Hispanic Consumers: An 'Emerging Market' in the US
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you're a consumer goods company based in the United States, you have a basic problem. How do you generate strong growth in a slow-growing U.S. economy?
It's a difficult problem, but more and more companies think they have found the answer. Food companies, for example, are increasingly setting their marketing sights on Hispanic consumers. These companies consider this segment of society as an “emerging market” of sorts right here in the U.S.
Management at firms such as Pepsico (NYSE: PEP), Kraft (NASDAQ: KRFT) and General Mills (NYSE: GIS) made public last week at an industry conference that they were targeting the Hispanic market with food products tailored to their tastes such as Pepsi's sparkling apple drink called Manzanita Sol.
The CEO of General Mills, Ken Powell, pointed out the reason his company is targeting Hispanic consumers is the projection that 40% of U.S. households by 2020 will be “multicultural”.
The facts seem to back up Mr. Powell's statement. Hispanics are the fastest growing demographic segment of the U.S. population according to the 2010 census. Thanks to rising per capita income, their household spending on food is projected to rise on average by 5.7% during the coming decade. In comparison, spending by non-Hispanic households is projected to climb by only 2.5%.
The Association of Hispanic Advertising Agencies says the most recent data available shows that the top 500 U.S. advertisers increased spending aimed at Hispanics by 14% to $4.3 billion in 2010. Consumer and food companies were among the biggest spenders at $707 million. This spending trend on ads aimed at the Hispanic consumer by food companies is accelerating.
Kraft said it will increase its spending on Hispanic advertising by “double-digits” this year, after tripling such spending in 2011. Last year, the company launched seven new campaigns targeting that market. Pepsi has been a laggard in such advertising, with only 1% of their advertising in 2010 aimed at Hispanics. But even it in 2011 hired a cultural branding specialist and doubled Pepsi's spending on Hispanic advertising.
Credit Suisse points out the reason for the increased ad spending. Companies such as General Mills which have spent the most on Hispanic advertising have reaped the rewards. According the Credit Suisse, the leaders in spending on Hispanic marketing have outperformed those firms who have not spent much on Hispanic advertising by 270 basis points in terms of organic sales growth in the United States over the last three years.
These companies reaped the benefits of the new trend in advertising a company's products. As the president of advertising sales for Spanish-language broadcaster Univision, David Lawenda, has said advertisers must switch “from multicultural marketing to marketing to a multicultural nation." The consumer goods companies that do so will be successful in the years ahead, making money from the United States' own internal “emerging market."
The Motley Fool has no positions in the stocks mentioned above. tdalmoe has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.