Changing Indian Consumers & Markets Pingali Venugopal Dean XLRI Jamshedpur.

Changing Indian Consumers& Markets

Pingali Venugopal

Dean

XLRI Jamshedpur

The world’s 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

Outlook– From Traditional to Modernized Traditional

Paradigm Shift in almost all aspects of life

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 700,000-strong 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)

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

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

Saving time is moreimportant than saving

a few Rupees - 51%

Saving time is moreimportant than saving

a few Rupees - 51%

I’d rather have more time than money - 47%I’d rather have more

time than money - 47%

I like to shop, butdo not have time - 47%

I like to shop, butdo not have time - 47% I shop closest to

my home/office - 59 %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 Mid-nineties,

the efficacy of an exchange scheme and the number of channels a company offered

Today sophistication -one of the fastest growing

segments of the market is high-end flat TVs

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.

1. Food and Grocery2. Clothing3. Footwear4. Consumer durable / appliances5. Home linen6. Movies and theatre7. Eating out

Categories constituting 80 % of SEC AB consumer discretionary spending Categories constituting 80 % of SEC AB consumer discretionary spending

19911991 1. Food and Grocery2. Clothing3. Footwear4. Consumer durable / appliances5. Expenditure on DVDs and VCDs6. Home linen7. Home accessories 8. Accessories9. Gifts10. Take-away/ Pre cooked / RTE meals11. Movies and theatre12. Eating out13. Entertainment parks14. Mobile phones and service15. Household help16. Travel packages 17. Club membership18. Computer Peripheral & Internet Usage

20032003

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

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

0 20 40 60 80 100

Very rich

Consuming class

Climbers

Aspirants

Destitutes

million households

2006-07

2001-02

1995-96

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

Working class

0

50

100

150

200

250

300

55+ 45-54 35-44 25-34 15-24 5'-14 0-4

Pop

ulat

ion 2001

2013

Consuming classincreasing

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 Bold and bountiful The Yeppies (Young Entrepreneurial Professionals) The Yippies (Young International Professionals) The raffles (Rural Affluent Farm-Folk):

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

The Yippies (Young International Professionals): work with multi-national companies, who are based in India

but travel extensively The raffles (Rural Affluent Farm-Folk):

the farmer with tax-free income spend on a wider choice of products

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

0

10

20

30

40

50

Retailindustry

Largestretailer

Top 5retailers

Source: Retail Asia 2005, KPMG in India Analysis 2005

Fastest growing retail segments in India

0 20 40 60 80 100

Food and grocery

Clothing

Furnitures and fixtures

Pharmacy

Durables

Footwear and leather

Jewelry

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 MarketAT Kearney Global Development Index (GDRI)

GDRI Rank 2003 GDRI Rank 2004 GDRI Rank 2005

Russia Russia India

Slovak India Ukranie

China China China

Hungary Slovenia Slovenia

India Croatia Latvia

Turkey Latvia Croatia

Morocco Vietnam Vietnam

Egypt Turkey Turkey

Vietnam Slovakia Slovakia

Tunisia Thailand

Retail growth opportunity

0

20

40

60

80

% p

enet

ratio

n

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 2. Lifestyle Retailing

Opportunity: Rs 150,000 crore Big Players: Shoppers’Stop, Pantaloon, Piramyd,

Westside, Lifestyle Likely Big Players of Tomorrow: Raymond/ Singhanias,

Wadias

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

4. Rural Retail Opportunity: Rs 3,00,000 crore Big Players: ITC • Likely Big Players of Tomorrow:

ITC, M&M, DCM Shriram

5. Broadband-driven retailing Big Players: Reliance Infocomm Likely Big Players of Tomorrow: Reliance, Bharti

6. Fuel-pump driven retailing Opportunity: Rs 10,000 crore* Big Players: Indian Oil, BP, Hindustan Petroleum Likely Big Players of Tomorrow: Reliance, Indian Oil,

Bharat Petroleum, Hindustan Petroleum

Under-exploited categories in organized

retail Con durables, IT & Electronics,Communication 45,000 Furniture & Furnishings 30,000 Jewellery & Accessories 45,000 Footwear 6,500 Gifts and Handicrafts 6,000 Saree and Ethnic wear 12,000 Health & Nutrition 1,000 Children’s wear, Maternity wear, Accessories 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