the middle and the middle class - absaetfcib.absa.co.za/presentations/prof. john simpson.pdf · •...
TRANSCRIPT
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Barclays – 7 September 2015
The Middle and the Middle Class
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How do we do it?
• Qualitative focus groups
• Quantitative questionnaires
• Analysis of research data
• Workshops and think tanks with academics and South African
marketing experts
• Creation of ground-breaking segmentation models
• Dissemination of research to the South African marketing
community
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• Analysis of existing data sources
• National Income Dynamic Survey - 17,600
• Income and Expenditure Survey - 24,000
• AMPs - 25,000
• Nielsen
• Eighty20 Credit Portal
• Frontline
• Bureau of Market Research, UNISA
• Collaboration with academics
How do we do it?
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On the Menu
Setting the scene
Survivors: The Mass Market
In-Betweeners – Skilled Strugglers
SA’s new Black Middle Class
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Setting the Scene
Extracts from Wake Up, Shake Up 2011
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Era of Exuberance
1999 – 2007
Era of Hurt
2007 - 2010
Era of Uncertainty
2010 onwards
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Era of Exuberance 1999 - 2007
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Era of exuberance
• Booming economy - GDP 6%;
• Rampant consumer
spending
• Soaring consumer and
business confidence
• Exuberance and spending
straddled all sectors
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100 Golden Months
• Property values through the
roof
• Huge growth in employment
• Black middle class increases
from 1.7 million to 2.8
million between 2005 and
2008
• Strong Rand
• Easy access to credit
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Era of Hurt 2007 - 2010
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Two years of pain
• The wheels come off:
Global economic meltdown
GDP falls and the economy contracts
869,000 jobs lost between 2008 and 2010
Debt, debt, debt!
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Two years of pain
• Fallout from pre-National
Credit Act scramble to
extend credit
• Interest rates soar
• 18 million have active debt
and 9 million are in arrears
• Nearly 4 million consumers
have orders or judgments
• Banks and retailers hold
back on lending
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Era of Uncertainty 2010 Onwards
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Where to now?
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Intro from Winners & Losers 2015
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What is clear is that there have been winners and losers...
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Professor Haroon Bhorat
• Professor of Economics at
the University of Cape Town
• Member of the President’s
Economic Advisory Council
• Director of the Development
Policy Research Unit
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Haroon Bhorat - Growth Incidence Curve
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6
7
8
9
10
11
0 20 40 60 80 100
73rd percentile of population
32nd percentile of population
87th percentile of population
An
nu
al p
er
cap
ita
gro
wth
in in
com
e
Income deciles ranked by per capita income
Growth incidence curve Mean of growth rates
%
mean
median
richest
poorest
Source: Haroon Bhorat, UCT
Growth incidence curve
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73rd percentile of population
An
nu
al p
er
cap
ita
gro
wth
in in
com
e
Income deciles ranked by per capita income
Growth incidence curve Mean of growth rates
%
Survivors TopEnd
70r% of SA
Population
Middle Class
Skilled strugglers
9% of SA
Population
22% of SA
Population
3% of SA
Population
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Survivors: A Mass Market
Extracts from The Majority Report 2012 and Connecting with Survivors 2014
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Intro Connecting - Umlazi
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Why Survivors are important?
• The biggest market segment by number
• It has received a huge cash injection
• It is ignored, misunderstood and poorly served
• More affluent markets are becoming saturated
• So they are turning to Survivors as it is a market of the future
• This market represents a massive opportunity
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Who is in the Majority?
• Individuals (“Survivors”)
living in households which
have income under
R6000 per month
and they make up 70%
of population
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The income blind spot
• Using income as a determinant of market opportunities is problematic because
• disposable income does not always correlate with actual income
• incomes are not always reported or are under-reported; credit also has a constraining effect
• remittances are not always cash-based
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As incomes rise…
• The proportion spent on ‘marketable or discretionary goods’ (e.g.. food and clothes vs. electricity and transport) should rise at a faster rate (Engel’s Law) . Instead, it rises at a slower rate
• And Survivors are taking on more expensive formal debt, which ‘crowds out’ available spend due to interest, other fees, penalties and other ‘legal’ charges
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Income blind spot
less than R1000 R6000 Household income
Income
Disposable income
Spending on ‘public goods’ e.g.. water, electricity, education and debt
Income
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Economies determine marketing models
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(Typical of Europe, USA, Australia and SA’s Top End)
• Formalised approach to business
• Appealing to governments - tax revenue
• Dominance by few organisations (e.g... retail chains)
• Consumers have consistently high levels of disposable income
• Predictable demand
• Strategically sophisticated, measureable long-term approach to marketing
Developed economies
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(Typical of India, South East Asia, Bangladesh, DRC)
• Informal approach to business
• Limited government controls and support
• Consumers have less, inconsistent income
• Therefore demand is more volatile
• Strategically, a more flexible approach that’s responsive to consumer and community needs
• Successful international marketers learn to adapt using hybrid models
Developing economies
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• South Africa is an upper
middle income country (World
Bank)
• But income distribution is one
of the most skewed in the
world (GINI coefficient)
• Hence the high gini-coefficient
30th LARGEST economy (out of 180)
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David Neves and Haroon Bhorat – peculiar nature of SA poverty
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‘People need to start realising that the South African model is more like Bangladesh with a bit of Australia thrown in,
not the other way around.’
