Copyright © 2014 Eighty20

Lower LSM’s: facilitating survival priorities

November 2015

This presentation is incomplete without the accompanying oral commentary

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By way of introduction, Eighty20 is an analytics consulting company based in Cape Town

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Agenda

A closer look at LSM

Expenditure

According to AMPS 2014 there are 15.2 million households in South Africa. In 2014 just 6% of households were in LSM’s 1 or 2 and a further 19% were in LSM’s 3 or 4

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2014B Black Coloured Indian White

LSM 1-2 98% 2% 0%* 0%

LSM 3-4 98% 2% 0%* 0%*

LSM 5-6 90% 7% 1% 3%

LSM 7-8 64% 14% 4% 18%

LSM 9-10 36% 11% 8% 46%

TOTAL 78% 8% 2% 12%

LSM 1-2 LSM 9-10LSM 3-4 LSM 5-6 LSM 7-8

6% 19% 39% 21% 15%

2014

Thousands

Percentage

868 2,3603,1375,9882,883

Source: AMPS 2014B

HOUSEHOLDS

In 2004 around 2 million households were in LSM’s 1 or 2 (21% of households)

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LSM 1-2 LSM 9-10LSM 3-4 LSM 5-6 LSM 7-8

21% 28% 27% 12% 13%

2004

Thousands

Percentage

2,083 1,3211,1762,7372,825

2004 Black Coloured Indian White

LSM 1-2 98% 2% 0% 0%

LSM 3-4 96% 4% 0%* 0%*

LSM 5-6 78% 13% 3% 6%

LSM 7-8 35% 17% 9% 40%

LSM 9-10 9% 7% 6% 79%

TOTAL 73% 8% 3% 17%

Source: AMPS 2004

HOUSEHOLDS

By 2010 the number of households in LSM’s 1 or 2 had decreased to less than 1.5 million households (11% of households)

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LSM 1-2 LSM 9-10LSM 3-4 LSM 5-6 LSM 7-8

11% 23% 35% 17% 14%

2010

Thousands

Percentage

1,445 1,914 2,312 4,657 3,041

2010A Black Coloured Indian White

LSM 1-2 98% 1% 0% 0%*

LSM 3-4 97% 3% 0%* 0%*

LSM 5-6 86% 8% 1% 6%

LSM 7-8 50% 15% 5% 30%

LSM 9-10 24% 9% 8% 60%

TOTAL 74% 7% 2% 16%

Source: AMPS 2010B

HOUSEHOLDS

In 2014 less than 900 000 households were in LSM’s 1 or 2 (6% of households)

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2014B Black Coloured Indian White

LSM 1-2 98% 2% 0%* 0%

LSM 3-4 98% 2% 0%* 0%*

LSM 5-6 90% 7% 1% 3%

LSM 7-8 64% 14% 4% 18%

LSM 9-10 36% 11% 8% 46%

TOTAL 78% 8% 2% 12%

LSM 1-2 LSM 9-10LSM 3-4 LSM 5-6 LSM 7-8

6% 19% 39% 21% 15%

2014

Thousands

Percentage

868 2,3603,1375,9882,883

Source: AMPS 2014B

HOUSEHOLDS

Before we move on, what is a household? By and large household surveys define a household as a group of people who share a dwelling AND financial resources

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HOUSEHOLD COMPOSITION OF SOUTH AFRICAN HOUSEHOLDS: 2011 (13 112 216 Households)

EXTENDED FAMILY AND/OR NON-RELATED

41%

NUCLEAR FAMILY21%

ONE PERSON18%

COUPLENO KIDS

9%

Source: IES 2010/11

SINGLE PARENT

11%

23% 41% 8%7% 20%

Higher LSM households are more likely to be nuclear families, while lower LSMs are more likely to be extended families

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EXTENDED FAMILY AND/OR NON-RELATED

