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EconSouth

Riding the Rising Wave
of Hispanic Buying Power

Recent Census data show that Hispanics have passed African-Americans to become the largest minority population in the United States, and Hispanics’ incomes and buying power are growing along with the population. Savvy businesses are learning as much as they can, as fast as they can, about the Hispanic population in hopes of successfully targeting their goods and services toward this increasingly prosperous consumer market.

While plenty of Hispanic-focused companies have been marketing and selling directly to Latino consumers for years, a number of larger, traditionally non-Hispanic-focused companies are now actively working to carve out a piece of the Hispanic market.

As the Southeast’s population continues to grow, one segment in particular is outpacing all other groups: the Hispanic population. According to the U.S. Census, the population of the United States as a whole was 283 million in 2003, an increase of 14 percent from 1990. Over the same time period the Hispanic population rose 75 percent and now stands at around 39 million. In the Southeast, the change has been even more dramatic. The Southeastern population was about 42 million in 2003, up 20 percent from 1990, whereas the Hispanic segment swelled 116 percent to 4 million in 2003. Some believe even this growth in the Hispanic population may be understated because many illegal Hispanic immigrants are not included in the official Census data.

The rapid Hispanic population growth has led to an increase in economic importance. For instance, according to Enrique J. Moras, vice president of acquisition banking for Wachovia Corp., Hispanic households with more than $100,000 in annual earnings are growing at more than twice the pace of the general population. This increasing Hispanic buying power is a point not lost on retailers and other businesses. But if marketers want to capture a share of this burgeoning market segment, they need to discover how the Hispanic community differs from other markets and use this information to focus their strategies. Some companies, especially in the communications industry, have been quite active in targeting the Hispanic market.

Pocketbook power
Buying power—personal disposable income, or after-tax income available for purchasing goods and services—is a measure of the relative economic importance of a market segment. Dr. Raul Perez, president of Utilis Research, a marketing research firm in New York, estimates that the buying power of Hispanics in the Southeast grew threefold from 1990 to 2003, from $24 billion to $79 billion, while the buying power of the general population increased twofold, from $528 billion to $1.045 trillion. “The percent of total buying power in the Southeast attributed to Hispanics grew from just over 4 percent to over 7 percent in the same period,” he said.

Florida has long been among the top states in the nation with significant Hispanic markets. Officially, the Hispanic population in Florida stood at around 3.1 million in 2003, an increase of some 1.5 million since 1990. Over the same period, the buying power of the state’s Hispanic residents grew by an estimated $40 billion. Georgia also has a considerable Hispanic population, totaling around 531,000 in 2003, almost a fivefold increase from the estimated 109,000 Hispanics in the state in 1990. What’s more, the buying power of Georgia Hispanics has grown an estimated $9 billion since 1990, when it was only $1 billion, according to the Selig Center of the University of Georgia. In Alabama, Louisiana, and Mississippi, the Hispanic population is also growing rapidly but nonetheless remains relatively small.

Analysts project that Hispanic buying power will reach 9 percent of the nation’s total buying power by the end of this decade A number of research studies suggest that Hispanic buying power should increase more than fivefold in the Southeast toward the end of the decade. And indications are that the Hispanic boom will not slow down after that time. If this boom takes shape as expected, it will represent a huge opportunity for new and existing businesses to increase sales and customers.

Placing a Value on Education

How population segments spend their money gives critical insight into important policy considerations. One negative factor that both Hispanic and African-American consumers have in common is their lower levels of spending on education. On average, Hispanic consumers tend to spend 37 percent less on education than non-Hispanic consumers while African-American consumers spend 42 percent less than non-African-Americans, according to the Selig Center.

This disparity in educational spending also shows up in educational achievement levels. In 2003, 41 percent of Hispanics in the United States had less than a high school degree while only 12 percent of non-Hispanic whites and 21 percent of African-Americans fit in this category. Although Hispanics lag in all educational categories, one that is particularly alarming for future Hispanic achievement is the gap in college attainment. The Census shows that only 12 percent of Hispanics over age 25 have a bachelor’s degree or higher as opposed to 29 percent of non-Hispanic whites. This discrepancy is increasingly relevant as the wage gap between college graduates and people without college degrees continues to widen.

However, it is important to note that not all Hispanics are the same with regard to attitudes toward education. Hispanics with deep roots in the United States, firstborns, and early transplants display patterns, including spending for and achievement in education, similar to those of the general market, according to Utilis Research and Consulting. This finding could explain, for example, the higher educational achievements of Cuban immigrants who came to this country during the 1950s and 1960s. These earlier Cuban immigrants typically enjoyed the greater wealth of a more middle-class upbringing and a stronger cultural emphasis on education than today’s immigrants have experienced.

