Profile of Indian Consumer


By

Hoori Nadir
Lecturer (Marketing, Retail)
GHSIMR
Kanpur
 


The recent years have witnessed rapid transformation and vigorous profits in Indian retail stores across various categories. This can be contemplated as a result of the changing attitude of Indian consumers and their overwhelming acceptance to modern retail formats. Asian markets witness a shift in trend from traditional retailing to organized retailing driven by the liberalizations on Foreign Direct Investments. For example, in China there was a drastic structural development after FDI was permitted in retailing. India has ent ere d a stage of positive economic deve lopment which requires liberalization of the retail market to gain a significant enhancement.

The Indian consumption patterns are slowly converging with global norms. The Indian consumer is now spending more on consumer durables, apparel, entertainment, vacations and lifestyle related activities. Entertainment, clothing and restaurant dining are categories that have been witnessing a maximum rise in consumer spending since 2002.

India is on the radar screen in the retail world and global retailers and at their wings seeking entry into the Indian retail market. The market is growing at a steady rate of 11-12 percent and accounts for around 10 percent of the country's GDP. The inherent attractiveness of this segment lures retail giants and investments are likely to sky rocket with an estimate of Rs 20-25 billion in the next 2-3 years, and over Rs 200 billion by end of 2010. Indian retail market is considered to be the second largest in the world in terms of growth potential.

Challenges facing the Organized Retail Industry:

Despite the rosy hopes, some facts have to be considered to positively initiate the retail momentum and ensure its sustained growth. The major constraint of the organized retail market in India is the competition from the un-organized sector. Traditional retailing has been deep rooted in India for the past few centuries and enjoys the benefits of low cost structure, mostly owner-operated, therein resulting in less labor costs and little or no taxes to pay. Consumer familiarity with the traditional formats for generations is the greatest advantage to the un-organized sector. On the contrary, organized sector have big expenses like higher labor costs, social security to employees, bigger premises, and taxes to meet.

Availability and cost of retai l space is one major area where Governme nt intervention is necessary. Liberalizing policy guidelines for FDI needs focus as well. Proper training facilities for meeting the increa sing req uirements of workers in the sector would need the attention of both Government and the industry. Competition for experienced personnel would lead to belligerence between re tailers and higher rates of attrition , esp ecially during the phase of accelerate d gro wth of the retail industry. The process of avoiding m iddlemen and providing increased income to farmers through direc t procurement by retail chains need the attention of policy ma kers. Taking care of supply chain management, mass procurement arrangements and inventory manag eme nt are areas that need the focus of entrepren eurs.

India is now on the radar of global retailers. A ccelerated development of retailing industry in t he country and building brand value of domestic products is essential not only for marketing our consumer products more efficiently , but also for the development of our own retailing industry.

According to KSA Technopak 300 million odd middle class - the Real consumers - is catching the attention of the world with over 600 million effective consumers by 2010. India is bound to emerge as one of the largest consumer markets of the world by 2010.

About one-third of households in India can afford  white goods, such as washing machines, refrigerators and air conditioners. However, consumers are price-conscious, and demand for many white goods is restrained by long replacement cycles in urban areas.

As per India's Marketing Whitebook (2006) by Business world, India has around 192 million households. Of these only a little over six million are 'affluent' that is, with household income in excess of INR 215, 000. Another 75 million households are in the category of 'well off' immediately below the affluent, earning between INR 45,000 and INR 215,000. This is a sizable proportion which offers excellent opportunity for organized retailers to serve.

Consumer Profile: One of the key reasons for the increased consumption is the impressive growth of the middle class. Around 70 per cent of the total households in India reside in the rural areas. The total number of rural household is expected to rise from 135 million in 2001-02 to 153 million in 2009-10. This presents the largest potential market in the world. According to the study conducted by NCEAR, the number of `lower middle income' group in rural areas is almost double as compared to the urban areas, having a large consuming class with 41% of the Indian middle class and 58% of the total disposable income.

The Indian rural market has been growing at 3-4% per annum, adding more than 1 million new consumers every year and now accounts for close to 50% of the volume consumption of fast-moving consumer goods (FMCG) in India. The market size of the fast moving consumer goods sector is projected to be more than double to US$ 23.25 billion by 2010 from the present US$ 11.16 billion. As a result, it is becoming an important market place for fast moving consumer goods as well as consumer durables.

