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Riding the boom in consumer spending - Views on News from Equitymaster
 
 
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  • May 27, 2000

    Riding the boom in consumer spending

    Sure. Atleast one of the companies in this sector will come out with a scheme saying "Buy a TV, Win a free trip to Sydney Olympics". So, don't be surprised if you see the Indian fans at the Sydney Olympics.

    Schemes such as these are reflective of the intense competition in the Indian consumer durable market. Infact, this sector has seen buoyant growth in demand, growing at a compounded rate of 28 percent over the last five years. The number of units sold went up from 0.9 million units to 5 million units over the last seven years. The market is growing at a tremendous rate even as a large range of products including dishwashers, microwave ovens and DVDs are yet to make a significant entry in the Indian sub continent. Rural India which accounts for nearly 70% of the total number of households, has a 2% penetration in case of refrigerators and 0.5% for washing machines. Not surprisingly, most multinationals have already set up shop in India.

    What has led to the rash of sales promotion schemes? Competition. Big players including Godrej, Kelvinator, Allwyn and Voltas historically dominated the white goods sector. These four were controlling nearly 90 percent of the market. The 90s decade saw a sea change in the socio-economic scene in the country. The liberalisation in 1991 saw the removal of licensing restrictions. Rapid industrial growth, double income families, changing lifestyles led to a surge in demand. With an estimated population of 250 million in the middle class and low penetration of consumer goods, the attractiveness of the market was apparent. And competition was the natural fallout.

    The who's who of the sector such as Whirlpool, GE, Electrolux, LG, Samsung arrived in India. The entry routes were different however. While GE entered via a 40:60 joint venture with Godrej, Whirlpool took over Kelvinator, Akai-Aiwa-Sansui entered into the market in a joint venture with Baron International Limited. Other major players like Sony, LG, Samsung, Daewoo and Thompson preferred to establish a direct presence. Now if consumers are given a choice to buy a colour television, they have the option of selecting a 21' inch CTV's to Sony's Wega series of CTVs to a complete home theater systems. The customer is the king. Gone are the days when there was a waiting period for the delivery of, say, a television.

    One other factor that has contributed to the surge in demand for consumer goods is the increasing popularity of consumer loans. Thanks to the reducing interest rates (from a high of 18 in 1996 to 14% currently) and the expansion of hire-purchase schemes, price-sensitive consumers are now able to whet their appetite for consumer goods. With financial institutions and commercial banks vying to catch the attention of consumers, schemes are increasingly becoming favourable for the consumer. Consumer goods companies are themselves coming out with attractive financing schemes to consumers through their extensive dealer network.

    The other factor that has contributed to the surge in demand for these consumer goods is the phenomenal growth of media in India. The flurry of television channels and the rising penetration of cinemas have spread awareness of products in the remotest of markets.

    The opportunities in the Indian markets attracted international competition into the country. Domestic majors including BPL and Videocon have also intensified their marketing efforts. The result - more competition and better deals for the consumer. The latter has contributed in further boosting demand.

    The Indian consumer durable industry has witnessed a sea change during this decade. In the coming years it is the Internet that will lead to still more developments in the way products are sold in India. Probably it will help sustain the demand boom witnessed over the last several years.

    A Mixed Bag
    Production (Nos.) Apr-Feb 1998-99 Apr-Feb 1999-00 Change
    Washing Machines 781,653 688,015 -12%
    Air Conditioners 34,844 36,792 6%
    Refrigerators 1,671 2,376 42%
    Television Receivers 2,234 2,396 7%

     

     

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