CEO, major FMCG brand
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113
85
57
28
0
S o u r c e : W o r l d B a n k
69
83 82 85
31
Percentage of population living on less than $2 a day
India Zambia Mozambique Nigeria South Africa %
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In South Africa the mean (average) household income is almost double the median (midpoint) household income
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Social grants
• SA spends over
• 70% of these are child
support grants
• *3.5% of GDP vs. 0.7% for
Brazil
R145 BILLION* on social grants in
2015
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Social grants
More than
40% of Survivor
households depend on grants
for more than half their income
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Why grants are a key factor
• Stability of income
• Influence social contracts
• Buying behaviour
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Rollout of services
15
11.25
7.5
3.75
0
S o u r c e : S A I R R M e d i a r e l e a s e , S e p t 2 0 1 2
6
11
5
12
13
Household living in formal housing Household with access to electricity %
7
G R O W T H I N M I L L I O N S ( H O U S E H O L D S )
Household with access to piped water
1996 2010
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Service Delivery
• Improves the welfare of
households:
- brings new product categories into play
- housing can provide a source income, whilst also reducing the pressure of paying rent
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So-called ‘asset’ inequality
(electricity, water, housing) has
reduced, distorting SAARF’s
LSM tool
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Survivors Urban Rural
Hot running water 11% 26% 4%
Fridge 71% 87% 63%
Microwave 38% 60% 27%
Washing machine 15% 31% 8%
Television 78% 90% 75%
Electric stove 46% 65% 37%
Did you know?
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Percentage of each LSM made up of Survivors
100
75
50
25
0
LSM1 LSM2 LSM3 LSM4 LSM5 LSM6 LSM7 LSM8 LSM9 LSM10
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Distribution of survivors
30
22.5
15
7.5
0
S o u r c e : W o r l d B a n k
LSM1 LSM3 LSM4 LSM5 LSM6 %
LSM9
% O F S U R V I V O R S I N E A C H L S M
LSM1 LSM7 LSM8 LSM10
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What does this mean?
• ‘Bottom of the Pyramid’ thesis is
not always relevant:
- stable incomes (from formal employment and grants) are more of the norm than in most developing countries
- access to services
- shapes spending patterns
- creates demands for durables e.g.. fridges and associated products (washing powder) which require long term and regular commitments (debt, electricity)
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• Compared with most developing countries Survivors are • relatively better off in income terms • have better lifestyles
• Survivors are asset rich and cash poor • but assets are not easily tradable and aren't useful as collateral
• Which explains why they are relatively poor
• And why the typical ‘Bottom of the Pyramid’ marketing models aren’t always appropriate
• Why we must develop our own!
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Survivors - the bottom of the pyramid
BULK
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A calabash is more apt
70% of the population are
in the calabash
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Spending power underestimated?
Our 2014 study showed that, for those living in the ‘Calabash’:
• Survivor incomes had grown,
• and economic activity had increased still further
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Mrs. Sibiya Alexandra, Gauteng April income
Visible:
wages - none
disability grant – R1200
Hidden:
alcohol sales – R7000* (net)
food parcel – R100 (value)
* Inconsistent & annual average does not impact her HH status as a Survivor
Real Income (April)
Grant
AlcoholSales
FoodPackage
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‘Hidden’or just unrecorded income?
• own small business
• informal loan income
• lobola income
• sale of produce
• sale of sheep / chicken
• employer gifts
• ad hoc employment
• rental
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Employment Status
0
5
10
15
20
25
30
35
1994 2002
2008 2010
2013
9.5 11.2 14.8 13.9 15.2
2.4 4.9
4 4.4 4.8 2.2
3.2 1.2 2.2 2.2 9.8
8.9 12 12.7 12.8
Economically inactive
Unemployed not looking
Unemployed
Employed
millions
Working age adults: StatsSA
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How DO people get by? If needs must ..