NUCLEAR FAMILY ONE PERSON COUPLENO KIDS

SINGLE PARENT

Source: IES 2010/11

44% 14% 24% 13% 5%

38% 29% 13% 9% 11%

46% 18% 17% 12% 7%

44%Nuclear Family:

10%

One Person:27%

Single Parent:13%

Couple, no kids:

7%

HOUSEHOLD COMPOSITION OF SOUTH AFRICAN HOUSEHOLDS BY LSM(13 112 216 Households)

LSM 9-10

LSM 7-8

LSM 5-6

LSM 3-4

LSM 1-2

Extended: Nuclear Family: One Person: Single Parent:

Couple, No Kids:

To understand the shifts in LSM it is useful to review the basis on which LSM is determined. The LSM is a Living Standard Measure developed by SAARF

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LS

M 1

Rural Phone-less

TV-less House-less

Purchase Two

For household

LSM 3

LUCKY BREAK!

You get a:

RDP House

Move to

LSM 4

For household

LS

M 5

Purchase Two

Get a hi-fi, a TV and DVD player. You made it to:

LSM 6

Get a

LOAN

Purchase household appliances

LSM 7

Employ a:

Do

me

sti

c

LSM 8 (low)

Eighty20’s

LSM

Board Game

the city

Build a shack

LSM 2

Hitch a ride to

Get a:

And a computer

LSM 9But don’t get robbed or you could end up in LSM 5 overnight!

Have a look at the LSM calculator on our website to find out which LSM you fall into. Scroll right to the bottom of the home page to find the LSM calculator

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http://www.eighty20.co.za/lsm-calculator/

The subsidy housing programme which provides free houses to qualifying recipients has had a major impact on living standards

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The number of households living in decent housing increased by over 3.5 million between 2001 and 2011. Over that time the private sector built around 660 000 units

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SHACK NOT IN BACKYARD

1.4 million 1.25 million

SHACK IN BACKYARD

460 000 710 000

TRADITIONAL DWELLING

1.65 million1.1 million

FORMAL DWELLING

7.2 million 10.7 million

Source: Census 2001, Census 2011, Stats SA Building Statistics. Note: Excludes ‘Formal other’ and other therefore will not sum to 100%Note: Formal dwelling: House/brick/concrete structure on a separate stand or yard, Town / cluster / semi-detached house, Flat or apartment* Includes residential buildings: dwelling houses < 80 m2, dwelling houses ≥ 80 m2 and flats/ townhouses completed 2001 - 2011

2001 2011

4%

12%

15%

64%

5%

9%

8%

74%

CAGR

4.5%

-1%

-3.7%

4.1%

3.5 MILLIONMORE HOUSEHOLDS LIVING IN DECENT

HOUSES

Housing formalisation impacts directly on access to services …

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Source: Census 2011 Statistical release – P0301.4 (Census 2001, Community Survey 2007, Census 2011)Note: CAGR - compound annual growth rateNote*: “What is the main type of toilet facility used by this household?” – Flush toilet (connected to sewerage system) or Flush toilet (with septic tank)

FLUSH TOILET*

8.7 million60%

7.2 million58%5.8 million

53%

2001 20112007

PIPED WATER (TAP) INSIDE DWELLING OR INSIDE YARD

6.9 million62%

8.7 million69%

10.6 million73%

ELECTRICITY USED FOR LIGHTING

7.8 million70%

10.0 million80%

12.2 million85%

2.9 MILLIONMORE HOUSEHOLDS

CAN FLUSH

3.7 MILLIONMORE HOUSEHOLDS

CAN WASH

4.4 MILLIONMORE HOUSEHOLDS

CAN SEE IN THE DARK

IMPROVEMENT FROM 2001

Housing formalisation has an impact on household expenditure

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Despite the expense of building and the increase in living costs almost everyone was happy to have a house and considered it an improvement over their previous living standard. The increase in expense was therefore traded off against the improvement in quality of life, including

physical and emotional aspects. - Housing the Household: Gender and Empowerment in South Africa, Sophie O. M-F. Mills, Thesis submitted for Ph.D., 2004, Department of Geography and Environment, London School of

Economics and Political Science

“You need something a bit nice in a house, it’s not like a shack” - Mali,

married, aged 47

“I think it will be cheaper after a year or two years, because I’m still doing the house, inside and outside.

