Cuba has recently been in the headlines. President Obama was the first US head of state to visit the country in 90 years, following warming diplomatic relations. The country has begun a process of opening its economy, as well as expanding its international trade. The opening up of its economy creates opportunities for both local businesses as well as international businesses seeking to establish their brands.
In a new report from The Boston Consulting Group, titled ‘Understanding the Evolving Cuba Consumer’, the firm explores the profile of Cuban consumers, as well as the market potential for foreign brands. The report is based on a survey of 440 Cubans, 326 of which were in Havana and 114 were from the provincial city of Santiago.
The Cuban economy has enjoyed relatively strong growth in recent years, partly on the back of its opening up to the world. In 2014 the economy generated nominal GDP of $89 billion on its 11 million inhabitants. The country has seen a number of years of around 3% growth, which is projected by the firm to continue in the near future. Additionally, the economy is benefitting from increased tourism, as well as increased remittance from Cubans living overseas. Exports generated around $4 billion, while remittance added around $3 billion.
The local economy is, however, relatively stratified. According to the analysis, this is partly due to there being two currencies, the Cuban peso (CUP) and the Cuban convertible peso (CUC). The latter is pegged to the US dollar and is primarily for tourists and those working with tourists, while the CUP is the domestic currency.
In terms of income groups, there are three strands. Around 50% of the population lives off government salaries, the salaried, amounting to around $25 per month. This group has an income of around $400 a year. The second group (~30%), the emerging Cubans, have a more mixed income, through salary as well as income from CUC, either by remittance or from tips from tourists. The final group (~20%), the ‘self-sustaining’, are able to make considerably more money from tourists or have higher earning remittance access. The group earns around $1800 to $2000 per year, mainly through CUC.
The research finds that Cubans tend to spend the largest portion of their income accessing basic goods. Basic food accounts for 33% of their spend, while clothes and shoes soak up an additional 10% of their income. Other categories related to everyday living, account for 90% of their spending. The ‘other’ category, represents barely 6%, far lower than other emerging economies, and far behind the US, where 24% is spent on ‘other’ discretionary items.
The research also finds that there is a relatively high level of unmet need. While the Cuban government provides basic food stuffs from Ration stores – where heavily subsidised food items are accessible – not all goods are accessible there. And while other government stores provide access to a range of other goods, the informal market takes up the slack for a variety of goods.
While 92% of consumers use Ration stores for basic goods, 12% also access specific goods through informal markets or as gifts from overseas. For clothing there is a considerably larger proportion of Cubans accessing informal channels to access goods. Electronics too are sourced by 20% of Cuban through non-government means.
The research additionally finds that there is a relatively low level of brand awareness among Cuban people. Since the government supplies the basic goods, brands as such are relatively irrelevant to the meeting of those needs. Brand awareness is, however, expected to increase among basic goods as more companies are able to access the market.
The research did find that where there is brand awareness among the population, it is largely due to remittance as well as contact with Cubans, and others, outside Cuba. When it comes to specific brands, for electronics Haier (57%) was the most well known, followed by LG (44%) and Sony (27%). In terms of apparel, Adidas (55%) has managed to most deeply penetrate the local market, followed by Nike (32%) and Puma (25%). In terms of mobile phone brands, penetration is particularly high for Alcatel (44%), followed by Samsung (41%).
While there are a number of ways to access Cuban people with branding, the internet is currently not one of them. 88% of salaried people have not had access to the internet in the past year, while 64% of the emerging group has not had access to the internet. Given that these groups account for almost 80% of the population, advertising to most of the Cuban people, through the internet, remains relatively difficult.
And, even when people do use the internet, it is predominantly to connect to family and friends. The only group to use the internet to access e-commerce related goods is the self-sustaining group, of which 23% had made an online purchase in the past year.
According to Russell Stokes, a BCG Partner and co-author of the report, “Cuba is an undeveloped market for consumer goods, which means companies can’t apply the conventional tactics that have worked elsewhere. As the opportunity grows over the next several years, Cuba will be a turbulent ride. But it will ultimately reward companies that can ride out the bumps.”