Purchasing Power in Europe: Knowing the distribution of consumer wealth is key to successful expansion planning

By Christopher Guider

Many companies are looking to establish themselves in the European market as the global economy stabilizes. But this requires answering two crucial “where” questions: Where are the countries that are successfully recovering from the economic crisis, and where are the specific regions whose inhabitants have sufficient disposable income for the product or service to be offered?
    
GfK GeoMarketing’s recently released GfK Purchasing Power Europe 2010/2011 dataset provides answers to these questions by revealing the precise locations in Europe where wealth is concentrated. “We’ve been calculating purchasing power data for Europe since 1937,” said Doris Hardt-Beischl, head of sales at GfK GeoMarketing. “Companies from all branches of trade use our purchasing power figures for gauging the economic strength of regions of interest. This gives them a reliable and objective foundation for expansion decisions.”
    
The purchasing power dataset is an example of how a spatial approach to the analysis and visualization of data is helping companies enter new markets with greater confidence and prospects for success. The data allow companies to identify both the specific European countries that offer the most promising conditions and the locations within these countries that could serve as prospective business sites. The integration of macro- and micro-level planning is key to securing a foothold in unfamiliar markets.

Answering the “where” questions with spatial analysis
The dataset has some good news to offer companies interested in expanding to Europe: The continent shows distinct signs of recovery from the economic downturn, with an overall increase in wealth of approximately 2.1 percent. Europeans have a net household income of approximately €7.9 billion available for consumer purchases, which corresponds to an average purchasing power of €11,945 per person for the 42 European countries considered by the study.

So the overall picture is promising, but what is the actual distribution of purchasing power throughout the continent? Assume that an expansion-minded company wants to establish new sites in Europe. This company can visualize the purchasing power data on digital maps to generate an objective portrait of those areas in which above-average levels of disposable income are most concentrated. Prospective business sites can then be chosen on this basis.

Mapping wealth surpluses and deficits across Europe
A brief glance at the data for all of Europe shows a very apparent west-east divide, with much higher levels of disposable income in the former compared to the latter. Within Western Europe, the Scandinavian countries are very strong, particularly Norway. The countries in central Western Europe – France, Germany, Austria and Switzerland – have some of the highest purchasing power levels in Europe. Other notable areas in Western Europe with above-average levels of disposable income include southern England and northern Italy.
    
While Eastern Europe is, on the whole, significantly weaker than Western Europe, there are areas of relative prosperity, including Slovenia, western Slovakia and the greater metropolitan area of Prague in the Czech Republic. In recent years, Slovenia has climbed the purchasing power rankings and even overtook Portugal in the crisis-ridden year of 2009. Slovenia consolidated this position in 2010 with a per capita purchasing power of €10,045.
    
The most under-performing countries in Eastern Europe are the countries comprising former Yugoslavia as well as Moldova, the Ukraine and Belarus. Inhabitants of these areas have less than one-third of the average purchasing power available in Europe. Concentrated areas of greater disposable income can be observed in Turkey in the regions around Istanbul and the capital of Ankara. In 2010, Turkey’s per capita purchasing power rose by over 10 percent, which moved it up several places in the rankings.
    
A closer look at the map shows that many of Europe’s largest cities form islands of significantly above-average purchasing power. This is particularly apparent when viewing purchasing power density at the two-digit postcode level. A map of these data shows that even in countries with very high purchasing power, disposable income is often very unevenly distributed. Norway is a good example: While the country as a whole has some of the highest per capita purchasing power levels in all of Europe, this wealth – in accordance with population density – is largely concentrated in the metropolitan areas along the southern coastlines.

A purchasing power density map of Europe reveals the areas in which particularly high levels of wealth are clustered. (Click for larger view.)


Using market data to hone in on promising areas for expansion
This information provides objective guideposts for identifying the best locations in which to establish a new business site. Assume that our company in question decides to establish a location in Germany and Slovenia – both countries have some of the highest purchasing power figures for Western and Eastern Europe, respectively. The company can now proceed to a more detailed regional evaluation of the purchasing power data in order to select the best sites within these countries.
    
“Because our purchasing power data is both wide-ranging and highly detailed, companies can use it to get a broad overview of the market and then zero in on the specific regions in which they are most interested,” explained Hardt-Beischl. “Our purchasing power data provides coverage down to the five-digit postcode level for all of Europe, which means that companies can plan at a very granular level.”    
    
The dataset is a potent tool for pinpointing promising new business locations or assessing the relevant merits of existing locations. When used in conjunction with other data, up-to-date digital maps and mapping software, GfK Purchasing Power Europe 2010/2011 brings clarity and precision to expansion planning, product placement and a wide range of sales, marketing and controlling tasks.

About the study
Purchasing power is a measure of per capita disposable income (including any received state benefits) after the deduction of taxes. The study indicates annual per capita purchasing power levels in euros and as an index value. GfK purchasing power figures reflect the nominal disposable income, meaning that the values have not been adjusted for inflation. The study draws on statistics on income and tax levels, government benefits and forecasts by economic institutes. The GfK purchasing power study does not take into account regional cost-of-living variations or recurring monthly deductions from disposable income such as rent, mortgage payments and contributions to private retirement funds and insurance policies.

This map of Europe reveals the purchasing power index per inhabitant at the level of Europe’s two-digit postcodes. (Click for larger view.)


GfK Purchasing Power Europe is calculated every year for 42 European countries, with coverage down to the level of municipalities and postcodes. The 2010 / 2011 study includes data on population and households. GfK GeoMarketing also offers Europe-wide digital maps that fit with the GfK purchasing power data.


Published Monday, March 21st, 2011

Written by Christopher Guider


Published in

Location Intelligence