Marketers and retailers have long recognized the exceptional role Hispanic consumers play in their growth strategies. Sheer numbers are one reason. Over the next decade Latinos will account for more than half of the population growth in the United States. Ten years from now Hispanics will comprise one in every five Americans. By mid-century Hispanics will be on the cusp of forming a majority of the populations of California and Texas.
Yet, Hispanics embody far more than just an extraordinarily fast-growing population segment of the American population. They now represent a market with outsize spending power that will only continue to grow in the future. Hispanics: Demographic and Consumer Spending Trends, 9th Edition, a June 2016 Packaged Facts report, unmasks the simple but powerful formula that lies behind the recent remarkable growth in Hispanic spending power.
First, the number of Hispanic households has been growing faster than the number of non-Hispanic households. Between 2012 and 2015 Hispanic households grew 8.1% while other households increased just 3%. Second, average spending by Latino households during the same three-year period increased more rapidly than average spending by non-Hispanic households (9.7% vs. 8.6%). These two basic variables (more rapid household growth + higher growth in average spending) add up to a higher rate of growth in aggregate spending by Latino households than non-Latino households in recent years.
Packaged Facts has uncovered a number of findings about Latino spending patterns that should capture the attention of marketers of financial services and other consumer services and products. One of the more compelling discoveries in the area of financial services is the fact that Hispanic consumers have recently registered an exceptionally high increase in credit card ownership, when historically they had a below-average tendency to own and use credit cards. Between 2005 and 2015 the number of Latinos using credit cards jumped 44%. The 5.1 million additional Latinos with credit cards accounted for around half (49%) of the growth in the number of consumers using credit cards during this period.
In addition, over the past decade the percent increase in the number of Hispanic households owning insurance has been greater than that experienced by non-Hispanic households. As a result, Latino households were responsible for 65% of the growth in the number of households with auto insurance and 52% of growth in the number of households with health insurance.
Another noteworthy pattern in recent spending shifts on the part of Hispanic households is an increase in spending over the past three years on goods and services, such as furniture and in-home entertainment equipment, that fall in the category of “nesting.” This has occurred even though the homeownership rate among Latinos continues to be lower than average.
When it comes to running their households, Hispanics have increased spending on personal services such as childcare services, but they have cut back on spending on household products such as laundry and cleaning products. This is a potentially ominous sign for marketers of consumer packaged goods because Latinos have traditionally been stalwart customers for marketers of laundry and cleaning products.
Another unexpected finding is that over the past three years spending by Hispanic consumers on new vehicles increased faster than it did for used vehicles. Traditionally, Latinos have been more drawn to purchasing used vehicles.
The underlying factors driving the disproportionate power of Latino consumers (more rapid household growth + higher growth in average spending) are likely to hold for the foreseeable future. In planning for the future, marketers in financial services as well as in other industries should take note of the fact that Hispanic households will continue to have an outsize impact on consumer spending growth in a wide variety of areas.
- By Robert Brown & Ruth Washton