods and services that meet the needs of consumers in both developed and developing markets around the world,” Mr Russo said.

Income is relative

When evaluating the impact of inflation among respondent households that earned incomes reflective of middle-class income parameters, as defined by the Organisation for Economic Co-operation and Development (OECD), Nielsen found that in times of rising food prices, no single group was immune from pain.

The buying sentiment for both discretionary and non-discretionary food and beverage categories among “middle-class” households compared with all other households, on average, was not dramatically different. That is, the findings showed income is not the only standard for measuring financial stability.

‘Flexibility’ another measure

Another measure of buying power is ‘spending flexibility’, or the elasticity in the household budget to afford a rise in food prices without having to make difficult spending choices elsewhere, according to Nielsen.

In the survey of inflation impact, Nielsen segmented respondents into three spending capacities: those with enough money to spend freely, live comfortably, or just meet the basics for food and shelter.

Many factors influence spending

The findings revealed that the notion of spending was relative to many factors, including household composition, in-country spending opportunities, aspirations and cultural diversity.

For example, respondents in the Middle East and Africa region reported the highest percentage (49 per cent) of households earning an income of under US$5,000 a year, yet this region also reported the highest percentage of respondents (17 per cent) able to spend freely.

What’s more, the average Middle East/Africa household size was comparatively larger than those in other regions. One third (31 per cent) of households in the Middle East/Africa region reported living with six or more  people in the home, compared with the global average of only 8 per cent.

At the opposite extreme, respondents in North America reported the highest percentage (46 per cent) of households earning an income above $50,000 (compared with the global average of 22 per cent), but reported the lowest percentage (9 per cent) able to spend freely. The average household size in North America was also the smallest of the surveyed regions, with more than three-quarters (76 per cent) living with three people or fewer in the same house.

Asia-Pacific region findings

In the Asia-Pacific region, 20 per cent of respondents had a household income of less than $5,000, 33 per cent between $5,000 and $19,000, 27 per cent between $20,000 and $49,000, and 19 per cent more than $50,000.

Just 17 per cent of respondents in the Asia-Pacific region said they were able to spend freely, while 47 per cent said they lived comfortably, and 36 per cent said they only had enough money to meet the basics for food and shelter. Nearly half (46 per cent) of households in the Asia-Pacific region had two or three people living in the household, and 40 per cent had four to five people.

Global averages

On average, 42 per cent of all respondents said they were able to live comfortably and bought some things just because the liked them, while 44 per cent said they only had enough money for the basics – food and shelter. Only 14 per cent globally said they were able to spend freely.

Nine of the top 10 countries with the least spending flexibility were in Europe. More than three-quarters of respondents not able to afford a rise in prices were from Greece (87 per cent), Croatia (82 per cent), Romania (81 per cent), Hungary (77 per cent), Ukraine (77 per cent) and Bulgaria (77 per cent).

Food purchase choices not just about money