Trending Forward: Generational shifts and changing consumer preferences

In brief

• Younger generations, such as Millennials and Generation Z, are reshaping consumer preferences, prioritizing health and wellness, seeking value in their purchases, and favoring e-commerce.
• The growing middle class in emerging markets, the massive generational transfer of wealth, and the ongoing digitization of commerce present significant growth opportunities for businesses.
• To appeal to the growing younger consumer base, companies must understand the trends and preferences of these rising consumers and develop strategies to access new markets around the world.

Demographics 

Generational shifts & shifts rising middle class

We invest in companies with meaningful exposure to economic tailwinds from long-term transitions that are affecting the global economy: demographics, environmental, technological, and governance. The demographics transition includes rising middle class in emerging markets, aging populations, increasing urbanization and shifting lifestyles, all of which are expected to impact healthcare, consumer products, and financials, among others, in the coming decades.

Major parts of the global economy are undergoing significant changes as generational transitions lead to shifting consumer preferences. Technological advancements and evolving values are transforming consumer preferences and the ways consumers engage with products and services. Demographic shifts such as the emergence of a rising middle class, particularly in developing economies, and generational shifts, such as the substantial transfer of wealth, are further impacting consumer preferences and spending habits. Understanding these dynamics is essential for businesses looking to adapt and thrive in a rapidly changing economic landscape.

Over $84 trillion in assets is expected to be inherited by Millennials and Generation Z by 2045, marking the largest wealth transfer in history¹.

By 2030, the global middle class is projected to reach 4.8 billion people, a surge of 1.3 billion with increased purchasing power².

These demographic shifts are not just about wealth; consumer preferences are shifting as well, driven by the changing priorities of younger generations, particularly Millennials (born 1980-1995) and Generation Z (born 1996-2012). Younger consumers are prioritizing health and wellness, seeking value in their purchases, and favoring e-commerce.
The future of consumption by these generations is further shaped by advancements in technology and the rise of social media and digital platforms, giving younger generations powerful influence on trends. As each generation steps into the consumer role, businesses must adapt to meet the evolving demands. Understanding these major shifts in consumer preferences is essential for companies to remain competitive in an ever-evolving economic environment.

Investment Opportunities

Approximately two-thirds of the global population resides in emerging markets, where the middle class is projected to double over the next decade3. The number of middle-class households is projected to increase from 354 million in 2024 to 687 million by 2034, resulting in a substantial rise in consumer purchasing power3. Emerging markets are driving significant growth for consumer products companies, representing a key source of future expansion. Two key markets are India and China, which are expected to be the largest contributors to the global middle class. Companies that offer products and services in these newer markets and meet local needs are more likely to capture the growth opportunities associated with these expanding markets.

The massive generational wealth transfer occurring over the next decade will also enhance consumer purchasing power for Millennials and Generation Z as they gain access to new wealth, influencing not only the amount they consume, but what they consume and how.
To appeal to the new, younger consumer, companies must understand their trends and preferences. Social media is an increasingly important tool in reaching younger generations. For example, campaigns prioritizing social media influencers and short-form videos that are more interactive and entertaining feel less promotional and perform better with younger generations.

There is also a growing focus on health and wellness as consumers around the world prioritize healthier lifestyles. A shift to a more athletic lifestyle is driving trends like casualization and athleisure in apparel. The $400bn Global Sportswear sector has been one of the fastest-growing consumer sectors in the past decade and is expected to remain so over the next decade, growing at a 4% CAGR (compound annual growth rate)through 20354. Notably, spending on health and wellness in emerging markets is outpacing that of advanced markets⁵.

The ongoing digitization of commerce is also driving the rise of e-commerce, which is especially important for companies as internet access and usage continues to expand globally. The emergence of digital marketplaces has transformed how consumers interact with brands, offering enhanced access and convenience. As internet access, smartphone usage, and digital payment services proliferate in emerging and developing countries, these regions are increasingly attractive and penetrable for companies looking to expand their global presence. The rising middle class is a key driver of the growth of e-commerce worldwide.

