Serving the Black consumer is a $300 billion opportunity

In this episode of The McKinsey Podcast, hear McKinsey partner Shelley Stewart III in conversation with Lucia Rahilly, global editorial director, to discuss the priority, underserved areas where private and public sectors can get to deliberate work, to make a better quality of life for Black Americans, right away. An edited version of their conversation follows. After, hear from John Doerr, venture capitalist and author, about his fresh ideas to combat climate change.

The McKinsey Podcast is hosted by Lucia Rahilly and Roberta Fusaro.

A mighty minority

Lucia Rahilly: Today on The McKinsey Podcast, we’re here with Shelley Stewart III. Shelley is a McKinsey partner, a leader of the McKinsey Institute for Black Economic Mobility, and an author of a wide range of publications, including a recent McKinsey Quarterly article on the $300 billion opportunity in serving the emerging Black consumer. Hello, Shelley. Thanks so much for joining the show today.

Shelley Stewart III: Hello, Lucia. Thank you very much for having me.

Lucia Rahilly: I’d like to start by reading out loud the first sentence of your Quarterly article on the Black consumer, which lays out a fundamental premise underlying the research: “For decades and decades, Black consumers have been regularly overlooked by companies that don’t see them as a priority demographic.” I find that super powerful. But consistently and over time, companies have simply not made this community a priority. What do you think is going on here?

Shelley Stewart III: I certainly won’t say that the generalization is true for all companies. But what I will say is the Black population is around, call it, 13 to 14 percent of the US population, so it is a minority. And so, in some sense, it makes sense that on initial pass, they might not be the priority group.

That said, if you actually look at the spend, today Black consumers spend around $835 billion a year, but that number is about 10 percent of overall consumption, so it doesn’t quite reach their population shares.

But $835 billion is a huge opportunity spread across all the different consumption buckets, and we fundamentally believe that, and our research supports it, there’s a huge opportunity to get more focused on this consumer segment.

Lucia Rahilly: Yes. And presumably, White people spend proportionately more. Do we have stats on how spending breaks down by other racial and ethnic groups?

Shelley Stewart III: If you look at the data, the consumer buying power tracks much more closely to population share, and for White Americans, even above population share. Some of this is just the mirror effect of having lower wages than the population share and just being underpaid and not in the occupations that tend to provide more income and, therefore, more consumer “spendability.”

Lucia Rahilly: Theoretically, then, the logic for companies, financially, has been smaller population, smaller paychecks, maybe smaller discretionary income, and all that presumably adds up to smaller profits. Is that right?

Shelley Stewart III: I think certainly the starting logic is that it’s a smaller pool than maybe some other segments of the population. That said, there is a huge opportunity to identify these pockets of opportunity where you can disproportionately focus. And, actually, our analysis and our conversations with the Black consumer suggest that there is an opportunity to build greater loyalty and disrupt some of the existing incumbent players in some of these markets.

Lucia Rahilly: Yes. It seems that what the research actually shows is what seems like a fairly massive number—$300 billion untapped opportunity. That seems big on its face, but maybe you can help us put that figure into context. Is it actually a lot for B2C companies?

Shelley Stewart III: The first thought is we talk about the $300 billion opportunity for the Black consumer in the context of the $835 billion of spend that’s growing. So certainly $300 billion is easily on the table based on our research.

The majority of that $300 billion opportunity that we identified is already being spent today by Black consumers. The issue is that they are significantly dissatisfied with their spend across almost all categories when you compare them with other populations.

So we view that portion of the $300 billion to be at risk if you are currently serving those customers. About $50 billion of the $300 billion is an expressed willingness to pay more than what they’re paying today if they could have products that were better tailored to suit their needs and expectations. That represents a real commercial opportunity to, again, disrupt existing providers, and even provides opportunity to earn more and increase profitability in some categories, if you better serve the needs of the Black consumer.

Five areas of economic opportunity

Lucia Rahilly: Let’s set some more context by talking through the five areas where Black communities are underserved. The research homes in on five categories.

