18 TIMES BUSINESS | THE CONSUMPTION STORY THE TIMES OF INDIA, PUNE

* SATURDAY, JANUARY 1, 2011

RETAIL
Size: WHILE INDICATIONS

SPENDING $500 bn
Growth:
13%
Drivers: As
disposable
incomes grow and
AUTO
Size:
14 m units
Growth:
ARE POSITIVE, THE
POSSIBILITIES ARE
EVEN MORE SO

TO SPUR
large format
stores come up, 30% Adi Godrej
CHAIRMAN, GODREJ GROUP
footfalls will go up Drivers: Surge in
demand, especially
for new models

T
he transformation in the consumption pattern of the Indian
consumer is well underway. Per capita income is increasing,
income distribution is improving, dependency ratios are falling

GROWTH
Riding on high salaries and soaring aspirations,
the consumer has come to the party with an urge to
splurge. Post recession, the Indian growth story has
been all about consumption. Be it cars, durables or
cellphones, companies are expected to
continue their double-digit growth in 2011.
TOI takes a sneak peek into what’s in
store in the New Year
Namrata Singh | TNN
ndia has got what it
I takes to become the
largest economy in
the world. It has a
billion-strong pop-
ulation and a GDP of a
trillion dollars, which is
growing at 7-9%. But it’s the
low per capita consumption that
provides the icing on the cake—
which presents a huge growth
opportunity. So will 2011 be
an inflection point? Going
by the manner in which
consumers are lapping
up cars, durables, pack-
aged foods and appar-
els—one can smell the
feel-good factor creating
a positive effect on the economy.
While demand for luxury cars is ex-
pected to zoom to another high in 2011,
entry-level cars and two-wheelers, too,
are expected to ride on the strong
TELECOM growth momentum. The auto sector
grew at a scorching pace of over 30%
Size: in 2010, something that took most com-
742 m users panies by surprise and led to huge wait-
Growth: ing lists on many models. In anticipa-
41%
Drivers: Rise in
tion of a surge in demand, companies
like Maruti, Hyundai, Ford and Mahin-
penetration;
falling handset
dra are adding fresh capacities while
working on new models to keep the
prices; rural excitement going.
growth
In consumer durables, which grew
at 12-13% in 2010 driven by demand
for flat panel displays—LCDs and plas-
mas—the buying spree is expected to
spill over into 2011 as well. The flat
and aspirations are rising—all of which are being catalyzed by an
unprecedented boom in investment, especially in infrastructure. As an
economy, we are in the middle of a capital-raising spree to address
supply-side issues in infrastructure. Added to this are spending and
subsidies to create a social safety net for lower income groups and
populist programmes that are part of the political agenda. All in all,
circumstances and conditions that favour consumption are on the
ascendancy. Given that almost all categories of goods and services have
very low penetration and with the middle class expanding, high growth in
consumption is inevitable.
The principal sectors that will see robust growth in 2011 are consumer
durables, FMCG, packaged food, real estate, entertainment—including cable
TV—mutual funds and telecom. The cricket World Cup, being partly hosted
by India, would give a boost to all consumer durables in general and TVs in
particular. The impact of the 3G roll-out should give a boost to the telecom
sector, but the degree of impetus will be determined by both price and
content. Retail may see some
liberalization in FDI norms, but could
be constrained by political
The principal
sectors that
FMCG
compulsions. The FMCG
sector will see a spate of
will see robust
growth in 2011 are
Size: new launches that
on providing more
focus
consumer durables,
$13 bn segmented offerings. FMCG, packaged
Growth: On the food front, food, real estate,
13% prices are expected to
remain high, mainly
entertainment,
mutual funds and
Drivers: Positive
LUXURY consumer sentiment, because of the growing telecom
rural market growing demand and inadequate
Size: faster than urban policy interventions in improving farm productivity,
