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Indian Consumer Market

India’s rise as an economic power has forced the world to unravel the mystery called India. An intriguing element of this mystery is India’s consumer market; characterized by diverse languages, regions, religions, economic and social status. Making this market a tricky proposition to understand.


As the market undergoes a paradigm shift due to India’s rapid economic growth and favorable demographics, it has become a market impossible to dismiss. Global corporations view India as one of the key markets where future growth will emerge.


A new report released by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII) projects that India's robust economic growth and rising household incomes would take consumer spending to a level of US$ 3.6 trillion by 2020. Food, housing, consumer durables, transport and communication are expected to garner the most of consumer spending. The report further stated that India's share of global consumption would expand more than two times to 5.8 per cent by 2020.


The growth in India’s consumer market will be primarily driven by a favorable population composition and rising disposable incomes. A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades and it will become the world’s 5th largest consumer economy by 2025, up from 12th now.


India’s consumer market till now was broadly defined as a pyramid; a very small affluent class with an appetite for luxury and high-end goods and services at the top, a middles-class at the center and a huge economically disadvantaged class at the bottom. This pyramid structure of the Indian market is slowly collapsing and being replaced by a diamond – a relatively large affluent class at the top, a huge middle class at the center and a small economically disadvantaged class at the lower end. The diamond represents increasing volume and value across all classes of Indian consumer market.

Economic growth and rising disposable incomes
 

India is growing at an average annual rate of 7.6% for the past five years and it is expected to continue growing at an equal if not faster rate. The rapid economic growth is increasing and enhancing employment and business opportunities and in turn increasing disposable incomes.

As the benefits of growth trickle down, an increasing number of people are moving up from the economically weaker class to join the middle class. The middle class with its rising numbers and incomes is thus becoming the biggest market segment. The affluent class too will continue to grow in terms of size and value, albeit, at a slower pace than the middle class.

MGI study prediction on the effect of economic growth on different classes:
  • Income class, defined as households with disposable incomes from Rs 200,000 to 1,000,000 a year comprises about 70 million people, roughly 6% of the population at present. By 2025 the size of this income class namely middle class will increase to about 583 million people, or 41% of the population. 
  • Extreme rural poverty has declined from 61% in 2005 and is projected to drop to 26% by 2025. 
  • Affluent class, defined as earning above Rs 1,000,000 a year will increase from 0.2% of the population at present to 2% of the population by 2025. Affluent class’s share of national private consumption will increase from 7% at present to 20% in 2025. 

     

Pro-growth demographics

 

The widespread adoption of improved medical care and birth control since the 1970s has reduced birth rates and increased the proportion of citizens living past their retirement age in most countries. As these countries have an aging population, they are beginning to face an acute shortage of working age population, while the proportion of dependent population is increasing.

India along with a few other countries is an exception to this. In India, the proportion of citizens of working age is forecast to fall slowly and the overall labor force will continue to grow. India has a young population, 55% of Indians are under 25 years of age. A rising productive population fuels growth and drives personal consumption and a lower age dependency ratio places less strain on public finances. A young, economically empowered population not only translates into increasing consumer demand but also into a more value-conscious demand. Thus, pro-growth demographics will expand consumer market in India. 
 

Decoding the empowered Indian consumer


The Indian consumer market is drawing global attention not just because of its promise of sheer volumes but also because of the tectonic shift happening in the nature of demand.

Increasing urbanization, increasing incomes and rising aspiration for a better life, especially, among the lower economic strata are some of the factors reshaping the Indian consumer market. The result of this flux is a new Indian consumer who is more discerning than ever, ready to place his money on brand, quality and convenience and eager to explore the organised retail market. 
 

Aspiration for a better life


As millions of previously economically deprived households move into the lower strata of the middle class segment, they will begin to be able to afford and demand products and services beyond food and clothing. Increasing penetration of media and infrastructure facilities will expose the rural India to urbanized lifestyle and fuel the latent desire for improved living standards. Together the ‘aspirants’ from rural and urban areas will push up demand for goods and services at the lower end of the spectrum. 
 

Value and innovation


Due to a rise in income, increased awareness about products and proliferation of choices, Indian consumer will become pickier with his purchases. Product, positioning and packaging innovation will be the key for companies to attract this new consumer. For example, as consumers become increasingly health conscious they will choose a food product that not only tastes great but is also fortified with health benefits. Similarly, global products especially in case of food will have to be adapted to suit the local taste as the Indian consumer while becoming global will continue to be attached to his roots. It is no wonder, that international fast food chains have had to Indianize their pizzas and burgers to attract consumers here.

Companies will have to drive innovation differently for different regions and consumer classes. 
 

The brand conscious consumer


The Indian consumer market, which is primarily dominated by the younger generation, is becoming increasingly sophisticated and brand conscious. A typical upper middle class young consumer is beginning to look beyond the utility aspect of a product to seek intangibles like brand and lifestyle statement associated with the product. This modern consumer wants his purchases to reflect his lifestyle or at least the one he aspires for. As a result of this brand consciousness, the food and beverage segment of the FMCG sector is already witnessing a significant shift in demand from loose to branded products.

