October 2009
Economic Views
Future consumer markets:
The growth of the middle class population in
selected cities


Executive summary

Cities offer increasing opportunities for companies to capture new markets and
customers with discretionary spending power. As economic growth in parts of the
developing world continues to outpace that in the rest of the world, opportunities are
likely to shift further towards cities in emerging markets.

PwC Macro Consulting has developed city-specific income distribution models that
estimate the size of different income groups in selected cities around the world up to 2025.
Some of these cities will be already on the horizon of most businesses, but some
may not yet be on their radar.

Of the six cities - Shanghai, Mumbai, Jakarta, São Paulo, London, and Paris – outlined in
this report, São Paulo is currently the city with the largest size of upper and middle class
population and is expected to remain in that position by 2025. As the southern hemisphere’s
largest city, it already contains more middle and upper class people than either London or Paris,
despite the fact that both these European cities have a larger proportion of people who fall into the
middle and upper income bands.

Our analysis points at Mumbai as the city expected to experience the fastest rise in middle
class population over the next decade and a half, with the majority concentrated in the lower
middle class category.

The size of the middle and upper classes in Jakarta is expected to experience a more
modest rise by 2025, with the city being taken over by both Shanghai and Mumbai in our 2025
league table.

Among the six cities examined in this report, London is expected to retain its lead
position as the city with the highest level of average income per capita. Furthermore, the
gap between average income in London and Paris is expected to widen slightly over the next
fifteen years.

Many companies are well aware of the emerging markets story, however the sheer geographical
size of emerging markets and the multitude of cultures, attitudes and languages require
a significant investment when expanding there. A more targeted approach, focusing on
the geographical areas with the main concentration of potential costumers, would therefore be
particularly beneficial.
Yael Selfin
Sajeel Shah
William Zimmern
[email protected]
[email protected]
[email protected]
economics.pwc.com
Introduction
Cities offer increasing opportunities for companies to capture
new markets and customers with discretionary spending power.
As economic growth in parts of the developing world continues
to outpace that in the rest of the world, opportunities are likely
to shift further towards cities in emerging markets.
Wealth in emerging economies tends to be significantly more
concentrated in urban areas, very often in a relatively small
number of regional capitals that develop into megacities.
Identifying the potential among these cities of the future could
uncover lucrative new markets.
PwC Macro Consulting has developed city-specific income
distribution models that forecast the size of different income
groups in cities around the world up to 2025. The models use a
range of historic data for each city1, combined with the team’s
latest long term city growth and income distribution forecasts2,
to project the size of different income groups in each city by
2025.
other five cities, it is still approximately three times higher than
the national average. Consequently, the city continues to act
as a magnet for migrants from all over India who come to
Mumbai in search for employment opportunities.
At the other end of the spectrum, São Paulo ranks as the city
with the highest number of people whose income is greater
than US$5,000. The city achieves this feat despite the fact that
a greater proportion of Londoners and Parisians fall into the
middle and upper income bands4 thanks to the size of its
population, being South America’s largest city, as well as its
possession of a significant proportion of the country’s wealth.
Chart 1- Population in 2008 with income over US$5,000 (in
current prices)
Mumbai
Shanghai
We chose a sample of growing cities in emerging markets and
contrasted their outlook as potential consumer market hubs
with two established European cities. We outline here the
results of our projections in six cities3:
Jakarta
London
Paris
São Paulo

Shanghai;
-
6
8
10
12
14
16

Mumbai;

Jakarta;
Income distribution and inequality at present

São Paulo;