Inside I like to put the face stone, also to put the ceiling, even change the stairs. I can build also on top of the kitchen, put a yard here.” - Roger, married, aged 36

LSM is also a function of the cost of durables. In many categories entry level products are increasingly affordable and access to credit has a material impact

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LSM 4

Free

LSM 5 LSM 6 LSM 7

Get a subsidised house if you live in a metro

2 Radios

2 Radios

2 Cell phones

DVD player

Hi-Fi Colour TV

Microwave

FreezerLaptop

Fridge freezer

Stove

2 Radios

2 Cell phones

DVD player

Hi-Fi

TOTAL COST OF APPLIANCES TO MOVE INTO HIGHER LSM GROUP

Note: Appliance prices from Game (05/08/2014): CD player R499; Cell phone R149; DVD player R279; Hi-Fi R499; Colour TV R899; Microwave R599; Freezer R2 099; Laptop R3 599; Fridge freezer R2 099; Stove and oven R1 989

R998 R2 973 R13 358

R 150 000

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Median monthly household

incomeR 1 100 R 1 400 R 1 500 R 2 400 R 7 900 R 12 200 R 30 700R 18 700R 4 000R 1 900

Source: IES (Income and Expenditure Survey) 2010/11Note: The line between the colours of the boxes indicates the median. The box comprises the middle 50% of households. The whiskers show the 1st and 99th percentile

R 125 000R 83 000

Mo

nth

ly h

ou

se

ho

ld in

co

me

MONTHLY HOUSEHOLD INCOME BY LSM(2011, nominal incomes)

IES data can be used to find the household income distribution across LSM categories

R 0

R 10,000

R 20,000

R 30,000

R 40,000

R 50,000

R 60,000

R 70,000

LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10

2014 Rands R 1 347 R 1 714 R 1 836 R 2 938 R 9 672 R 14 937 R 37 587R 22 895R 4 897R 2 326

However, household income is not the best indicator of income because of varying household sizes

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36%

15%

15%

17%

16%

33%

15%

15%

18%

19%

25%

14%

15%

19%

27%

CENSUS 2011CENSUS 2001CENSUS 1996

HOUSEHOLD SIZE

One

Two

Three

Four

Five or more

HH SIZE

“A household consists of a single person or a group of people who live together for at least four nights a week, who eat from the same pot and who share resources “ – Stats SA

Source: Census 2011; Statistics South Africa: Achieving a better life for all

A better measure is income per capita. According to the 2010/11 IES there are 13.1 million households in South Africa. Roughly one quarter have a per capita income of less than R20 per day

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HOUSEHOLDS IN SOUTH AFRICA: 2011

Source: IES 2010/11Note: Per capita income is calculated as household income divided by the number of people in the household. Children under 10 count as half a person. Income has been adjusted where regular expenditure exceeds income

Population (households)

Income per capita per day

[R20, R80)

R280 +

[R80, R280)

< R20

11%1.4 million

24%3.1 million

41%5.4 million

24%3.2 million

By overlaying LSM onto the income pyramid we can see that just under one in five households at the bottom of the pyramid are in LSM’s 6 or 7

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HOUSEHOLDS IN SOUTH AFRICA: 2011

Population (households)

Income per capita per day

[R20, R80)

R280 +

[R80, R280)

< R20

11%1.4 million

24%3.1 million

41%5.4 million

24%3.2 million

1 - 3 4 - 5 6 - 7 8 - 9 10

34% 48% 18%

18% 39% 37% 5%

6 22% 35% 28% 10%

4% 16% 38% 41%

LSM GROUP:

