Changing Indian Consumers & Markets

Pingali Venugopal Dean XLRI Jamshedpur

The worlds economic centre of gravity is shifting-away from the established, wealthy economies of Europe, Japan, and North America and towards the Asia Pacific India is one of the fastest-growing large economies in the world. Over the last 15 years India has changed much faster than many predicted.

The Indian Consumer Is Rapidly Transforming

Paradigm Shift in almost all aspects of life

Outlook From Traditional to Modernized Traditional

Overall, competition and structural changes within the economy have raised the bar in terms of what consumers have come to expect. Automobiles are a case in point. Where sheer availability was a variable before, today that's not even a factor given the 13 companies and 40-odd models that compete in the 700,000strong market

Expected Utility from Products/ Services

From Functional to Lifestyle

Eating habits

From traditional meals to Indianised McDonalds

Value

From Merely Price, to Benefit /Effort (Price +Time + Convenience)

Saving time is more important than saving a few Rupees - 51%

I. For the same amount of grocery shopping consumers are spending 20 % less time II. For the same amount of eating out spends, consumers are spending about 50 % less time

Id rather have more time than money - 47%

I like to shop, but do not have time - 47%

I shop closest to my home/office - 59 %

Source : Consumer Outlook

With the availability of low-interest finance schemes, price is increasingly becoming a smaller factor in a purchase decision in a whole range of consumer durables also.

Consumers jump steps as they enter: today the line between entry-level and upgraded products is disappearing. The newer generation is willing to pay more if she is convinced she is getting better value for the higher price. Upgrade is part of life. Today the average life of a mobile is 12 months, that of a TV three years; cars four to five years and soon even homes will be changed more frequently. Clearly durability is no longer the most desirable value.

"One household, multiple products: two cars is no longer a luxury but a practical necessity for working couples; two TVs in the house is recognition of the fact that different family members have different interests

Buying a TV set- Factors

Early nineties

One, availability; two, price; and, three, picture quality the efficacy of an exchange scheme and the number of channels a company offered
sophistication -one of the fastest growing segments of the market is high-end flat TVs

Mid-nineties,

Today

Air-conditioners

In the early nineties, air-conditioner manufacturers focused on institutional sales, leaving the dodgy unorganised sector, with its dirt-cheap and poor quality offerings, to service households By the late nineties, sales to households boomed. In place of the clunky box that simply cooled the room came sleek plastic shapes offering such features as a dust-free environment, split-room cooling and so on and so forth.

Services are now taking away a huge chunk of the Consumers Wallet

1. 2. 3. 4. 5. 6. 7.

Food and Grocery Clothing Footwear Consumer durable / appliances Home linen Movies and theatre Eating out

1991

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Food and Grocery Clothing Footwear Consumer durable / appliances Expenditure on DVDs and VCDs Home linen Home accessories Accessories Gifts Take-away/ Pre cooked / RTE meals Movies and theatre Eating out Entertainment parks Mobile phones and service Household help Travel packages Club membership Computer Peripheral & Internet Usage

2003

Categories constituting 80 % of SEC AB consumer discretionary spending

The Indian economy is on the cusp of something big. After a recent trip there, I am as enthusiastic about India as I was about China in the late 1990s. What excites me most is the potential for an increasingly powerful internal consumption dynamic, an ingredient sorely missing in most other Asian development models.

STEPHEN ROACH, Wall Street Journal, Nov 2005 Mr. Roach is the chief economist at Morgan Stanley in New York

Private consumption currently accounts for 64% of GDP -- higher than in Europe (58%), Japan (55%), and especially China (42%). India's transition to a 7% growth path in recent years is very much an outgrowth of the emerging consumerism of one of the world's youngest populations.

Many Drivers

Demographics Increased global exposure Increased discretionary incomes across wider spectrum of population, across wider geography

Indian consumers Destitutes Aspirants Climbers Consuming class Very rich 0 20 40 60 80 million households

2006-07 2001-02 1995-96

100

Since 1990 (after deregulation) the number of sectors open to foreign participants has expanded steadily, and Indias working-class population has increased and is likely to continue to grow for the next two decades at least,

Working class
300 250
Population
Consuming class increasing

200 150 100 50 0

55+ 45-54

2001 2013

35-44

25-34

15-24

5'-14

0-4

As Indians have grown richer, they have begun to spend more on vehicles, phones, and restaurants, according to recent research on consumption patters by Deutsche Bank.

Purchasing Power of Indian Consumers

Going by per capita GDP figures (US$340 per capita), India would seem extremely poor country However, the per capita figures do not reflect the realistic picture of purchasing abilities of consumer households and market potential for a foreign business enterprise because of significant differences in purchase power parities of various currencies

In fact, the Indian rupee has a very high purchase power parity compared to its international exchange value The domestic purchasing power of a US dollar in the US is closer to the purchasing power of six rupees in India, for equivalent goods and services As a result, India ranks fourth richest nation in the world, on purchase power parity terms, despite being having low per capita national income

Segments
India has various consuming classes The young and the restless

Teen Riches, Dudes & Dudettes Call Centre Boomers The Yeppies (Young Entrepreneurial Professionals) The Yippies (Young International Professionals) The raffles (Rural Affluent Farm-Folk):

The Bold and bountiful

The golden Folks in High Spirits

1 The Young & Restless

India has the youngest population profile in different income segments and locations, who are influencing their parents spending. Some of them are also beginning to earn money through part-time for full-time jobs, arising out of opportunities that did not exist earlier.