London; and

Paris.
The size of the middle class in each city is determined by the
overall wealth of the city as well as the way it is distributed
among its habitants. Chart 2 below outlines the Gini coefficient
and average income for the six cities. In broad terms, higher
Gini values imply a greater concentration of wealth in a smaller
group of people and a higher level of income inequality.
Chart 2- Gini coefficients vs. average annual income in
2008
1.0
Gini value
0.8
The size of the middle class across cities
Of the six cities outlined here, Mumbai, India’s financial capital,
is the poorest. It has the lowest average income per capita as
well as the smallest number of middle class habitants, as
measured by the number of people with annual income above
US$5,000 (see Chart 1 on the right). Although the average
income per capita in Mumbai appears low compared to the
1
Historic data used in our models includes total city population, average city income, historic
city Gini and GDP growth, as well as inflation and market exchange rates.
3
4
Population (millions)
There is no doubt that other cities, particularly in emerging
markets, will present fertile opportunities for companies
wishing to grow their presence internationally over the next
decade. Some of these cities will be already on the horizon of
most businesses but some may not be on the radar of most
companies. This report highlights some of the well-known and
some of the less recognised future opportunities in these
markets.
2
2
The models also use long term city population projections from the UN.
Our forecasts cover the metropolitan areas defined by the UN as the relevant urban
agglomeration for each city.
São Paulo
0.6
London
Mumbai
0.4
Jakarta
Paris
0.2
Shanghai
-
20
40
60
80
100
Index of average income, London = 100
4
We used the same income bands for cities in both emerging and developed economies for
ease of comparison, although the definition of middle and upper class would vary between the
two groups. The use of PPP exchange rate would go some way in approximating the true
purchasing power of each group in each city; however, in this report we used market
exchange rates as we wanted to convey the potential market for a similarly priced good across
the different cities.
October 2009
The distribution of income varies with each city and region.
Paris’ core city, for example, has a higher Gini value than the
region Île-de-France, where it is based. The difference is
partially driven by a relatively higher proportion of middle class
living in the outskirts of Île-de-France, diluting the larger
variation in income in the city centre. London, the other
developed city in our analysis, is also estimated to be less
egalitarian than the UK as a whole. The higher unemployment
rate in London compared to the UK average is one testament
to the grater disparity in economic opportunities in the capital.
São Paulo, the largest metropolis in the Southern hemisphere,
has currently the highest level of income inequality of the six
cities. In many respects, São Paulo’s income distribution
typifies the situation which prevails in many of Latin America’s
largest cities. Historical, as well as more recent factors, have
contributed to the relatively high prevalence of income
inequality. For example, the negative impact of weak economic
growth, high unemployment and declining real wage levels, all
contributed to the disparity of incomes in the city.
The location of future consumers in 2025
The financial services sector experienced a boom in the UK up
to the recent downturn, particularly in the capital, where the
incomes of professionals employed in the city’s financial
services sector have risen at a quicker pace than other groups.
This has contributed to the divergence of incomes in London.
There is currently pressure to see income growth in the City
more in line with other professions, while financial institutions’
losses during the recent financial turmoil could also see
continued moderation in pay for many workers in the sector.
Income of the richest group, which tends to be derived
proportionally more from savings and investments, is also
likely to have suffered from the falls in asset prices and lower
interest rates.
How different will the distribution of income be in a decade and
a half time? Many cities in emerging economies are expected
to grow by a much faster rate than those in the developed
world, but the extent that this overall rise in wealth will be
transferred to the low and middle income population will vary
from city to city.
The population of middle income and above by 2025 in the six
cities is outlined in Chart 3 below5.
Chart 3-Population in 2025 with income over US$5,000 (in
2008 prices)
Cities in Asia’s emerging markets appear to be more equal
when compared with other parts of the developing world.
Shanghai, for example, has the lowest Gini coefficient of the