The Indian affluent class has always had a penchant for premium branded goods and this fetish will continue. A recent luxury brands survey conducted by The Nielsen Company, a global information and media research company, has ranked India third after Greece and Hong Kong in the list of most brand conscious countries in the world. Over 35% of Indian respondents said they spend money on luxury brands.
 

Food, Beverages and more…
 

As millions of first time consumers enter the market, demand for food and beverages will continue to increase. The MGI study estimates that growth in consumption will accelerate to 4.5% annually by 2025, from 3% witnessed over the past 20 years. Rise in income and increasing social and economic awareness will fuel expenditure on health, education, communication, transport and entertainment. Thus, electronic goods, personal care, health care, automobiles sectors are expected to receive a significant boost in the coming years.

 

Indian Luxury Market
 

India is witnessing a rapid evolvement of the lifestyle luxury market owing to growing disposal incomes and consumer awareness. Currently, the Indian homewares market (including furnishing, furniture and home decor) is valued at US$ 16.24 billion growing at 10-12 per cent annually.
 

Organised retail
 

Indian consumer purchasing is largely through the unorganized sector or through the street stores. However with urbanization and increasing value-consciousness among consumers, the organized retail format is beginning to not only take root but grow at a rapid rate. The evolution of shopping malls is now providing a place for the new “Shopping Experience”. This gives a brand new focus to brand names and new producers in the market.

Business Monitor International (BMI) has recently released its India retail report for first quarter of 2012 which projects that total retail sales will grow from US$ 422.09 billion in 2011 to US$ 825.46 billion by 2015. Explosion of organised retail in a big way is one of the major factors behind such a positive forecast.
 

E-tailing

 

Emergence of internet retailing (e-tailing) and e-commerce as a completely new space is driving the growth of number of online shoppers. As a result, the internet retailing companies are getting attracted towards Indian markets which are poised to grow leaps-and-bounds in the years to come. There are about 17 million online shoppers in India and the number is projected to grow over three times in the years to come.
 

Indian consumer peculiarity
 

The Indian consumer market is thus on a cusp of metamorphosis. The upbeat mood of the economy, the youthful exuberance of the population and its increasing integration with globalized lifestyle and consumption patterns will drive growth in the Indian consumer market.

However, to assume that the Indian consumer will become an exact replica of his global counterpart is the biggest fallacy companies can make. While, the Indian consumer’s appetite for value and brand dominated goods and services are increasing, the cultural and regional framework characterizing him is intact. In fact, the income induced class movement happening across the rural and urban regions is forcing companies to re-look at their customer segmentation and product positioning.
 

Conclusion
 

India has established itself as one of the top ten countries in industrial production. It is one of the fastest growing automobile markets in the world and this is shown by a 35 per cent expansion on average in the first four months of the 2010 financial year.


Nielsen recently conducted a study that illustrated some categories are growing faster, by about 20% on average, or nearly twice the market growth on a global scale. As an example impulse foods are growing at a much faster rate in India than anywhere else in the world.

This can be attributed to companies expanding distribution to cover a much wider number of retail outlets and formats. As an example salted snacks are growing by nearly 20-30 per cent across formats, with the modern trade format scoring the highest.

Items like chocolate and biscuit sales in India are growing between 10 and 50% across various retail formats. Moving away from India’s past, modern retail outlets are performing much stronger than the traditional general store market. That being said the traditional stalls are still experiencing growth which is a wonderful sign for companies looking to enter the Indian market.

The number of modern trade outlets is ever growing and with the help of modern, attractive product displays and strategic product positioning at checkouts seems to be the main reason behind growth in these outlets. With the average Indian disposable income ever rising, impulse displays and impulse items are going to see exponential sale increases.

In particular products that are positioned in the market place as being good for a person’s health and wellness are performing particularly well. This includes products as small as chewing gum that double up as a teeth whitening agent or simple anti-ageing skin creams.

Convenience and snack foods are another segment that is experiencing enormous growth throughout India. For example, Kelloggs expects sales of breakfast cereals in India to triple between now and 2015.

This trend presents a challenge and a tremendous opportunity for Australian companies. The challenge is to move beyond a company’s core category and enter new ones within the Indian market. There is no doubt that this is a riskier approach that will require some investment and patience as some of these segments may take time to reach critical mass.

The only alternative is sitting out and missing out on the tremendous opportunity being presented in the Indian sub-continent and watching nimbler companies that may be your competitors become market leaders on a global scale. 

If you need any assistance or require further information to export consumer goods to India, visit Australian Business Consulting & Solutions or contact our India Expert SP Joshi directly. Email: SP.Joshi@australianbusiness.com.au Tel:1800 505 529.

 


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Gary Dawes
Senior Consultant, International Trade
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SP Joshi
Senior Advisor, India
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