Slowing population growth will upend both the macroeconomics of commercial potential in the economy as a whole and the microeconomics of competition within sectors and categories. Brands must adapt to grow.
The macroeconomic impact is a contraction of economic potential. For two centuries, demographic expansion has been the underpinning of economic growth in developed markets. Boiled down, GDP growth is growth in people times growth in output per person. Slower population growth slows GDP growth, as research confirms-generally, one-for-one.
The sobering correlate is that the offsetting boost needed in output, or productivity, is probably unattainable, Al advances.
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The microeconomic impact is a weaker foundation of brand growth. Based on ten years of global FMCG data, Kantor Worldpanel found that half of annual brand growth comes from household growth. But with fewer new people coming along each year, this demographic contribution to brand growth will be smaller than before.
It’s playing out already. McKinsey found slowing population growth to be a big reason why global FMCG CAGR dropped from nine percent from 2001 to 2012 to two percent from 2013 to 2019. In recent years, price increases have powered growth, masking the underlying demographic softness for unit volume.
Holding share should get easier, though. Broadly speaking, brands stay even by adding new buyers at the rate of population growth. With slowing population growth, fewer new buyers will be needed to hold share. But brands want growth not stagnation.
Growth Can Always Be Sourced From New Spaces
Kantar’s detailed assessment of 20,000+ brands for the Blueprint for Brand Growth finds that brands with a meaningfully different value proposition attract more buyers at a sizeable growth multiple, which can be accelerated by more predisposition, presence and new spaces. The best hedge against demographics is new spaces, but there are opportunities within current spaces from stronger predisposition and presence.
Every brand has upside in its category. The biggest brands worldwide have an average penetration of 29 percent, thus a lot of headroom. And even more for smaller brands.
But this means peeling away customers and purchases from competitors. Which takes improvements in customer experience, innovation, value and brand-building. Along with more impactful ways of reaching people, more meaningfully different offers, and more strategically driven pricing.
The flip side of decline is often growth. For example, a smaller population in total includes places that are thriving plus places lacking critical mass for resources and infrastructure, and thus an opportunity for automation and Al.
Older marriages mean more single households, which not only need products for singles but services for social connection and support. Older childbearing means more healthcare services for older mothers plus support services for busy, mid-career, often work-at-home older parents.
Smaller households mean a boom in the global housing stock. projected to grow 47 percent by 2040. Which will build demand for home furnishings, durable goods and all sorts of convenience, comfort and indulgence items.
The fertility rate for Africa as a whole, while declining, remains high enough that its population is projected to grow 2.5X by 2100. Most of this growth and over half of the world’s growth through 2050 will occur in sub-Saharan Africa, where GDP per capita is six percent of the U.S. and a bit more than one-fifth the global mean. Which is a lot of upside as these markets mature.
As emerging markets develop, eco-pressures will require new solutions. Slower growth in numbers will help climate, but greater affluence is likely to offset that. Prosperous lifestyles have a disproportionate impact. As poorer countries in Africa and elsewhere get richer, eco-pressures will grow, creating a market for climate-resistant foods, housing, entertainments, financial products and infrastructure.
Growth opportunities are hiding in plain sight. Brand growth can always be sourced from new spaces-applications, uses, occasions, target groups, geographies. For example, if the EU were to undertake policy changes to better support women in the workforce, declines in the labor force could be reduced if not reversed. Which would create corresponding opportunities.
Similarly, as rural areas that have lost the next generation are hollowing out, urban areas are growing, creating opportunities for brand growth.
Other sorts of trends will open new spaces as well, such as GLP-1 drugs for weight-loss, which entail new eating habits and food preferences.
Innovation will take more work. Economists worry that slowing population growth will squeeze innovation. Both from less demand for new products and from fewer inventors and entrepreneurs thinking up new ideas. It’s harder to reach critical mass relative to fixed costs with smaller populations. And the taxes and transfers to support retirees cut into discretionary income. The worst scenario would be a ‘secular stagnation’ trap rooted in weakened demand for investment and decaying infrastructure.
Other research finds that breakout ideas are costlier than ever. Innovation to sustain brand growth won’t come easy. But this challenge can be met. Even as population growth is slowing, an innovative era is unfolding now in Al, biotech, genomics, materials science, robotics, rockets, quantum computing, 3D printing, renewable energy, batteries, and more. It portends a future with plenty of growth opportunities for savvy, courageous brands.
Contributed to Branding Strategy Insider By Walker Smith, Chief Knowledge Officer, Brand & Marketing at Kantar
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