I’m assuming this is also where the biggest upside lies, and those five areas are food, housing, healthcare, broadband, and banking. Would you walk us through two or three of those in more detail, and help us understand where companies might have the fastest and most beneficial impact?

Shelley Stewart III: Absolutely. The three that I’ll take are what I’d consider things that are really essential goods and services to living a life that’s of any type of decent quality: food, housing, and healthcare. Our analysis found that one in five Black Americans, or around 8.3 million, lack easy access to fresh food.

So 40 percent of individuals in that 8.3 million are concentrated in five states where they’re living in food deserts. We believe that there is a substantial opportunity to help address this access issue. And part of what we did in our analysis was to look in certain census tracts that are food deserts and used one of McKinsey’s proprietary retail models to ask, “If you put a store in this location, should it be profitable based on a set of attributes?” And we found that there were clear opportunities to locate profitable grocery stores in these locations.

On the housing side, this is something that came up time and time again in our surveys and discussions with the Black consumer. There’s huge opportunity to develop higher-quality housing product in areas where Black Americans live. In fact, that was one of the areas where Black Americans would be willing to pay a fairly substantial premium to what they’re paying today, if they could have higher quality housing in the areas where they live.

And lastly, healthcare. There’s a three-and-a-half-year life expectancy gap between Black Americans and White Americans. That gap actually extended to five years, unfortunately, during the COVID-19 pandemic. A lot of this comes down to access to healthcare providers. There’s certainly an affordability question, but 16 million Black Americans live in areas where there are few healthcare providers, which is two and a half times the rate of White Americans.

This has all sorts of downstream implications for being able to be educated. It’s difficult to learn when you’re sick and you don’t have adequate healthcare and coverage. It certainly has implications for employment. So across these areas—food, housing, and healthcare, we think there’s real opportunity for the private sector, and some opportunity also for the public sector, to come together and better serve the Black consumer.

A lack of broadband access

Lucia Rahilly: As an aside, you mentioned the pandemic and the devastating effect it has had on Black Americans. Acknowledging that first and foremost, COVID-19 has obviously also accelerated digital uptake. Has the spike in, for example, digital grocery delivery had any kind of meaningful effect on ameliorating lack of access to groceries? And the same could potentially apply to telehealth, but I don’t know if that’s getting traction or taking effect or not.

Shelley Stewart III: I am optimistic at the opportunity that is created by a wider embrace of digital in things like fresh food, and things like telehealth, and things like remote education as a way of augmenting these physical services that are also necessary in these communities.

That said, one of the core issues that we identified is that more than half of Black Americans live in broadband deserts. So if we are going to collectively capitalize on this opportunity, we’ve got to address the broadband-access affordability and the device challenge that is largely impeding this kind of progress in the Black community.

Lucia Rahilly: Right, and you see housing and broadband, two of those categories, converging in a really sobering way during this pandemic in the area of kids’ education, where we saw the education gap just widen considerably. So sometimes it must be important to think about these categories as they overlap with each other.

Shelley Stewart III: There’s tremendous overlap. Unfortunately, we found in the data that there’s also tremendous overlap in the deserts. So, places that are banking deserts, as you said, are also often healthcare deserts and fresh-food deserts.

There is an economic case to be made to get rid of these deserts, but we have to reimagine the way we think about situating our footprint. We need to expand the aperture and the attributes that we use to determine what is an attractive market. If you’re not in these markets today, and your decision framework only incorporates attributes that look like markets you’re in, then it’s very hard to get out of that cycle. That’s what we’re trying to get folks thinking about on this topic.

Responsible gentrification

Lucia Rahilly: Gentrification also becomes a factor, right? We were talking before we started this recording about my in-laws who live in the Detroit area. One of the examples that you used in your article was a Whole Foods in midtown Detroit.

Afterward you started to see shops opening up on Woodward Avenue and so forth, and some of them became high-end, luxury shops. That raises a question about displacement, and gentrification, and rising prices. Do those factors have to be taken into account here?