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Sustainable Livelihoods Foundation video
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Ivory Park, Gauteng
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& if rent
included…
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2366 businesses in just over 1,5km²!
SLF research found one enterprise for every ten households
= estimated one million + enterprises countrywide!
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STATSSA: R120 billion
Prof Haroon Bhorat (UCT):
R280 billion Loane Sharp (Adcorp):
R680 billion
Different Estimates
Just how BIG
is the informal sector?
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Haroon Bhorat – Growth in informal, as big as mining
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73rd percentile of population
An
nu
al p
er
cap
ita
gro
wth
in in
com
e
Income deciles ranked by per capita income
Growth incidence curve Mean of growth rates
%
Survivors TopEnd
70r% of SA
Population
Middle Class
Skilled strugglers
9% of SA
Population
22% of SA
Population
3% of SA
Population
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In-Betweeners – Skilled Strugglers
Extracts from Wake Up, Shake Up, 2011
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Willy Maelane video
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Skilled strugglers: Characteristics
• This is the upper end of the
“middle” but not yet Middle
Class
2,7 million adults
9% of the population
Roughly LSM 8
13% of SA spend
Average household income
R13,700
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Skilled Strugglers: Crisis of aspiration
• Arguably the most
‘frustrated’ consumers:
Reasonably high levels of education
Aspirations for a middle class lifestyle supported by access to credit
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Skilled Strugglers: Crisis of aspiration
• But less attainable:
Salaries not keeping pace
Few hand outs; high costs
Over indebted - ‘catch up’
Difficulty accessing housing, health, education etc.
Levels of confidence at an all time low
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Skilled strugglers: Response
• Frustration spilling over -
strike action
• Collective bargaining the
battleground
• Lack of access to credit will
continue to fuel frustration
• This group largely shapes
our public discourse
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73rd percentile of population
An
nu
al p
er
cap
ita
gro
wth
in in
com
e
Income deciles ranked by per capita income
Growth incidence curve Mean of growth rates
%
Survivors TopEnd
70r% of SA
Population
Middle Class
Skilled strugglers
9% of SA
Population
22% of SA
Population
3% of SA
Population
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SA’s new Black Middle Class
Extracts from 4 Million and Rising, 2013
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Before 1994…
Group Areas Act
Bantu Education
Travel restrictions
Job reservation
Repression
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Intro Vid
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A thriving middle class is crucial
to the wellbeing of the country:
✎ a vibrant, stable civil society
✎ a healthy economy
✎ broader skills base
✎ jobs
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Our Definition
Must be Black African adult, 18+ Either live in household with income between R16,000 & R50,000pm OR Must meet at least two of the following criteria:
own a car
tertiary qualification or currently studying (student aged 20-34)
work in white collar/’professional’ job
live in metropolitan area in decent housing or pay rent of R4000+ (For comparative purposes, we used a similar definition to our previous ones)
OR AND
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2004
• SA’s total middle class –
5 million adults
• Black middle class –
1.7 million adults, in
590,000
households
• Black middle class notably
absent from top LSMs -
only 15% in LSM 9 - 10
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Black middle class
adults in 2013
4.2 MILLION
2012
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Upward Bound
• Since 2004...