Key Enablers

eBay is one of the largest global e-commerce marketplaces, connecting buyers and sellers worldwide and operating in more than190 markets, with approximately 50% of sales outside the U.S. As a consumer-to-consumer platform, eBay promotes the re-use of products and therefore a more sustainable way of consumption.
 

Shopify holds 12% of U.S. e-commerce market share (second only to Amazon) and continues to grow rapidly in Europe and Japan. As a multi-channel commerce platform, it equips merchants with easy-touse tools to start digital-native businesses and sell globally. Shop Pay, Shopify’s digital payment app, particularly appeals to Generation Z and Millennial customers and its adoption rate continues to rise.

Colgate generates roughly half of its sales from emerging markets. Its diversified product portfolio provides different price points to
reach all consumers, with programs in place to increase accessibility of their products in emerging markets.
 

Unilever is a leading multinational corporation that offers a diverse range of products in personal care, home care, food, and beverages, with 60% of its sales from emerging markets. Unilever has invested in e-commerce to improve its reach, and its strong commitment to sustainability appeals to environmentally conscious shoppers, further strengthening its market presence.
 

L'Oréal is the global leader in cosmetics with a 15% market share, offering a diverse range of products, from mass-market to luxury brands, allowing it to appeal to a range of consumers across various price points and demographics. L'Oréal is well positioned to capitalize on the growing demand for beauty products in fast growing markets like China and India.

Symrise is a leading global supplier of fragrance and flavoring ingredients for food and beverages, perfumes, cosmetics, and pharmaceuticals. Sourcing about 90% of its raw materials naturally— well above the industry average of 60%—it meets rising consumer demand for health-conscious and sustainable products. Its integrated supply chain, with significant in-house production, enhances quality control and traceability.
 

EssilorLuxottica is the global leader in the eyewear and eyecare industry, focused on raising awareness of vision correction and driving
innovation. With rising disposable incomes, more consumers can invest in eye health. The company's vertically integrated model enables it to meet global demand across all market segments. Strategic investments and innovative acquisitions position the company to meet the evolving needs of a diverse, health-conscious consumer base.

Risk Management & Responsible Practices

With the rise of social media, brands face heightened scrutiny and must manage their reputations carefully to resonate with their conscientious consumers. Consumer boycotts have emerged as a tool for holding companies accountable for their advertising and/or manufacturing practices. A nuanced understanding of the consumer base is more crucial to the success of companies than ever before.
Younger consumers are increasingly favoring sustainable products and responsible consumption making it essential for companies to adopt and promote responsible practices. Sustainable practices are also essential for companies to mitigate risks and controversies in their value chains and supporting long-term financial value creation. Increasing the use of recycled and sustainable materials in packaging and products, addressing water usage and pollution, and ensuring fair trade conditions are practices that can help companies benefit from a ‘sustainable’ premium. Consumers are willing to spend an average of 9.7% more on sustainably produced or sourced goods, even as cost-of-living and inflationary concerns weigh on the consumer⁶.
To meet rising demand, companies must secure long-term access to resources. For example, e-commerce companies, which require a consistent power and water supply for data centers, may be more vulnerable in high water-stress regions. Similarly, consumer goods companies must carefully source raw materials like cotton and palm oil to avoid reputational, operational, and financial challenges.

The securities mentioned above are shown for illustrative purpose only and should not be considered as a recommendation or a solicitation to buy or sell. The information provided reflects MIROVA’s opinion / the situation as of the date of this document and is subject to change without notice.

¹Cerulli Associates. 
²European Commission. "Growing Consumerism." Knowledge4Policy. Oct. 2023.
³Oxford Economics. “The Future of the Middle Class in Emerging Markets.” October 2024.
⁴Bernstein Research 
⁵McKinsey & Company. “State of the Consumer 2024.” June 2024.
⁶PwC. (2024). PwC 2024 Voice of the Consumer Survey.