Another consideration is that some forms of training do not show up in U.S. Census numbers, and that omission may overstate these education concerns somewhat. Nonetheless, an ongoing challenge for policymakers will be to ensure that the children of Hispanic immigrants make adequate use of educational opportunities, especially as educational attainment becomes ever more important for success in the job market.

A piece of the pie
Businesses are beginning to sit up and take notice. While plenty of Hispanic-focused companies have been marketing and selling directly to Latino consumers for years, a number of larger, traditionally non-Hispanic-focused companies are now actively working to carve out a piece of the Hispanic market.

The communications industry is a prime example. On Feb. 2, WEBG-FM in Orlando became that city’s first completely Spanish-language station with its new moniker, Rumba 100.3. Linda Byrd, a regional vice president for central and north Florida at Clear Channel Communications, a large media company and parent of WEBG, commented that “Orlando is one of the fastest-growing Hispanic markets in the nation and one of the largest [radio markets], with 20 percent of listeners being Hispanic.” Clear Channel is switching 25 of its radio stations nationwide to Spanish-language formats by the end of 2005, bringing its Spanish-language initiative to a total of 39 radio stations in the United States.

Telecommunications companies that currently serve Latinos, such as Univision Communications Inc. and the Spanish Broadcasting System, are also seeing their markets grow. Larger companies are now seeing enough critical mass in the Hispanic market to make it worth their while to increase their presence in that market segment. Advertising industry analysts anticipate that revenue for Spanish-speaking markets will grow rapidly as more companies focus their messages to reach Hispanic audiences.

Hispanic television has already experienced a dramatic expansion: Of the 75 Hispanic pay television stations, 33 were launched in the past two years. Several have come from big-name media companies, such as CNN, Fox, and MTV, and others are broadcast directly from Latin American countries. Local channels are also starting up to serve Hispanic communities. WUVG Univision 24, which began broadcasting in the Atlanta area in 2002, is Georgia’s only Spanish-language local broadcast television station.

Spanish-language newspapers are vying for space on retailers’ shelves. Several larger markets such as Los Angeles, Dallas, Miami, and New York have their own Spanish-language dailies produced by larger, established newspaper publishers. In other markets, small, family-owned newspapers have generally dominated. Luis Espinoza, of Jackson, Miss., started La Noticia last year, a weekly, 12-page tabloid distributed to community centers and Hispanic restaurants and grocery stores. “My goal is eventually to publish more news about and for Latinos in the area,” he said.

But media companies are not the only ones noticing the growth potential of the Hispanic market. The market once left to smaller companies who specialize in Hispanic-focused products now attracts major players. Publix Super Markets, based in Lakeland, Fla., is adding Hispanic products to its private line in the next few months. With all of its 849 stores in the Southeast, Publix believes it has a ripe audience to compete against established Hispanic food producers, such as Badía and Goya Foods.

Tapping the unbanked wealth
The financial sector also appears to be primed for growth among the Hispanic population. According to the Pew Hispanic Center, 24 percent of Hispanics in this country are unbanked. Of Latinos in the United States who send remittances, notes the Pew Center, 55 percent have no credit cards and 43 percent have no bank accounts. According to Manuel Orozco of Inter-American Dialogue, there is broad mistrust of banks by Latinos. Some studies also suggest that the unbanked are also illegal immigrants afraid of the banking system.

The big financial institutions throughout the Southeast are reaching out to the Latino market with new services or existing services repackaged to address the unique needs of this market. According to Moras, Wachovia Bank’s footprint covers fully 30 percent of the overall Hispanic population in key markets like Miami. He says that Hispanics represent an underserved segment, with nearly 40 percent of this market having no traditional banking relationship. To reach this large and growing market segment, Wachovia has identified four areas on which to concentrate its market development efforts: human resources to foster employees who relate to the segment, marketing, focused product development, and community involvement, Moras notes.

Smaller banks are also beginning to target the Hispanic market in the Southeast. Independent banks like Atlanta-based United Americas Bank are catering to the Latino market. “One of our primary goals is to help first-time homebuyers in the Hispanic market to acquire their homes. Our experience has been very good to date. We’ve seen people in our target market show tremendous pride in the idea of home ownership, and, consequently, our delinquency rates have been very, very low,” said Jorge Forment, president of United Americas.

Know thy market
For companies considering entering the Hispanic market or expanding their market focus, differences in spending patterns are key. In many cases Hispanics are more likely to buy goods and services from other Hispanics in their community. “Relationships are extremely important in the Hispanic culture. If you treat Hispanic customers with both respect and cultural understanding, they will remain loyal to your business and tell their friends and family that you have gone the extra mile to make them feel welcomed,” said Maritza Pichon, executive director of the Latin American Association of Atlanta. These Hispanic businesses are also more likely to hire Latino employees, keeping Hispanic dollars within the community. This practice allows employees to gain experience and companies to gain capital and profits.