Shelley Stewart III: Absolutely. As neighborhood conditions improve, we need to also find creative solutions to allow incumbent residents to benefit from and stay in place should they feel inclined. And I don’t think those two things always have to be in such vicious conflict.

I think we can be creative about how we think about the housing stock and how we think about real estate and residential development and what the allocation is between affordable versus market rate. And we have to be deliberate about this, because the problem doesn’t get solved if the neighborhood improves but the old residents who were suffering from these deserts don’t get to participate in it.

We’ve talked about this idea of inclusive growth, and it is a fundamental paradigm shift that I do think will benefit society broadly. And I don’t mean just through greater harmony and people feeling more included. I think economically, inclusive growth will be better for everyone as measured in GDP terms.

Lucia Rahilly: I’m interested in your own experience. Both of us live in Brooklyn, one of the five boroughs of New York City, and I believe you live in Bedford-Stuyvesant, which is historically a Black neighborhood with some of the most beautiful, heartbreakingly gorgeous housing stock I’ve seen. It’s been gentrifying for a long time. How do you experience consumer deserts, food deserts, banking deserts in Bed-Stuy?

Shelley Stewart III: What I would say is, I’ve lived all over New York City, everywhere from the Upper East to the Upper West to Midtown West to the Lower East Side to Carroll Gardens. And in purchasing a home in Bed-Stuy—which I was very excited to do because I love the diversity of the area both in terms of the way people look and the income diversity—I didn’t spend a lot of time up front thinking too much about this idea of deserts.

I knew that things would be a little bit different from other places I’ve lived, but I was surprised by just how different it is. My walk to the nearest branch bank is two times as far than in any other place I’ve lived. I can say the same thing about the nearest pharmacy, and as for grocery stores, there are actually a few. So it’s significantly harder both in terms of access and quality.

I will also say that the consumer experience in some of the stores in the neighborhood is also different in a way that I think we need to continue to think through, in terms of the security protocols and just things that I think make it challenging. There really are some basic human-dignity things that come to light that I hadn’t experienced while living in other parts of New York City.

Black consumer investment is a win–win

Lucia Rahilly: Let’s turn from where these opportunities sit to how B2C companies can start realizing some of these win–win benefits and this trajectory, as you referred to, of sustainable inclusive growth. I want to mention what I found to be a pretty striking statistic in your research about the percentage of marketing managers and even marketing research analysts who are Black.

That statistic was abysmally low in both cases, somewhere in the ballpark of 6 percent. That would suggest that awareness and knowledge of this demographic may be lacking, right? So, let’s talk at a very high level about what Black consumers look like and how they tend to spend. How brand loyal is this community?

Shelley Stewart III: If I had to generalize, I would say the loyalty is up for grabs. Because of the level of dissatisfaction, our analysis suggests that Black consumers are 25 percent more likely to switch brands. I don’t believe that is because of any intrinsically lower likelihood of being loyal to a brand. It speaks directly to the level of dissatisfaction relative to other consumer groups. And, again, we talked earlier about the willingness to pay a premium in some instances to have products that are better suited. So if I had to summarize the Black consumer today, I would say, “A bit neglected and a bit underappreciated.”

And that shows up in their spending behavior, which means there’s a huge opportunity for incumbent players to realize this but also for new disruptors to come in and say, “We’re not going to take you for granted as a consumer group, and we’re going to create and tailor products and meet you where you are as the Black consumer.”

Lucia Rahilly: If you were to paint the most broad-strokes picture of the Black American consumer, what would you highlight? What’s different about this consumer demographic from Whites or from other consumer segments?

Shelley Stewart III: If I think about the Black consumer, there are a few things that I note. One, Black consumers are younger. The median age of Black Americans is 34. That’s a decade younger than the median age for White Americans. Two, they’re more digitally plugged in, more engaged with their smartphones.

And three, they’re more brand aware. There are a number of implications that come from that. On the skewing younger, that means that if you can get these customers today, you can have a long life of engaging with these customers—the customer-lifetime value. And it’s likely that those incomes and consumption behaviors will grow over time. So there’s vested interest in getting in early. The second point on smartphones is you know how to reach them. You know where they are. So that can inform your marketing and customer acquisition in a very deliberate way.

