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Investing in emerging consumers

By Tassos Stassopoulos
 — 1 minute read

Investors who want to tap into the burgeoning domestic consumption in emerging markets should focus on grassroots research, says AllianceBernstein's Tassos Stassopoulos.

Tassos Stassopoulos

Domestic consumption in emerging markets is estimated to grow from about US$12 trillion per year to US$53 trillion in 2035, making it one of the biggest investment opportunities in the world today.

But how can investors best capture this opportunity?


We believe that consumers, not companies, will drive the trend. That means the traditional way of researching this opportunity – focusing on consumer companies in the emerging-market equities indices – is not helpful, because indices consist of companies that have been successful in the past.

While there is no easy guide to capturing the emerging consumer trends of the future, we know that they cannot be analysed adequately from a desk in London, New York or even Hong Kong.

We need to capture them before they appear as data spreadsheets on the desks of far-flung researchers so that investors can position themselves in a timely manner and truly benefit from companies that will be the success stories of tomorrow.

We believe the best way to do this is to carry out the same kind of research that consumer companies use before they enter a new market – that is, face-to-face interviews with emerging-market consumers in their homes to discover their spending habits, life experiences, hopes, dreams and aspirations.

This so-called ‘grassroots research’ provides valuable insights and helps to test and often demolish many myths about emerging-consumer investing; to identify important themes specific to the opportunity; and, of course, to gain a sense of which trends will become important in future.

Since 2011, we have spent a total of 130 days travelling to emerging markets, analysing data from around the world to identify key themes that are becoming apparent in the lives of emerging consumers.

We have singled out seven key themes which, in our view, can help investors avoid the potential pitfalls of investing in the emerging consumer opportunity, and in indicating where to look for appropriate stocks:

1. The biggest change will come from the bottom of the social pyramid.

Many businesses which target emerging consumers assume that their best opportunities lie in the emerging middle classes.

We have found this to be a myth. Low-income consumers tend to be more optimistic than those in the socio-economic class above them.

Typically, they have experienced higher-percentage wage increases than the middle classes, while social change in many countries is undermining the middle classes’ sense of security.

Consequently, we favour companies that can cater to the lower income groups.

2. Spending in the ‘golden years’ will be about value for money.

As in the developed world, the demography in emerging markets is ageing rapidly.

It’s wrong to assume, however, that this will lead to consumption trends similar to those of the developed world, such as spending on wealth-management services, cruises and expensive drugs for age-related diseases.

Our grassroots research has highlighted the rise of the younger generation, who are better educated than their parents and cheaper to employ.

Consequently, many older consumers over the age of 45 are losing their jobs.

Companies that will benefit from this trend are those who offer such people quality products that represent good value and services such as retirement insurance or cheaper healthcare.

3. Refrigerators reveal consumers’ social status.

Food is the biggest consumption category for many emerging consumers and changes as they become more affluent.

We photograph the contents of consumers’ fridges from different income groups, to learn about what these families eat and predict how they will change their diets as they progress along the socioeconomic spectrum.

For example, those who acquire a fridge for the first time typically use it as an efficiency device to store vegetables and leftover food.

When they become middle class, their fridges contain indulgences such as ice-cream, chocolates and beer.

When they become more affluent they become more health conscious and refrigerate low-fat milk, probiotics and fresh juices.

This information can help us plot the trajectory of food consumption in particular countries and identify the companies that will benefit.

4. Road building will drive a healthcare revolution.

In India, many companies, particularly those in the construction industry, are taking interest in plans to spend five trillion rupees over the next two years in increasing the rate of National Highway construction.

Many investors are buying shares in the infrastructure companies that will benefit.

Grassroots research has indicated another, long-term investment opportunity.

One of the major constraints preventing people in remote villages from seeking better healthcare is the amount of money they will lose in salary forgone because of journey times to urban centres along poor roads.

Properly constructed roads will remove this problem and should result in growth for healthcare providers – such as hospitals and pharmaceutical companies making cost-effective generic drugs – that can take advantage of the opportunity.

5. Consumer connectivity will move from East to West.

One reason that Indian rural workers have seen a sharp rise in income is that mobile phones have proved to be a very timely and efficient way of keeping them informed about which farms need their services and when.

Mobile phones and related technology, such as mobile payments systems, are proving to be an even more powerful agent of change in China.

They are transforming the retail industry, where it is becoming increasingly accepted that customers “showroom” (try on clothes in shops, for example) then complete the purchase online.

Traditional retailers are embracing the trend as a way of keeping tabs on customers and improving their inventory management.

So advanced is China in this respect, that we expect the country will emerge as a global leader in e-commerce and mobile payment solutions.

6. After seven decades, urbanisation is no longer a one-way street.

Statistics show that urbanisation has been a key feature of emerging-country growth since the 1950s and is set to continue.

Grassroots research shows, however, that there is a growing but little understood trend in the opposite direction: social and economic behaviour in remote villages can be influenced by contact with people who have moved away to the cities, but keep in touch through cell phones, Skype, and return visits.

The contents of fridges can be helpful here, too. For example: in a village household from which one member has moved to the city, the contents of the fridge begin to resemble those of the fridge owned by the city-dwelling relative.

This happens since the village dwellers stock items recommended by their relative, or which they have tried themselves when visiting the city.

7. Electricity can be a catalyst for women’s empowerment.

While education is an important way to empower women, other factors tend to be overlooked.

This is particularly relevant to emerging markets, where opportunities for women to work are far fewer than in the developed world.

According to the World Bank, less than 40 per cent of all adult women in the 12 largest emerging markets (excluding China) participate in the labour force.

This represents a vast untapped resource, and investors should be aware of trends that could unleash it.

One of these is the supply of electricity which – by making possible a range of household appliances and labour-saving devices – could empower more women to choose between staying at home and venturing into the workforce. We have seen this in South Africa and expect it to happen in India as the country upgrades its electricity supplies over the next four years.


In our own research methodology, grassroots research is an important dimension that sits beside conventional top-down research (which identifies broad investment themes, and countries and sectors worthy of further study) and bottom-up research (which helps select the companies that will incorporate the grassroots research insights into portfolios).

We believe that investors who are able to combine these three approaches in their research and portfolio construction will be well positioned to invest successfully in domestic consumption growth in emerging markets.

Tassos Stassopoulos is a portfolio manager in the emerging consumer division of AllianceBernstein.

Investing in emerging consumers

Investors who want to tap into the burgeoning domestic consumption in emerging markets should focus on grassroots research, says AllianceBernstein's Tassos Stassopoulos.

Tassos Stassopoulos
Tassos Stassopoulos
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