There were nearly 70 mn households (33% of the total) with an income of more than US$3,000 in 2006. These "well-off" households already own relatively expensive consumer durables, such as air conditioners and refrigerators.

  • 600 mn+ effective buyers by 2010
  • 550 mn+ under the age of 20 by 2015
  • 70 mn+ earn Rs. 8,00,000+ ($18,000) a year number to rise to 140 mn by 2011

India's Income classes

 

1990-00

2005-06

RICH (annual income > US$ 4,700)
* Own cars, PCs

3million households

6milliion households

CONSUMING (US$ 1000-4700)
* Have bulk of banded consumer goods, 70% of 2-wheelers, refrigerators, washing machines

55million

75million

CLIMBERS (US$500-1000)
* Have atleast one major durable (mixer, sewing machine/tv)

66million

78million

ASPIRANTS (US$350-500)
* Have bicycles, radios and fans

32million

33million

DESTITUTES (Less than US$350)
* Not buying

24million

17million


Source: The Great Indian Retail Story 2006, Ernst & Young.

Consumer Behavior: Availability of lifestyle spending options is increasing for Indian consumers and that inducing higher spends on "status acquisition". Traditionally, Indian consumer is cautious about debts. In recent past, this attitude has changed radically and in recent year's credit is no more a feared entity.

Indian consumer buying behavior to a large extent has a western influence. Foreign brands have gained wide consumer acceptance in India and they are much more open for experimentation. Beauty parlors in cities, eateries, designer wear, watches, hi-tech products are a few instances which reflect these changes.

Purchasing priorities in India also influence the level of sales of individual products. Penetration data bear this out: televisions in use in 2006 were estimated at 95 per 1,000 populations, far higher than the level for white goods. This reflects the growing demand for entertainment in India.

According to Ernst & Young report, 'The Great Indian Retail Story, 2006', the emergence of a larger middle and upper middle classes and the substantial increase in their disposable income has changed the nature of shopping in India from need based to lifestyle dictated. The self-employed segment has replaced the employed salaried segment as the mainstream market, thus resulting in an increasing consumption of productivity goods, especially mobile phones and 2 - 4 wheeler vehicles. There is also an easier acceptance of luxury and an increased willingness to experiment with the mainstream fashion, resulting in an increased willingness towards disposability and casting out from apparels to cars to mobile phones to consumer durables.

Consumer Spending: The rate of growth of spending on discretionary items (unlike basic necessities like food) has been growing at an average of 9 per cent per year over the past five years. A nation of savers, India, has now altered into a nation of spenders.

KSA Technopak's Consumer Outlook 2004 report estimates that an average Indian spends 40% of his monthly salary on food and grocery and 8% on personal care products.

Indian consumer spending basket (2003):

  • Consumer durables 53%
  • Books & Music 32%
  • Movies & Theater 38%
  • Vacation 32%
  • Home Textiles 29%
  • Mobile phones 96%
  • Payment Household help 48%
  • Computer / peripherals 10%

Consumer Spend (Year 2006)

  • Total Consumer Spend : Rs. 20,00,000 cr ($ 445 bn)
  • Retail : Rs. 12,00,000 cr ($ 270 billion) double digit growth expected
  • Organized Retail: Rs. 55,000 cr ($ 12.4 bn) at current prices 40%+ annual growth expected
  • Scope for Organized Retail: Rs. 2, 00, 000 cr ($ 45 bn) by 2010. Av. Salary hike of 15+ per cent: there will be lot more consumption.
  • Leading retailers' sales growth: 50-100% in 2005-06

Urban-Rural divide in Spending (%)

Category

Rural

Urban

Entertainment

33

67

Consumer Services

44

56

Durables

50

50

Misc. Consumer goods

57

43

Clothing and Footwear

61

39

Food

64

36


Source: KPMG/Research

The demanding assertive Indian consumer is now sowing the seeds for an exciting retail transformation that has already started bringing in larger interest from International Brands / formats. 

With the advent of these players, the race is on to please the Indian consumer and its time for the Indian Consumer to sit back and enjoy the hospitality of being treated like a King.
 


Hoori Nadir
Lecturer (Marketing, Retail)
GHSIMR
Kanpur
 

Source: E-mail August 22, 2008

           

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