six cities, closely followed by Jakarta. The Asian financial crisis
in the late 1990’s saw a reduction in the Jakarta’s Gini, as the
crisis had an adverse impact on some of the city’s higher
income residents who had interests in the local real estate and
equity markets.
London
2008
2025
Jakarta
Paris
Mumbai
Shanghai
An important explanation for the variability in income
distribution across cities is the diversity of the politicaleconomic environment over the years. China generally does
not have a high proportion of households at the top end of the
income scale. In addition, its economic growth over the past
three decades has been characterised by export-focussed
industrial output, employing large numbers of relatively lowerpaid people in factories clustered around cities such as
Shanghai. As a result, much of the additional income has gone
to those workers, who are only gradually attaining lower middle
class status.
São Paulo
0
5
10
Population (millions)
15
20
São Paulo is expected to remain the city with the largest size
of middle class and above population6 by 2025 among the six
cities. However, the position of the other cities in our ranking is
expected to change over the next decade and a half with
Shanghai’s population earning above US$5,000 becoming the
second largest as the size of this income group rises by more
than three-fold over the period. Mumbai is expected to
experience the steepest rise in the number of people classified
as middle class, however, with the population earning
US$5,000 and above rising more than eight-fold between 2008
and 2025, earning it third place in our league table.
At present, income inequality in India’s major urban areas is
low compared with the levels in Latin America and some of the
cities in the developed economies. However, Mumbai is
estimated to have a less equitable distribution of income than
other Indian cities, reflecting the fact that the city is not only the
country’s commercial capital but is also home to one of the
largest slums in Asia. Going forward, the impact of a more
liberalised economy and a further shift towards a servicebased economy, with a growing professional and managerial
class, are likely to result in higher levels of inequality in
Mumbai and India as a whole. The lack of sufficient investment
in the provision of public services to the poorest people in the
city would also increase inequality in the city.
The size of the combined middle and upper class in Jakarta is
expected to rise more modestly, by just under 140% by 2025,
with the city being taken over by both Shanghai and Mumbai in
our league table, while London is expected to be left behind.
5
For the purpose of this analysis we have used constant 2008 market exchange rates and
constant 2008 prices. The projections outlined in this report should therefore be treated as
broad estimates of the direction of each market rather than an exact forecast. Many factors,
including significant future swings in the exchange rate of each country against the US$, could
have an important impact on the eventual numbers.
6
3
Defined as the number of people earning above US$5,000 in 2008 prices.
October 2009
It is the steep rise in the number of habitants in emerging
market cities that belong to the low middle class that drives
these changes. Cities like London and Paris in the developed
world are still expected to have a larger number of people in
the middle to high income categories by 2025 (see Chart 4
below).
and that in London, the gap between London and Paris is
expected to widen (see Chart 5 below).
Chart 5- Gini coefficients vs. average annual income in
2025, (2008 prices)
1.0
Chart 4– Population earning US$15,000 and above,
Shanghai
0.8
Gini value
2008 vs. 2025 (2008 prices)
16
São Paulo
0.6
London
Mumbai
0.4
Paris
14
0.2
Jakarta
Population (millions)
12
-
10
-
8
40
60
80
100
6
Average income is expected to grow at a quicker pace in the
financial capitals of India and China, however the exact
location of each city’s middle class may change in the long
term. In Mumbai, improvements in infrastructure are likely to
result in better transport links into the city centre. Consequently,
the future middle class of Mumbai could further shift to the
outer limits of the city, into newly created satellite towns
forming communities of daily commuters. Meanwhile, there
has been little evidence of the emergence of satellite towns in
China and they seem unlikely to develop to the same extent as
in India by 2025.
4
2
0
Mumbai
Jakarta Shanghai London
2008
Paris
São
Paulo
2025
São Paulo’s position as the city with the highest number of
people earning over US$15,000 by 2025 is likely to come
under threat in subsequent years. Growth in the middle and
upper income group between 2008 and 2025 is projected to be
relatively low there for an emerging market economy, at just