• the number of households
has trebled to
1,62 MILLION
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Since 1994, proportion of
black adults in middle class has
doubled from 8 % to 16%
12% annual compound
growth rate
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White Middle Class
White middle class stagnant
over same period, from
2.8m adults in 2004
to 2.86m in 2012
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Growing the Middle Class
4500
4000
3500
3000
2500
2000
1500
1000
500
0
B L A C K W H I T E C O L O U R E D I N D I A N
2004 2008 2012
1,747
2,872
4,224
563 657 721
307 406 506
2,800 2,798 2,868
No
of
adu
lts
(00
0’s
)
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Average personal income
R8,191 Average household income
R20,583 Overall spending power over
R420 billion (White R380 billion)
Spending power black middle class 2013
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income Personal Income
R5 793
R10 329
R8 191
R11 345
0
2000
4000
6000
8000
10000
12000
Black White
2004 2012
30% increase 18% increase
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income Household income
R13 675
R22 634R20 583
R25 014
0
5000
10000
15000
20000
25000
30000
Black White
2004 2012
35% increase 10% increase
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Driving Growth
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Driving Growth Supported By:
Credit education BEE economic growth
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Purchasing of household assets results in mass entry into upper LSMs (8 -10)
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Black middle class car ownership up
by 1,1 million since 2004
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Expect congestion to get even worse
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32% say they are a professional
51% say they are in managerial
positions
White collar
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40% of skilled black
professionals work for
government
13% of whites
Labour Force Survey, Q2, 2012
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However, massive
from government & banking sector
Rather stay comfortably employed
to entrepreneurship:
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Harley Davidson pt 1
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Our parents told us over and over again
that the way to succeed is to be educated
Education moves you from working class to
middle class – it gives you choices
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• Only 14% don’t have a matric
• Nearly half (46%) have a post matric qualification
• Since 2004 the number of black middle class members
with a tertiary qualification has grown by 1.25 million
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There is a clear difference between those born and those
not born into middle class families
Where the journey begins
matters
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‘mafikizolos’ 2nd wave
forerunners
aspirants
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1.9 million aspirants with household income between R10,000 and R16,000 who don’t qualify as middle class (these people are part of the 2.7m skilled struggler segment) But desire ‘to get there’ and will fuel future growth working towards perception of a middle class lifestyle confronted with • debt burden • scarcity of jobs • gap market
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S you just arrived yesterday
recent experience of hardship overcame huge odds often had some level of advantage still on sharp learning curve still growing in confidence super-charged expectations
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younger grew up in a middle class environment better prepared & often better educated more confident less fearful of slipping back more realistic aspirations less pressure from extended family
“I could have chased any dream because although we weren’t rich, we had the resources”
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First wave to reach middle class remember hardship pride in achievements fear of slipping backwards have learnt from recession, more realistic and discreet recession’s forced move away from ‘catch-up’ lifestyle big dreams, believe anything is possible
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Martin classmate clip
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lifestyle choices are being made amidst
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Independence Family responsibility
Invisibility Recognition
Lifestyle Debt
Conspicuous Intrinsics
Legacy Catch - up
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FAMILY AT HOME FAMILY OUTSIDE THE HOME
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• Household size often relatively large:
• Nearly 40% live in
households with
five or more individuals 15% for
whites
• Average HH size over
four
RMR
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Composition of the household
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LEGACY CATCH UP
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Around 60% send children to
ex-Model C or private schools
70% are not happy with the
standard of education in government schools
I don’t want them to
suffer like we did
RMR
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Suburb Township
Roots Modern
Mother tongue English
To achieve Fear of falling back
Debt as enabler Debt as noose
Stable job Own business
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TOWNSHIP SUBURB
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28% say they still live in townships,
but typically
‘burbs in the township’
The line between townships and suburbs is becoming
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Township developments
make a middle class
lifestyle more
possible
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Middle class people only really shop in the shopping malls The mall is the middle class fish bowl
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MOTHER TONGUE ENGLISH
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are fluent in English
Over 90%
RMR
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Black middle class White middle class
SABC 1 (90%*) DSTV (64%*)
SABC 2 SABC 2
e.TV SABC 3
SABC 3 e.TV
DSTV SABC 1
WIDE TV REPERTOIRE
*watched last 7 days
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30
20
10
0
1 5 – 1 9 2 0 – 2 4 2 5 – 3 4 3 5 – 4 4 4 5 – 4 9 5 0 – 5 4 5 5 - 6 4 6 5 +
The Market of the future
4 . 3 5 . 5
%
A G E R A N G E O F M I D D L E C L A S S
A G E R A N G E O F B L A C K M I D D L E C L A S S
A G E R A N G E O F W H I T E M I D D L E C L A S S
Reflects a ‘normalisation’ trend (increasing numbers born into
middle class)
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Toxic assumptions
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Toxic assumptions
• Poor people are not (or won’t be) connected
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Internet Access in SA 2012, World Wide Worx
Total sub-Saharan cable capacity
(Gb/s)
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• Universal wifi on taxis & at ranks within 3 years
• Myciti, public transport
• City of Cape Town – 130 public hotspots
• Project Isizwe - Twane
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Landmark handset launched in 2014: MTN-branded 'Steppa’ At R499, it’s one of cheapest android devices available
devices
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Internet Access in SA 2012, World Wide Worx
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Project Isizwe
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Greater connectivity
Empowers
Informs
Drives choice
Makes critical
Breaks boundaries
Enables business
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Toxic assumptions
• Poor people are not (or won’t be) connected
• The progression from informal to formal is straight-
forward
• Poor people are ‘uneducated’ about their purchases
• As South Africa grows, the informal economy will
shrink
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