It is important for businesses striving to enter the Hispanic market to understand some of its demographic differences. For instance, the age profile of the Hispanic community is dramatically younger than that of the general population. Forty-two percent of all U.S. residents are under the age of 30, according to the 2000 Census. In the Hispanic population, 58 percent are under age 30.

The age and spending profiles of the growing Hispanic population provide useful indicators of where and how companies can expand in this market. For example, much data suggest that young Hispanic males are sending a significant portion of their wages back to their home countries in Latin America—$30 billion in 2003, according to the Inter-American Development Bank. Assuming these data are accurate, banks might find growth potential in focusing on banking remittances and transfer payments to not only cities but also villages in rural Latin America. Several U.S. banks, including Wells Fargo and Citibank, have acquired or partnered with Latin banks and vice versa in hopes of capturing more of this remittance market from traditionally higher-fee providers. By offering lower transfer costs, banks offering remittance services are gaining ground.

If marketers want to capture a share of this burgeoning market segment, they need to discover how the Hispanic community differs from other markets and use this information to focus their strategies.

Trying to profit from the demographic differences of the Hispanic population is not limited to remittance senders. For example, Census figures show that 31 percent of Hispanic households had five or more people and that 35 percent of the total Latino population is under the age of 18. This youthful market provides opportunities for companies whose products and services are aimed at children. An A.C. Nielsen study shows that market penetration for items typically bought by and for children and teens averaged 38 percent higher for Hispanic households than for non-Hispanic white households.

As the wealth of Hispanic residents continues to grow, both local and national companies are likely to pay more and more attention to this important market segment. Companies can learn to tailor their products to take advantage of the different demographic and cultural considerations of the rapidly growing Latino market. Media companies are already positioning themselves to benefit from the advertising dollars that will flow as the result of expanding Hispanic buying power. Waiting until Hispanics have become an even larger, established market may mean missed opportunities.

This article was written by Sarah Dougherty, an economic analyst in the Atlanta Fed’s research department, with Lynne Anservitz, editorial director of EconSouth.

Shadow Population, Shadow Economy

Despite all the positive evidence of growing Hispanic buying power, a large shadow looms over the Hispanic market segment: Illegal immigrants often do not show up in official data. Though the U.S. Census Bureau does not share detailed information with the Immigration and Naturalization Service nor with the Internal Revenue Service, many illegal immigrants do not trust the system. They avoid all official government agencies and thus remain both anonymous and undercounted. The legal economy also remains out of reach for many such individuals, a situation that perpetuates an underground economy.

Jim McTague, a senior financial sector reporter for Barron’s, estimates in his paper “Going Underground: America’s Shadow Economy” that the size of the shadow economy—not just in the Hispanic marketplace—has grown to as much as $970 billion. That amount would represent almost 9 percent of official U.S. gross domestic product. Television producer and political scientist Ken Verdoia’s 2005 documentary film “Shadow of Hope” shows that illegal immigrants are huge drivers of the shadow economy because many cannot get paid legally—they hide in plain sight. They cannot pay into Social Security, get credit cards, or pay federal, state, and local taxes. They often are paid in cash, under the table, with no official record being kept of their income, and so they are an invisible part of the American economy.

The U.S. Census Bureau estimates that 8.8 million illegal immigrants currently live in the United States while the Pew Hispanic Center cites higher estimates of more than 10 million undocumented workers, 8 million of whom are Hispanic. In their paper “The Underground Labor Force Is Rising to the Surface,” Robert Justich and Betty Ng of Bear Stearns Asset Management claim that the number of illegals is closer to 20 million, performing 12 million to 15 million jobs throughout the country. Using a wide range of data, the authors seek to count those who do not want to be counted. Housing permits in immigrant neighborhoods have grown rapidly even in areas with only moderate official population growth; remittances to Mexico tripled from 1995 to 2000, yet the official number of Mexicans in the United States grew by only 56 percent and wages grew an estimated 10 percent. In addition, school enrollment in immigrant gateway cities such as New York and Los Angeles has grown more than population projections would suggest.

The undercounting of immigrants is important in various ways. For instance, states receive federal aid as well as congressional seats on the basis of their official population numbers. In economic research, population size is often used in the analysis of other data. The Justich and Ng paper points out how the shadow population causes measurements of labor productivity (output per worker) to be overstated because some of the output is generated by illegal immigrants whose labor input is not being counted in official statistics.

 

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