Higher $3 bn ing a pre- agricultural practices and supply chain efficiencies. Rapid
salaries Growth: mium for effec- urbanization and the concomitant changing values will drive
tive products. This is aspirational spending, especially in branded goods, packaged and
20%
C o n -
sumption
will be pow-
ered by higher
disposable in-
comes as both
hiring and in-
Drivers: Aspirations,
affluence. Over 2 million
households, which
annually earn $100,000
or more
expected to expand the
market exponentially
next year. Ajay Piramal,
chairman, Piramal group,
said: “Unconventional algo-
rithms of understanding the
consumer will help the industry
ready-to-eat foods. Spending on infrastructure and the NREGA
scheme will ensure higher rural consumption. The long-term trend of
falling dependency ratios and demographic dividend are bound to
pay off in the years to come.
India is, however, a large country where a majority of households
are financially vulnerable. Most are unsalaried—while the figure is
less than 40% in urban areas, it is less than 15% in rural areas. The
crements gather discover latent needs.” ability to leverage consumption is still very low and the temporarily
momentum in curtailed micro-finance initiative will dampen consumption, especially in
2011. Numbers Services sector rural areas, and soften discretionary spending. Thus, the consumption
indicate that 2011 story, though robust, is not fully inclusive.
will bring back The services sector, which contributes The threat to the consumption story would be largely structural and on
salary hikes wit- over 50% of the GDP, will continue to account of a deficit in optimism caused by the current loss of faith in the
nessed in the shine even as manufacturing growth political and business environment, largely due to the irresponsible
boom year of takes long strides. For one, India stands actions of a few. Structurally, the consumption story of 2011 would be
2007 (12-15% rise in remunerations). Ac- to benefit from the trend of global en- significantly advanced if transaction costs are reduced by eliminating
cordingly, global HR consulting firm Mer- terprises focused on reducing the cost non-value adding barriers to free movement of goods through the
cer has revised its forecast for 2011. “The of the IT industry. This augurs well for implementation of the GST, which, in my opinion, should be done post-
revival in the economy and renewed hir- job creation. In domestic consumption, haste with the concurrence of all state governments. Reforms in the
ing activity across sectors has contributed IT/BPO will ride on the growth in in- agriculture sector should be undertaken and new capacity creation is
to this upward trend,” says Shamita Chat- surance, banking and telecom sectors. encouraged. All these require an enlightened and co-operative political
terjee, head, information, products and With people taking to the skies like dispensation.
solutions, Mercer Consulting. never before, airlines are inducting In short, while the indications are positive, the possibilities are even
There is also a huge increase in the new aircraft, which is driving demand more so.
number of active consumers, with over for professionals like pilots. What will
20 million people being added to the also encourage people to travel by air
working age population every year. more frequently is the assurance by
“Couple this with rising disposable in- aviation secretary Nasim Zaidi: “Pas-
REALTY
sengers can look forward to complete
transparency in fares.”
2011 TO SEE A FRESH
Demand for commercial property
The Indian travel market would
grow to $20 billion in 2011 ($15.8 billion
SPURT IN CONSUMERISM
(2011-14): in 2010), according to PhocusWright.
240 million sq ft What would follow is a mad rush by J S Shin
hospitality chains to set up hotels in PRESIDENT & CEO
Demand for residential property the country. Industry consultants pre-
SAMSUNG, SOUTH WEST ASIA
(2011-14): dict that around 36,000 additional rooms
4.25 million units will be added in major cities by 2013.