Source: IES 2010/11Note: Per capita income is calculated as household income divided by the number of people in the household. Children under 10 count as half a person. Income has been adjusted where regular expenditure exceeds income

1%

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Agenda

A closer look at LSM

Expenditure

10%

17%

21%

27%

22%

12%

15%

20%

19%

18%

40%

28%

13%

7%

16%

2%

3%

10%

13%

9%

4%

4%

7%

9%

7%

11%

9%

5%

3%

6%

2%

2%

4%

5%

4%

3%

4%

4%

4%

4%

1%

2%

4%

4%

3%

14%

15%

12%

10%

12%

Transport Housing, water, electricity, gas and other fuels

Food and non-alcoholic beverages Health

Insurance and other financial services n.e.c. Clothing and footwear

Recreation and culture Communication

Education Other*

The distribution of expenditure varies by income. Food accounts for 40% of total expenditure on average in BoPhouseholds. Clothing accounts for 11% of expenditure

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TOTAL

Source: IES 2010/11Note: Income has been adjusted where regular expenditure exceeds income. Excludes imputed rentals for housing; * Other includes: Restaurants and hotels, Personal care and effects, Social protection and other services n.e.c., Alcoholic beverages, tobacco and narcotics, Furnishings and household equipment, Other unclassified expenses; Note: Health includes medical insurance and medical aid contributions; Housing includes goods and services for routine household maintenance

R280+

[R80, R280)

< R20

DISTRIBUTION OF CONSUMPTION EXPENDITURE FOR ALL HOUSEHOLDS: 2011(By daily per capita income)

[R20, R80)

Households with a per capita income of less than R20 per month account for 14% of total expenditure on clothing in South Africa

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Remember Maslow?

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MASLOW’SHIERARCHY OF NEEDS

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Rather than a tale of greed, the history of luxury could more

accurately be read as a record of emotional trauma. It is the legacy of

those who have felt pressured by the disdain of others to add an

extraordinary amount to their bare selves in order to signal that they

too may lay a claim to love.

STATUS ANXIETY, ALAIN DE BOTTON

86%82%

70%

58%

51% 50%

43%

34% 33% 32%30% 29% 29% 28%

25%21% 21% 21% 19%

16%

9% 7%4%

While basic items dominate the food basket for the poor there is discretionary spend

Source: IES 2010/11; Excludes imputed rentals for housingNote: Income has been adjusted where regular expenditure exceeds incomeNote: ‘Baked treats’ include rusks, biscuits, crackers, cakes, tarts and other baked goods; ‘Sweets’ include toffees, glucose sweets, health bars and other sweets; ‘Salty snacks’ include potato crisps, cheese curls, corn chips, and popcorn

BOP HOUSEHOLDS IN SOUTH AFRICA: 2011(% of BoP households that have spent on certain items in the past year)

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Essentials Treats

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FAST FOOD: PERSONALLY BOUGHT FOOD FROM THIS OUTLET IN PAST 4 WEEKS(Adults 16+ in BoP)

Source: AMPS 2013B, Eighty20 analysis

Almost 40% of the BoP have purchased from KFC in the past month – significantly higher than any other fast food chain

KFC

McDonaldsWimpy

Chicken LickenHungry LionNandos

Pie CityKing Pie

38%

8%6%

5%3%

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The brand of maize meal that is consumed most often depends on household income. This is also the case for choice of potato chips or savoury snacks, but not for beer, bread and rice

<R20

[R20, R80)

[R20, R140)

[R140, R280)

R280+

BEER

WHICH ONE BRAND DO YOU CONSUME OR BUY MOST OFTEN?(Adults 16+, By daily per capita income)

BREAD RICE MAIZE MEAL POTATO CHIPS / SAVOURY SNACK

Source: AMPS 2013B, Eighty20 analysis

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“If we stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative

entrepreneurs and value conscious consumers, a whole new world of opportunity will open up”

CK Prahalad

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THANK YOU!

Further questions: claire@eighty20.co.za

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