Urban-World-Global-Consumers-Executive-summary（April 2016）.pdf

EXECUTIVE SUMMARYAPRIL 2016URBAN WORLD:THE GLOBAL CONSUMERS TO WATCHCopyright McKinsey&Company 2016In the 25 years since its founding,the McKinsey Global Institute(MGI)has sought to develop a deeper understanding of the evolving global economy.As the business and economics research arm of McKinsey&Company,MGI aims to provide leaders in the commercial,public,and social sectors with the facts and insights on which to base management and policy decisions.The Lauder Institute at the University of Pennsylvania ranked MGI the worlds number-one private-sector think tank in its 2015 Global Think Tank Index.MGI research combines the disciplines of economics and management,employing the analytical tools of economics with the insights of business leaders.Our“micro-to-macro”methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy.MGIs in-depth reports have covered more than 20 countries and 30 industries.Current research focuses on six themes:productivity and growth,natural resources,labor markets,the evolution of global financial markets,the economic impact of technology and innovation,and urbanization.Recent reports have assessed the economic benefits of tackling gender inequality,a new era of global competition,Chinese innovation,and digital globalization.MGI is led by three McKinsey&Company directors:Jacques Bughin,JamesManyika,and JonathanWoetzel.MichaelChui,SusanLund,AnuMadgavkar,and JaanaRemes serve as MGI partners.Project teams are led by the MGI partners and a group of senior fellows,and include consultants from McKinsey&Companys offices around the world.These teams draw on McKinsey&Companys global network of partners and industry and management experts.In addition,leading economists,including Nobel laureates,act as research advisers.The partners of McKinsey&Company fund MGIs research;it is not commissioned by any business,government,or other institution.For further information about MGI and to download reports,please visit Dobbs|LondonJaana Remes|San FranciscoJames Manyika|San FranciscoJonathan Woetzel|ShanghaiJesko Perrey|DsseldorfGreg Kelly|AtlantaKanaka Pattabiraman|Silicon ValleyHemant Sharma|San FranciscoAPRIL 2016URBAN WORLD:THE GLOBAL CONSUMERS TO WATCHIN BRIEF URBAN WORLD:THE GLOBAL CONSUMERS TO WATCH As world population growth slows,global consumption growththe demand that fuels much of the worlds economic expansionwill depend heavily on how much each individual spends.Knowing which consumers are likely to be spending robustly,where they are,and what products and services they prefer to purchase becomes even more important for companies,policy makers,and investors.Until the turn of the century,more than half of global consumption growth came from an expanding number of consumers in the world.In the period to 2030,population growth will generate only 25 percent of global consumption growth with the rest coming from rising per capita consumption.For decades,companies serving consumer markets could rely on expanding numbers in most segmentsbut no longer.Nine groups of urban consumers are projected to generate three-quarters of global urban consumption growth from 2015 to 2030and just three groups about half of that growth:Developed retiring and elderly(60-plus years in developed regions).This group will grow by more than one-third,from 164 million in 2015 to 222 million in 2030.It will generate 51 percent of urban consumption growth in developed countries,and 19 percent of global urban consumption growth.Chinas working-age consumers(15 to 59 years).Their number will expand by 20 percentan additional 100 million people.Their per capita consumption is expected to more than double.By 2030,they will spend 12 cents of every$1 of worldwide urban consumption.North Americas working-age consumers(15 to 59 years).The already large numbers and per capita consumption of this group will grow modestly by 7 percent and 24 percent,respectively,from 2015 to 2030.Many younger consumers are under income pressure and are cost conscious in their spending.Consumption is shifting toward services,reflecting two trends:heavy spending on health care among aging consumers in developed regions,and increasing spending by consumers in emerging economies as their incomes rise to thresholds where consumption of services such as communications,transport,restaurants,and catering takes off.Cities matter.By 2030,consumers in large cities will account for 81 percent of global consumption and generate 91 percent of global consumption growth from 2015 to 2030.Global urban consumption is extraordinarily concentratedjust 32 cities are likely to generate one-quarter of the$23 trillion in urban consumption growth projected from 2015 to 2030,and 100 cities will be responsible for 45 percent of that growth.Consumption and growth are now coming under pressure in many cities as population growth slows and urbanization plateaus in many countries.Six percent of large citiesmost