T
panel display market is expected to he year 2010 has seen very healthy growth trends in consumer
grow 60% to 4.5 million units by 2011. Demand generation for office space Overheating of economy? electronics, cellphone and IT Industries. High GDP growth, a
“The industry is expected to grow at (Bangalore + NCR + Mumbai): burgeoning middle class and growing consumerism are factors
over 15% in 2011 as penetra- The flip side to the consumption sto- that contributed to the 8-10% spike across categories. As we
tion levels are very low,” 46% ry is inflation. There may be a threat move into 2011, I expect these categories to sustain growth with some of
says Y V Verma, of overheating of the economy. How- the technology trends being witnessed this year getting more pronounced.
COO, LG India. comes and the growing middle class ever, there are more optimists than In 2010, we saw a broader trend towards personalization or
TEXTILES & APPARELS Mobile handset and you have a huge pool of consumers naysayers. “There’s nothing worrisome customization of devices to suit consumer preferences. In this context,
sales, too, are on who will actively participate in India's about factors like inflation and over- manufacturers are now looking beyond hardware and towards content and
Size: a roll. The num- growth story,” says Tanya Dubash, ex- heating of the economy,” said Mahesh services. Development of applications and open OS platforms are more
$54 bn ber of mobile ecutive director & president (market- Vyas of CMIE. The ride could be a bit relevant today than ever before. Thus, in 2010, one saw the emergence of
Growth: connections, ing) Godrej Industries. bumpy, though, with commodity volatil- smartphone, ‘smart TV’ and in the last quarter, the launch of tablets.
11% which grew 27%
to exceed 660 mil-
Market analysts are particularly ity. Other impediments like rising tax-
bullish on companies offering ation could also hamper growth. Sig-
Mobile phones with open OS platforms like bada, Android or Windows and
TVs that allow you to download applications from the net have become
Drivers: Growing
demand for women’s lion in 2010, is ex- goods/services which are discretionary nificant capacity additions could lead reality and I see all these categories gaining traction in 2011. The roll-out
wear,kids wear and pected to grow fur- in nature, i.e. prompted by affluence. to surplus situations if actual demand of 3G services will further fuel the demand for 3G enabled devices like
home textiles ther in 2011 on in- “It is the young urban consumers who does not keep pace with the forecast. cellphones and portable PCs.
creasing rural pene- will be the ones to watch out for,” says However, the rise in salaries and oth- Digital convergence is fast becoming a reality and one can see that in
tration and falling prices. Naresh Kothari, president & head, eq- er factors present a favourable prospect. the form of various new devices that have been introduced in India this
On the other hand, uity capital market, Edelweiss Capital. The exuberance of India Inc on a posi- year. Take for instance the launch of tablets, which allows consumers to
growing demand for Take the case of the $3-billion Indian tive consumption story is telling. “I am experience PC-like web browsing and enjoying multimedia content on the
women’s wear, kids wear luxury market comprising watches, ap- not overly concerned of the economy over- roughly 7-inch display, wherever they go. Moreover, users can
and home textiles is help- parel, shoes, jewellery, liquor and cos- heating. I feel the Indian consumption continuously communicate via e-mail, voice and video call, SMS/MMS or
DURABLES ing the textiles and ap- metics. The market is slated to grow at story is just beginning,” says social network with the optimized user interface.
Size: parels market to grow at 20%, buoyed by over 2 million households Dubash. Others feel a bal- Premium product categories outpaced the growth of conventional
11%, prompting invest- which annually earn $100,000 or more. ance between control of product categories in 2010. Thus, one saw categories like flat panel
$7.8 bn ments to the tune of Rs 3,20,000 crore The number of such households, too, is inflation and liquidity IT/BPO TV, split AC, fully automatic washing machine growing faster than
Growth: across the supply chain by 2020, ac- growing in double digits. Says Saugata would be critical. Till conventional product categories like flat TV, window AC and
Size:
13% cording to Technopak. A large sum is
expected to be invested in 2011-12 itself
Gupta, CEO (consumer products), Mari- then, there’s no stop-
co, “The below-30 age group with a high ping this consump- $73 bn
semi-automatic washing machine. While the trigger for growth
in the metros and larger cities was upgrade and replacement
Drivers: Demand for Growth:
hi-tech flat panels, to ride the wave of growth. propensity to spend and a positive dis- tion party. demand, a lot of the growth in consumer electronics came from
LCDs, Plasmas; higher
disposable income
Similarly, housing is fuelling growth
in the cement sector. Property consult-
position towards brands and uptrading
will continue to drive the consumption (With inputs from
14%
Drivers: Domestic
first-time buyers, especially in the semi-urban markets. The
semi-urban markets are rapidly maturing to show strong
ants said prices are expected to correct story.” Items of daily use like soaps, laun- Rajshri Mehta, Ree- growth will ride on adoption of consumer electronics and I see this trend continuing
after March 2011 across the country dry, shampoos and creams will continue ba Zachariah,Samid- growth in insurance, into 2011. The relatively low penetration levels of consumer
thanks to high interest rates. “Develop- to witness good growth, especially in the ha Sharma, Rupali banking and telecom electronics in India and strong adoption of new technology products
ers will start to feel the squeeze some- rural areas, since the rabi crop would re- Mukherjee, Vikram Ku- by Indian consumers present strong opportunities for growth.
time in March/April when it is time for sult in higher disposable incomes. mar and Partha Sinha in Accordingly, the retail experience of consumers is becoming very relevant
them to repay banks. They will have no What’s more, armed with more ther- Mumbai; Pankaj Doval, and one is seeing an expansion in large format retail.
option but to reduce rates to ensure sales apeutic options, sectors like pharma- Saurabh Sinha and This is another factor which is both leading to as well as contributing
in the residential sector,” says Pranay ceuticals are seeing a boost with con- Shalini Singh in New Delhi; to the growth of consumerism in the country. Thus, with a stable socio-
Vakil, chairman, Knight Frank. This sumers’ willingness for self medica- Mini Joseph Tejaswi in political environment and with the Indian economy poised to maintain its
could further spur home purchases. tion. They are also not averse to pay- Bangalore) GDP growth of over 8%, consumerism will definitely get a boost in 2011.