Black consumer investment proof of concept

Lucia Rahilly: Now, let’s talk about some examples. Tell us a couple of ways that companies have successfully prioritized the needs of Black communities and what the benefits have been.

Shelley Stewart III: We have seen examples of companies, large and small, make inroads by prioritizing the Black consumer. So if I think about access, Whole Foods—the example we just talked about—has done an excellent job in neighborhoods that maybe have traditionally been food deserts, of situating their locations in these places that have helped to transform neighborhoods.

Home Depot is another good example. There is a Home Depot in the middle of Bedford-Stuyvesant, and you would never think that a large-format store like that could figure out a way to make that work, but it’s there.

I do believe that there are leaders in this space, and there are case examples that should be learned from. The other side of it is meeting Black consumer preferences. You’ve certainly got what I call “native” Black-owned and -run brands such as Bevel that tailor their offerings to Black men, and Fenty Beauty, similarly, which has been valued at billions and billions of dollars. Those examples prove that the economic case really is there.

And then there are entertainment companies. One example that comes to mind is Starz, which has really leaned into Black content, and they’ve had a number of major hits. You’ve seen it on the entertainment side, but there’s substantially more opportunity across all categories.

Morph marketing with Black branding in mind

Lucia Rahilly: On the one hand you just talked about some issues with product-to-market fit, right? And Black consumers being dissatisfied with products, and new companies or new brands meeting satisfaction in terms of product development. What kind of opportunities are there for big brands in simply marketing current products differently?

Shelley Stewart III: Consumers, no matter who they are, want to be seen in the branding, in the marketing. So there is no doubt in my mind that you can move someone from the very front end of being aware of a brand, to feeling seen in that branding and in that marketing.

The good news is that that is not zero sum. You can have lots of different groups show up in that marketing and show up in the overall branding and accrue those benefits. And some companies and some sectors do this better, but across the board, there continues to be opportunity.

One financial institution that I’ve seen do this on the retail-banking side has been very deliberate in engaging with influential people in the Black community, and then developing marketing collateral and a plan that resonates with Black banking customers.

Lucia Rahilly: Are there any risks to navigate as companies consider entering this space? Or common areas where you’ve seen some efforts go wrong?

Shelley Stewart III: It has to be authentic. And part of that authenticity, Lucia, gets back to this point around who’s in the room as you develop the content. You’ve got to have folks with lived experience who are helping to develop and to ensure that the obvious pitfalls are avoided.

And I think if you do that, and you do that in good faith, there is minimal risk. The only thing I’d add there is ensuring that the products that you’re serving and that you’re bringing awareness to are a good fit for the demographics that you want to serve. The last thing we would want is for the idea to be, “Let’s market things that are not appropriate products or that could somehow extract rather than create value in these communities.”

Big brands knock-on effect

Lucia Rahilly: We’ve seen a rise in recent years in big brands collaborating with individuals, right? Do you see a rise in that?

Shelley Stewart III: I haven’t looked at it specifically, Lucia, but I do think there is an opportunity. And what I would say is, “That’s fantastic, but how do we build some knock-on ecosystem effect so that when those big brands are benefiting, some of that value is also accruing to the communities that are the new loyal consumer?”

All those things come together in what should be a virtuous cycle, bringing in a new loyal customer base, hiring folks who help you better understand that customer base. To do that, you need to situate and locate in areas where those folks live and buy from businesses that are located and hiring in those communities.

Lucia Rahilly: Do you think we’ll see that trend in creating new offices in geographies where Black communities are disproportionately concentrated?

Shelley Stewart III: I am hopeful, as you said, based on some of the shifts and new dynamics that we now are starting to understand around remote work as a result of what we learned during the pandemic. I think there’s also increasing recognition by the philanthropic community that place-based transformations are probably the next real horizon, where you’re going to places.

