The Rising Middle Class
And how new expectations impact brands
Brazil's rising middle class increasingly drives the growth of brands. More than 100 million people, or about half the country's population of roughly 191 million, now are considered middle class.
These households earn an income of at least 1,128 Reais per month (US$727), which locates them in socio-economic Class C, Brazil's official designation for middle class. Many of these households have recently risen from poverty, which the Brazilian government calls Classes D and E. Households in Class D earn around 798 Reais per month (US$514); those in Class E earn less than 486 Reais (US$313).
Even with fluctuations in the economy, these changes are narrowing the inequities of Brazilian society, expanding the number of people in the middle while reducing the ranks of both the very poor and the very rich, and exposing many more people to consumer goods and brands for the first time.
Policies and programs drive change
The economic stability resulting from the Plano Real (1994) drastically reduced the runaway inflation of prior years to acceptable levels. With inflation under control, Brazilian consumers feel more inclined to save or purchase on credit. Other factors that contribute to the health of Brazil's economy and the overall rise in income and purchasing power include:
- The steady growth of GDP (US$2.2 trillion; US$10,800 per person), demonstrating the evolution of the country's productivity;
- The availability and ease of obtaining credit; and
- The strength of the Brazilian Real, which facilitates access to imported brands and opens up the possibility of tourism outside country.
Particularly significant is the government's antipoverty program called Bolsa Família, which provides supplemental financial support to more than 12 million underprivileged families throughout Brazil. The families access the funds with a government-issued ID that acts like a debit card. Bolsa Familia changes how people shop and increases their purchasing power. Using the card frees a family from shopping daily with available cash or being dependent on store-issued credit, sometimes at high interest rates.
Brands offer more than basics
Brands traditionally treated the middle class as if it represented limited sales potential. Brands served these consumers with simpler packaging and smaller sizes, offering the basic benefits of the respective category and no added value, with the intention of keeping prices affordable.
Today, the nature of the middle class has changed. Middle class individuals desire premium products and can afford them. They consider high added value brands as a basic part of the household needs. Brazilian consumers prefer the leading brands, with appealing advertising, strong equity and good distribution.
Disposable income not only has increased purchasing, it has changed the composition of the shopping basket. Certain items, such as dairy cream, ready sauces, facial and body creams, seasonings, chocolate mixes and yogurts, had been purchased only occasionally. Now they are part of the family's habitual grocery list.
More luxury goodsand services available
Shoppers fill "wants" as well as "needs." Beauty and cosmetic retail departments are more prominent, even in stores with lower income clientele. Similarly, the number of salons recently opened in less privileged neighborhoods is extremely high as women increasingly spend money to beautify their hair and nails. They believe that spending on appearance is an investment and part of the process of social inclusion, according to qualitative studies by Firefly Millward Brown.
Economic stability also has opened up access to aspirational consumer goods. The dream of acquiring a brand new, low-priced car can become a reality in 60 or more installments with few formal prerequisites. The payment of the installments—"the amount I am able to pay"—is viewed as a form of savings, even if the interest rate and final total amount paid can be excessive.
Getting into debt, making too free use of credit or credit cards has always been a serious threat for those with limited financial means. Credit has become an option, however, because of reliable employment and income stability. Despite easy access to credit and the widespread availability of credit cards, lower income consumers remain somewhat skeptical of the financial institutions that denied them credit in the past.
The new middle class has changed retailing
The collective clout of middle class consumers has influenced major retailers to reevaluate their standard formats and focus their efforts on the growth of so-called "atacarejo," a hybrid model combining wholesale and retail in no-frills megastores.
At the same time, the major retail groups have begun to invest in smaller stores with limited assortment intended to conveniently serve the more immediate needs of local residents.
Regardless of expectations about the global economy, Brazil's new middle class is not a passing phenomenon. It expects much and its expectations will influence brands and corporate strategies for a long time.