Some of these segments include

Teen Riches, Dudes & Dudettes

This group mainly comprises young people who are from relatively affluent families. Eating out, movies and occasional clubbing are an integral part of their lifestyle. Dress is invariably modern, and attire must be changed frequently

Call Centre Boomers

Formerly located mainly in the IT-savvy cities, call centres and other IT-Enabled Service centres are spreading to other cities and towns as well. Populated largely by youngsters out of school or college, drawing in their first incomes, and at levels unheard of earlier

2 The Bold and The Bountiful

The Yeppies (Young Entrepreneurial Professionals):

entrepreneurs who have made it after the good liberalization work with multi-national companies, who are based in India but travel extensively the farmer with tax-free income spend on a wider choice of products

The Yippies (Young International Professionals):

The raffles (Rural Affluent Farm-Folk):

The golden Folks in High Spirits

The retired folk, with kids who are married and living in their nuclear families, or even out of the country Several of them have led fairly good lifestyles, and have the means to continue to do so

Markets

India has sometimes been called a nation of shops Highest per capita outlets in the world - 11.5 outlets per 1000 population As much as 96 per cent of the 12 million-plus outlets are smaller than 500 square feet in area. The organized sector accounts for just 2 per cent. Unorganized sector includes low-cost retailing such as the local kirana shops, owner-manned general stores, paan/beedi shops, convenience stores, handcart and pavement vendors

Traditional Kirana stores

Complete utilisation of space in traditional outlets

Consumer Durables outlet

Road side kiosks

Computer Accessories outlet

Changing Market scenario

Since the early 1990s the market in India has been characterised by a major shift from traditional shops to modern formats that include department stores, hypermarkets, supermarkets and specialty stores across a wide range of categories Sales from the organized stores are to expand at growth rates ranging from 24% to 49% per year during 2003-2008, according to a latest report by Euromonitor International

Retail Growth across countries 2004

50 40 30 20 10 0
Th ai la nd Si ng ap or e na Ja pa n Ch i In di a

Retail industry Largest retailer Top 5 retailers

Source: Retail Asia 2005, KPMG in India Analysis 2005

Fastest growing retail segments in India

Jewelry Footwear and leather Durables Pharmacy Furnitures and fixtures Clothing Food and grocery 0 20 40 60 80 100

Retail sales in India's consumer goods market are expected to grow to $400 billion by 2010, making it one of the world's five biggest.

Winning the Indian consumer 2005 Special Edition: Fulfilling India's promise. McKinsey Quarterly

Still a lot of potential

India No. 1 Emerging Retail Growth Market AT Kearney Global Development Index (GDRI)

GDRI Rank 2003 Russia Slovak China Hungary

GDRI Rank 2004 Russia India China Slovenia

GDRI Rank 2005 India Ukranie China Slovenia

India Turkey
Morocco Egypt Vietnam Tunisia

Croatia Latvia
Vietnam Turkey Slovakia Thailand

Latvia Croatia
Vietnam Turkey Slovakia

% penetration

20

40

60

80

Ta iw an M al ay s ia Th ail an d Br az il In do ne si a Po la nd Ch in a In di a

Retail growth opportunity

1. Food and grocery

Opportunity: Rs 6,00,000 crore Big Players: RPG, Pantaloon Likely Big Players of Tomorrow: Reliance through its malls at fuel pumps, Tatas, Godrejs
Opportunity: Rs 150,000 crore Big Players: ShoppersStop, Pantaloon, Piramyd, Westside, Lifestyle Likely Big Players of Tomorrow: Raymond/ Singhanias, Wadias

2. Lifestyle Retailing

3. Consumer durables

Opportunity: Rs 50,000 crore Big Players: Vivek Ltd., Vijay Sales

Opportunity: Rs 3,00,000 crore Big Players: ITC Likely Big Players of Tomorrow: ITC, M&M, DCM Shriram

4. Rural Retail

5. Broadband-driven retailing

Big Players: Reliance Infocomm Likely Big Players of Tomorrow: Reliance, Bharti Opportunity: Rs 10,000 crore* Big Players: Indian Oil, BP, Hindustan Petroleum Likely Big Players of Tomorrow: Reliance, Indian Oil, Bharat Petroleum, Hindustan Petroleum

6. Fuel-pump driven retailing

Under-exploited categories in organized retail

Con durables, IT & Electronics,Communication Furniture & Furnishings Jewellery & Accessories Footwear Gifts and Handicrafts Saree and Ethnic wear Health & Nutrition Childrens wear, Maternity wear, Accessories

45,000 30,000 45,000 6,500 6,000 12,000 1,000 4,700

Figures are estimated market size in Rs crore Source: KSA Technopak estimates for 2004-05

More to come !

From just 3 malls in 2000, India is all set to have over 2000 malls. According to consultancy firm Technopak, the industry will see $20bn of fresh investments (excluding investments in real estate) and 2,000 hypermarkets coming up within the next five years Thank You