Rather than pulling one lever in ten places, such as education, you go into one place and you pull a bunch of levers. You focus on job creation, entrepreneurship, education. I do think that broader recognition of the role of place should augment what we learned from COVID-19 and help people who care about this recognize that that lens is a really important lens to take if we’re going to help make transformational change on this topic.

The moral imperative benefits everyone

Lucia Rahilly: We’ve heard so much over the years, and particularly in the aftermath of George Floyd’s murder last year, about moral commitments to Black Americans. And in the research we’ve invoked the term or described these opportunities as “moral opportunities.” It feels like in the past, I’m sorry to say, it’s not clear that morality has proven to be a strong motivator. Why might it motivate behavior change now?

Shelley Stewart III: I may be a wild optimist on this one, but I believe that one of the big takeaways from COVID-19 is that in many ways we share one another’s fate. And so if you take that broader collective lens, in the case of COVID-19 it was our health and well-being, and what one person did affected another person.

If you take that through the economic lens, you recognize that we want our fellow citizens to do better economically because that is better for all of us. The moral overlay there for me is a recognition that we are all linked, that we are all part of the same system, and that it’s not zero sum. Because I think all of us feel empathy and compassion, and I think what gets in the way of that for us sometimes is the notion, “But it’s zero sum.”

I’m hoping that we start to move beyond that. The other trend that emerged long before COVID-19, but I think is starting to accelerate, is this notion of stakeholder capitalism beyond the bottom line of any individual company where the shareholder returns.

You are starting to see that show up more and more in the way investors are talking about how they make investment decisions. You’re seeing particularly Gen Z and millennial employees talk more about that. I am hopeful that the broader definition of what success looks like for an individual institution is some sort of collective or corporate morality that acknowledges that, yes, we should be focused on institutions being profitable so they can thrive, and serve customers, and spend money with suppliers, but that that, in and of itself, is not the end of the story.

Lucia Rahilly: That was McKinsey partner Shelley Stewart III talking about the $300 billion opportunity serving Black American consumers.

Roberta Fusaro: Coming up, we hear from venture capitalist John Doerr. He’s just written the book, Speed & Scale: An Action Plan for Solving our Climate Crisis Now. Find a longer version of his thoughts at McKinsey.com in our Author Talks series.

John Doerr: There’s no guarantee we’re going to cut our carbon emissions in time. We’ve got a very, very long way to go and we’re not moving nearly fast enough, but here’s a few things that give me hope.

First of all, there’s tens of millions of climate activists who are now getting mobilized. The second reason for hope is the commitments of Fortune 50 and Fortune 500 global companies to reduce or zero out their emissions as early as 2030.

Third, there’s the potential for really radical innovation to make clean energy more affordable. Finally, there’s pressure from employees, shareholders, and investors. There is $29 trillion of investor capital now committed to push corporations for sustainability.

At the world’s current rate of carbon emissions, we’re going to cross the red line into irreversible climate damage in less than seven years. To reach to carbon net zero, which is the only way to control global warming, we can’t just decarbonize the grid, or electrify transportation, or improve our food systems. We’re also going to literally have to pump, the estimates are, five billion tons of CO₂ underground every year. That’s the equivalent of running the entire global oil industry in reverse.

No country is going to solve this climate crisis by itself. We are going to swim or sink together. What the developed world has got to do is make clean energy solutions more affordable for everyone. Electric vehicles would be competitive in the US at $35,000, but in India, they must be $11,000 to compete with the internal combustion engine. At the grid level in India, they’ve declared a national mission to become a global leader in solar energy, but to do so, they’re going to need substantial financing from wealthier countries.

This is humanity’s greatest challenge. We have a plan, and it’s focused on the ten big objectives we need to get to net zero. Six of our ten objectives directly cut or remove carbon emissions. Those are how we electrify transportation, decarbonize the grid, feed ten billion people, protect our forests and our oceans, clean up concrete and steel, and remove the stubborn carbon that’s left in the atmosphere.

Then, because we have to do this in time, there are four accelerators to get the job done. We need to enact the right policies, turn movements into action, innovate like crazy, and invest like our lives depend on it, because they do.

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