For the past decade, Mexico has been making quiet—but steady—economic progress. Overcoming a history of financial turbulence, the country has generated modest growth, maintained fiscal stability, and quickly recovered from the 2008–2009 global financial crisis. Mexico’s gains, however, have yet to translate into the surge of consumer spending witnessed in several other big emerging markets. Indeed, despite an improving economy, roughly half of the Mexican households we recently surveyed said that they plan to tighten their belts in the near future.
The socioeconomic conditions are aligning for Mexico’s takeoff in consumer spending. Thanks to favorable demographics and growing affluence, millions of households are joining Mexico’s middle class. What’s more, our research shows that the overwhelming majority of these families are optimistic about the future and determined to build a better life. We project that, as long as Mexico’s public and private sectors take the actions needed to promote stable economic growth, consumption by Mexico’s middle class will surge by around 7 percent annually through the end of the decade and account for around 93 percent of incremental demand.
But in which product categories is consumption likely to surge? When are these takeoffs likely to occur? And what should companies be doing to position their product lines, retail channels, and marketing messages to capture the opportunities in a consumer market that we project will surpass $325 billion in 2018?
To gauge the sentiment of Mexican consumers and their spending plans, The Boston Consulting Group’s Center for Consumer and Customer Insight interviewed more than 3,000 households across the country at all income levels in 2014. We asked about their confidence in Mexico’s economic future, their sense of financial security, and their consumption habits and priorities for more than 200 products. We also analyzed the relationship between past household consumption of these products and changes in income.
The following are among our key findings:
- Mexico’s middle class is surging. Largely due to demographic trends, Mexico will have around 1.6 million more middle-income households in 2018 than in 2013—even if economic growth remains modest. This will alter consumption patterns across all product categories.
- Consumers are bullish. All told, 77 percent of Mexican households said that they are either very optimistic or somewhat optimistic about the future. Only 32 percent reported that they are not financially secure—a sharp drop from 44 percent in 2012.
- But consumers are cautious about spending. While 17 percent of consumers said that they plan to increase spending in the year ahead, 48 percent said they plan to cut back. This suggests that consumers may want to see concrete evidence that recent economic reforms will translate into solid jobs and sustained growth before they change their consumption patterns.
- The middle class is trading up to enhance quality of life. Respondents most frequently said they plan to spend more in product categories that can improve their living standards, such as education, food, and health care. In a break from past behavior, middle-income consumers said they plan to trade down in categories perceived as less essential, such as alcoholic beverages and out-of-home entertainment.
These findings indicate that while there are enormous growth opportunities in serving Mexico’s rapidly growing middle class, consumer-focused companies need a solid understanding of the market in order to realize those opportunities. They should recognize how changes in income have influenced consumption in Mexico in the past so they can anticipate which product categories are likely to experience a surge in spending. But companies also need keen insights into how consumption patterns, attitudes, and priorities are shifting in key segments of the Mexican market.
Our projections are based on assumptions of higher—but still modest—economic growth in Mexico. A raft of new economic reforms seeks to unleash investment in the energy sector, overhaul the financial system, make the labor market more flexible, and improve government efficiency. Such reforms are essential if Mexico is to create enough solid, middle-income jobs for the millions of people who will enter the nation’s workforce each year. Economists predict that Mexico’s economy will grow significantly faster if such actions are fully implemented—and further increase the size and spending power of the middle class.
Companies must act now to position themselves for Mexico’s consumer boom. For companies in many product categories, this is the time to expand their on-the-ground presence and to rethink their product portfolios, distribution systems, and brand positions. In numerous other sectors, companies should be laying the groundwork. The socioeconomic conditions and consumer intent are in place. The only question is when the economy will be able to deliver the Mexican moment.