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Here comes the new Indian consumer... - Views on News from Equitymaster
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  • Feb 14, 2007

    Here comes the new Indian consumer...

    Last week we had written an article on the significant shift taking place in the consumption pattern of the young urban Indian consumer, led by various demographic, psychological and economic factors. The growth in the number of young working people in urban India who have grown up post liberalisation, rise in their aspiration levels and increase in their spending power are be the key drivers of growth for the businesses. In this article we give a view on their spending pattern.

    The rising aspiration levels, increase in spending power has led to a change in the consumption pattern. Apart from the demand of the basic goods, the convenience and luxury goods are growing fast too. In the last two to three years consumers have been spending more on lifestyle categories like eating out, movies and entertainment. Consumers today want more for their money and now actively seek quality. Consumers demand variety and sophistication to suit their needs and do not mind paying extra for it. For example, apart from demanding time saving and easy to handle goods, they are interested in diet free, environment friendly and wellness goods.

    Consumerism now is not only about increasing the consumption of the things that are regularly bought like groceries, shampoos, soaps or other FMCG goods but it is about consuming different things. People now prefer watching movie in a multiplex or buying from a super market instead of a local grocery store. Better living and maximizing utility from consumption is the order of the day.

    The shift from traditional categories is also evident from the change in the consumption pattern in the economy. Between FY73 and FY05, the share of food in total consumer expenditure has fallen from 73% to 55% in rural areas and from 64% to 42% in urban areas. The share of fuel and light in total consumer expenditure has risen from under 6% to 10% in both rural and urban areas. While the percentage of consumption expenditure on traditional items like food, groceries and footwear has reduced from 54% in 1993 to 46% in 2003, eating out as a category has grown over the last two years from 6.0% to 10.8% of a household's discretionary income. Higher incomes and growing aspirations are changing the way the consumers are spending money. With basic needs satisfied and easy credit availability for fulfilling dreams of owning a car and/or a house, spending on lifestyle goods calls for little hesitation.

    Organised retailing, hotel industry, ready to eat foods, branded products and multiplexes have witnessed robust growth with the change in consumerism. Going forward, these segments would be the key drivers. The companies are also introducing newer products and value added products. Dabur India's Vatika hair oil, one of the first players to milk the herbal category, registered a growth rate of 74% in 1999. HLL's Clinic Plus non-sticky hair oil (which combines coconut oil and mineral oil) has also been an unqualified success. Conventional beauty care products dominated Indian skin care market. HLL's Fair and Lovely (FAL) changed all that. This brand became the world's first and largest fairness cream brand with a presence in 40 countries and a value of around Rs 6 bn. Domestic tourism, which has grown by a 40% CAGR in the last 5 years, is set to emerge as the one of key drivers for the hotel industry over the next decade or so. The entire range of credit products (credit cards, mortgages, auto/two-wheeler loans, personal loans) have facilitated the consumption of lifestyle products to go up. This has created the large and fast growing retail banking industry in India.

    Changing consumption behaviour as well as rising discretionary income levels will drive the trend towards lifestyle consumption. Although some sectors are still in the nascent stage, they are likely to emerge as significant growth drivers going forward.



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