AFFLUENT YOUTH AND RURAL INDIA WILL DRIVE CONSUMPTION IN 2011

many and they will be as relevant and as
powerful in 2011 as they were in 2010.
Wilfried Aulbur Take India’s youth as an example. The
MD & CEO, number of young Indians, who are well-
educated, tech-savvy and making a decent
MERCEDES INDIA
living, continues to grow. Today, teenagers
between 17 and 20 spend more than 40%
Suzuki, whose rural sales accounted for
only 3.6% of total sales a couple of years
back, today reports 20% of sales from
rural areas. Many FMCG product sales
grow significantly faster in rural areas
than in urban pockets. This development
is not only driven by improvement in the
cascading and distribution costs in the
form of centralized warehousing.
As far as the luxury automotive
segment is concerned, 2010 was another
exciting year that brought luxury car
makers a growth of about 80%. This
growth is driven by a clear change of
in Baroda and Rajkot), a continuous shift
in the mindset of Indian elite, which
doesn’t mind to indulge in luxury, and
increased competition with stronger
presence of brands such as JLR will lead
to double-digit growth of the segment.
With the economy growing at about

A
fter a successful 2010 that has
put the challenges of 2008-09
behind us, our attention turns
to 2011. True, most studies
predict a bright future for India in the
mid-to-long term with most industries
growing by a factor of 5-10 over the next
10-15 years. But will 2011 be a year that
follows the general trend or are there
reasons for subdued growth?
From where I stand, there is every
reason to be optimistic. The underlying
dynamics that propel India forward are
of their discretionary income on apparel,
books, footwear and mobile phones. Since
we are globally the most optimistic lot as
far as the economy is concerned,
according to the Nielsen Global Consumer
Confidence Index, there is no reason why
young, confident Indians should change
their consumption pattern in 2011.
Another driver for growth will be
rural India. Even today, companies such
as Hindustan Unilever, Hero Honda,
Dabur and TVS achieve 40-60% of their
sales from the rural market. Maruti-
income of a large section of India’s
population, but also by increased
awareness through improved mobile
phone and TV penetration as well as
better connectivity through new and
improved roads. With a fair monsoon
and heavy government investment in
infrastructure over the next few years,
all these factors remain valid in 2011.
Lastly, the introduction of GST
should lead to a greater ease in doing
business by introducing a simplified tax
structure, which should reduce tax
attitude among buyers. Businessmen,
self-employed and salaried people, all
profited from strong stock and real
estate markets, rising company profits
and salaries, and readily available
finance. Significant movement was seen
in the relatively unexplored territories,
such as with the 200 luxury cars that got
sold in one transaction in Aurangabad.
In 2011, continued economic
expansion, increased penetration in Tier
II and Tier III cities (for example,
Mercedes will open full-fledged facilities
8.5% in 2010/11 and, according to RBI,
expected to grow at the same pace in
2011/12, as well as with all the factors
mentioned above, double-digit growth
will not be limited to luxury automobiles
but will also be seen in other sectors
such as telecom, auto, media and
entertainment, consumer goods, real
estate, education, healthcare, etc.
So, let’s get ready, fasten our seat
belts and put the pedal to the metal for
another exciting year in the beautiful
country that is India!

Illustrations: Mahesh Benkar