of them in developed regionsare already experiencing declining populations.However,others,particularly in emerging economies,continue to grow,and will be home to rising numbers of consumers to watch.Roughly 700 large cities in China alone will account for$7 trillion,or 30 percent,of global urban consumption growth to 2030.Companies need to understand how shifting demographics impact their organizations footprint.If that footprint doesnt match the most promising consumer markets,they may need to adjust their strategy.Knowing which citiesand even neighborhoods within citiesare home to key consumers of the future will matter.Companies need to navigate their way through arguably the most diverse consumer markets in history,managing parallel products and channels for increasingly disparate consumer groups.And,finally,the growing importance of services needs to be factored into the thinking of all consumer-facing businesses.TAKEAWAYSFootprint matters in a shifting consumer landscape.Companies with the skills to manage increasing complexity can prosper.Look closely at services as they grow in importance.NigeriaIndiaMexicoBrazilChinaUnited StatesSouth KoreaSpainUnited KingdomGermanyJapan25Years old 3035404550Range of cities average age by country,2015City demographics are already very different and could become more so.will be generated by people living in cities from 201530.CITIES MATTERof globalconsumption growth 91%25%19%18%10%10%5%5%3%3%2%Retiring and elderly in the developed worldAll other groupsChina(1559 years)China(60+years)South Asia(1559 years)Latin America(1559 years)Southeast Asia(1559 years)Western Europe(1559 years)Northeast Asia(1559 years)North America(1559 years)Share of global urban consumption growth201530of consumers are set to generate 3/4 of global urban consumption growth from 201530.GLOBAL CONSUMER GROUPS TO WATCHNine groupsfrom per capita consumption growthfrom population growthContribution to global consumption growth1970200020001520153042%54%25%58%46%75%of globalconsumption growth will be driven by increases in per capita spending in 201530.MAJOR DEMOGRAPHIC SHIFTS75%CONSUMPTION IN AN URBAN WORLDviiiMcKinsey Global Institute Getty ImagesEXECUTIVE SUMMARY Shifting demographics are causing a major rebalancing of the engines of global consumption.In the past,an expanding population was a main driver of consumption growth,but now the pace of the worlds population growth is waning.That means that consumption growth in the period to 2030 will depend overwhelmingly on individuals spending more.It is now even more important to know which consumers will have the purchasing power and the inclination to spend,where they are,and what they want to buy.This research finds that just nine groups of“consumers to watch”are projected to generate three-quarters of global urban consumption growth from 2015 to 2030.Of these,just three groups have the scale and spending power to reshape global demand and the world economy.Together,the 60-plus age group in developed economies;those of working age in China,an age group that,by 2030,will consist of those born and raised since China reformed and opened up its economy;and the working-age population of North America,are expected to generate half of urban consumption growth to 2030.The urban world is overwhelmingly where consumption takes place.By 2030,consumers in large citiesaccounting for 50percent of the global population in 2030will generate 81percent of global consumption and 91percent of global consumption growth.1 However,the demographic profiles and therefore growth prospects of cities are now diverging.Some cities are continuing to expand their populations and can expect robust consumption growth while others are already experiencing declining populations6percent of all large citiespotentially putting their consumption under pressure.Over the next 15years,17percent of cities in developed regions will be in this situation,and 8percent of cities globally.Over half of the worlds large cities will have fewer young adults(15-to 29-year-olds)than they have today.Patterns of consumption are becoming more varied and complexthere is no such thing,if there ever was,as an average consumer in an average market.Emerging economies with richly varied incomes,cultures,and spending habits are becoming ever more prominent features on the global consumption landscape as incomes rise.At the same time,income inequality is rising in many countries,which means that companies face the challenge of attracting customers at very different price points.The weight of global consumption is shifting toward services,reflecting the aging of key consumer segments in developed economies and rising incomes in emerging economies.And cities,already very different in their consumer profiles,could diverge even further from one another as population growth slows.In the face of this ferment of change,companies need to arm themselves with deep knowledge about the geography of consumers as