over 30% and fall further after that. This is largely because
92% of the total city population will be already part of that
income group by 2025, allowing for very limited scope in
further rises from then onwards (see Table 1 below).
Different markets for different products
Although the economies of all of these cities are growing
strongly, lifting thousands of individuals out of poverty,
companies are likely to employ different strategies – and offer
different product mixes – in cities like São Paulo compared
with the likes of Mumbai. While the biggest prize in Mumbai by
2025 is still expected to be the lower-middle class, selling
luxury goods may be the more lucrative approach in São Paulo
(see Chart 6 below).
Table 1 - Middle and upper class population 2008 vs. 20257
City
Mumbai
São Paulo
Shanghai
Jakarta
Paris
London
Urban population
(millions)
2008
2025
19.3
26.4
19.1
21.4
15.2
19.4
9.5
10.8
9.9
10.0
8.6
8.6
Combined middle and
upper class (%)
2008
2025
7%
49%
78%
92%
24%
85%
43%
89%
100%
100%
100%
100%
Middle class (%)
2008
7%
54%
24%
43%
29%
29%
The composition of the middle class is expected to be more
similar in Shanghai and Jakarta by 2025, with the majority of
the middle class divided almost equally between the lower
middle and middle segments. London and Paris, on the other
hand are expected to be dominated by the upper middle class
(see Chart 6 below).
2025
48%
48%
81%
84%
17%
16%
Mumbai, on the other hand, is expected to display the largest
potential for further increases in middle class beyond 2025,
with only 49% of the population expected to earn above
US$5,000 by 2025, compared to over 85% in the other cities
(see Table 1 above).
There is a mixed outlook regarding the level of average income
in 2025. Whilst Mumbai, Shanghai, São Paulo and Jakarta are
all expected to narrow the gap between their average income
7
20
Index of average income, London = 100
Middle class income defined as US$5,000-US$30,000 in 2008 prices.
4
October 2009
Chart 6 - Middle class8 income groups by 2025
Paris
44
87
Upper-middle
1,130
550
London
773
512
São Paulo
4,450
2,983
Middle
2,774
Jakarta
1,151
4,165
Shanghai
1,826
7,024
6,846
711
Mumbai
8,120
Lower-middle
3,771
3,880
Conclusion
Many companies are well aware of the emerging markets story,
however the sheer geographical size of emerging markets and
the multitude of cultures, attitudes and languages require a
significant investment when expanding there. A more targeted
approach, focusing on the geographical areas with the main
concentration of potential costumers, would therefore be
particularly beneficial in emerging markets.
Cities like Mumbai and Shanghai are expected to see a
dramatic rise in their middle class population by 2025, although
the majority of the rise in the number of middle class across
the emerging markets is expected to be concentrated in the
lower middle class segment.
Cities like São Paulo, where income distribution is expected to
remain relatively unequal, are likely to be better markets for
high end goods and services by 2025, while cities like Mumbai,
with a large number of low middle class population, are likely
to be of interest to companies offering more basic goods and
services.
Our analysis also suggests that even within developed
economies average income could diverge in future, with the
gap in income between London and Paris expected to increase
over the next fifteen years.
8
Lower-middle income defined as US$5,000-US$10,000; Middle income defined as
US$10,000-US$20,000, and Upper-middle income defined as US$20,000-US$30,000. All in
2008 prices.
5
October 2009
Economic Views reports are produced by the PwC Macro Consulting team. The team’s consulting services help clients link the
prospects for the global economy with the implications for their business and industry, using economic tools and combining strategic
analysis with strong quantitative skills. Building on its on-going forecasts of key economic variables, the team offers services across
four broad streams:
Economic forecasts
Demand analysis



revenue forecasting
market segmentation
price optimisation
Supply analysis



costs forecasting
cluster analysis
risk analysis
Location benchmarking



Lobbying assistance
industry benchmarking
future competition and demand
feedback from future investors



GDP impact
employment impact
income impact
For more information about our services please contact one of the members of the Macro Consulting team below:
Yael Selfin
Director, Head of Macro Consulting
+44 (0)20 7804 7630
[email protected]
William Zimmern
Manager
+44 (0)20 7212 2790
[email protected]
Mal Božić
Manager
+44 (0)20 7804 4089
[email protected]
Sajeel Shah
Senior Associate
+44 (0) 189 552 2365
[email protected]
Felicity Cumming
Senior Associate
+44 (0)20 7212 4705
[email protected]
Jas Ellis
Senior Associate
+44 (0) 20 7213 3966
[email protected]
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