Home >Politics >Policy >Urban consumption to grow by $23 trillion, says McKinsey report

New Delhi: Global urban consumption is expected to grow by $23 trillion between 2015 and 2030 at an annual growth rate of 3.6%. These are the projections made by McKinsey Global Institute’s new report Urban World: The Global Consumers to Watch.

The report is based on the research that as world population growth slows, global consumption growth (the demand that fuels the world’s economic expansion), will 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 buy 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. However, in the period to 2030, population increase will generate only 25% of global consumption growth with the rest coming from rising per capita consumption.

According to the report, only 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. These are:

• 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% of urban consumption growth in developed countries, and 19% of global urban consumption growth.

• China’s working-age consumers (15 to 59 years). Their number will expand by 20%—an 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 America’s working-age consumers (15 to 59 years). The working age numbers and per capita consumption of this group will grow modestly by 7% and 24%, respectively, from 2015 to 2030.

These three groups are expected to generate $11 trillion—48%—of global urban consumption growth from 2015 to 2030. An additional 28% is projected to come from six groups that are either large but no longer growing in their numbers—the working-age populations of Western Europe and Northeast Asia (which includes Japan and South Korea)—or small but growing very rapidly, namely Chinese consumers aged 60-plus, and the working-age populations of South Asia, Southeast Asia, and Latin America.

Cities matter

Consumption and growth are now coming under pressure in many cities as population growth slows and urbanization plateaus in many countries. By 2030, consumers in large cities will account for 81% of global consumption and generate 91% of global consumption growth from 2015 to 2030. Global urban consumption is extraordinarily concentrated—just 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% of that growth. Six percent of large cities—most of them in developed regions—are 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%, of global urban consumption growth to 2030.

Key factoids about India

• 79% of consumption growth (2015-2030) in India will come from increased per capita consumption: urban population growth will be moderate with a 2.2% compounded annual growth rate (CAGR).

• While all age segments are increasing in population, older age segments are growing faster: 60-plus populations are growing at rates over 4% CAGR and under-30 population growth is 1.5% CAGR

• 70 % of consumption growth in India from 2015-2030 will come from the working age population (aged 15-59): Consumption by the 60-plus age segment will grow at >10% per annum.

• The demographic profile of Indian cities is diverse and aging will affect specific cities more than others: All cities in India are aging, particularly those in the state of Kerala.

• Consumption growth will be concentrated in Mumbai, Delhi, Ahmedabad, Hyderabad and Bangalore.

The shifts in global consumption mean that companies need to work even harder to compete for the purchasing power of varied and highly dispersed pockets. The report narrows down on three aspects of the challenge:

• Footprint matters for success in a shifting consumer landscape. With consumption increasingly dependent on per capita spending, footprint matters. Companies also need to adapt continuously to the evolving demographics and consumption patterns of cities—and even neighbourhoods within cities.

• Companies with the skills to develop tailored products and services to meet the needs of an increasingly complex consumer landscape can prosper. Those companies that have the skill to manage multispeed, multifaceted, and increasingly diverse markets are more likely to succeed. In many markets, companies may need to strengthen their skills in managing overlapping products and brands.

• Look closely at services as they grow in importance. The growing share of services in overall consumption will, directly or indirectly, have an impact on all consumer-facing businesses. Services are growing faster than overall consumption as consumers spend a rising share of their income on, for example, travel and health care in aging developed markets and education in China’s cities.

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