well as the structural drivers of their spending,from ethnic and income trends to the changing timing of major life decisions such as getting married and having children.In North America,for instance,the median age at which a first marriage takes place has moved from the age of 22 for the generation born between 1940 and 1954 to 28 for those born after 1985.This shift alone explains much of the decline in house ownership among young adults.1 We define cities as broader metropolitan areas that include both a core city and surrounding metropolitan regions integrated into a connected urban region.Large cities include metropolitan areas with 150,000 or more inhabitants in developed regions,and 200,000 or more inhabitants in developing regions.2McKinsey Global InstituteExecutive summary This report draws on a new global consumer model incorporated into McKinsey Global Institutes Cityscope database to map the evolution of global urban consumption from 2015 to 2030.Using both projections for population growth among different age segments and age-specific consumption patterns at a country level,we compare large consumer groups across the globe across age groups,countries,and cities and describe the major consumption shifts to watch in the next 15years.2 PER CAPITA SPENDING IS PROJECTED TO FUEL 75PERCENT OF GLOBAL CONSUMPTION GROWTH TO 2030 As population growth wanes and the world ages,growth in consumption will increasingly depend on each individual spending more.Until the turn of the century,more than half of global consumption growth came from an expanding pool of consumers.In the period to 2030,population growth will generate only 25percent of global consumption growth,with the rest coming from rising per capita consumption$17trillion out of a total of$23trillion(ExhibitE1).3 A similar shift is occurring in urban markets where population growth is slowing because of declining fertility and an easing in the pace of rural-to-urban migration.SERVICES ARE COMMANDING AN EVER-LARGER SHARE OF CONSUMPTIONAlthough demand for goods is still growing at respectable rates in many economies,consumption is shifting toward services as per capita incomes rise and large cohorts of consumers age.Across economies,a higher share of household spending goes on services as per capita GDP rises(ExhibitE2).With rising income,a smaller share of spending goes toward necessities such as food,and the share of spending on services such as restaurants,hotels,recreation,and culture rises.2 Cityscope 3.0s global consumer model incorporates the UNs demographic projections with age-specific consumption profiles from the National Transfer Accounts Project database to generate scenarios for the evolution of consumption by country,urban region,and large city.The city-level projections rely on demographic and economic data from MGIs Cityscope database.Although the focus of this report is on urban consumption,the model covers consumption in small cities and rural areas,too.While our base case takes consensus macroeconomic growth projections as its starting point,we assess the impact of different macroeconomic and other uncertainties on the base-case scenario.3 When we decompose consumption growth into the contributions of population and per capita consumption growth,changes in per capita consumption include two components.First,rising per capita income lifts consumption across age groups.Second,the changing age distribution can shift the level and composition of aggregate consumption.As the 75-plus age group gains share in population,overall consumption rises because of high per capita consumption among this older age group,and because health-care spending rises relative to education and other goods consumed by younger consumers.Exhibit E1SOURCE:World Bank;McKinsey Global Institute Cityscope;McKinsey Global Institute analysis Three-quarters of global consumption growth to 2030 will come from increases in per capita spending5553422545475875Per capitaconsumptiongrowthPopulationgrowth20153020001519852000197085Source of consumption growth%of growth3McKinsey Global InstituteUrban world:The global consumers to watchExhibit E2Services share of household consumption increases with per capita income SOURCE:World Bank Global Consumption Database;Eurostat;McKinsey Global Institute analysis 1 Figures do not include public spending on health care and education.2Household consumption figures from Eurostat;all other figures from the World Bank Global Consumption Database.3Category data only available for select countries.Household consumption expenditure by country1Proportion of total household consumption expenditureServices-dominant categoriesGoods-dominant categoriesPer capita GDPLowHighRestaurants and hotelsEducationHealthCommunicationsRecreation and culture3Miscellaneous goods and servicesHousing,water,electricity,and gas and other fuelsFurnishings,household equipment,etc.3Clothing and footwearAlcoholic beverages and tobaccoFood and nonalcoholic beverages