Greetings from Team Carnelian!
Almost all of us have gone through economic transition in our lives in the last 2-3 decades. Please go through your memory lane and observe the changes in your consumption pattern with the change in your economic profile. Zoom out and apply those changes at an aggregate level to the country, you will find glimpses of India consumption story and trillions of dollar worth of opportunities.
In this letter as a part of Bharat Amritkaal Series, we will discuss broader trends that will shape opportunities in consumption space as India see transition towards being developed nation during AmritKaal.
Experiences from other countries like USA, China, Thailand, Indonesia have shown that a nation’s consumption pattern changes dramatically as per capita income crosses the inflection point of USD 2,500. Just like an individual, spending and consumption pattern changes as her disposable income increases.
After crossing per capita income of USD 2,500 in 2006, China’s witnessed significant growth in discretionary spend. Residential Acs (RAC) sale grew at a CAGR of 15.5% from 12 million units to approx. 90 million units by 2015. Luxury car sales zoomed 10.7x from 0.14 million units to 1.5 million units, with a growing preference for SUVs. Luxury watches sales grew 3.5x from USD 1.2bn to USD 4.2bn.
A similar trend was witnessed in footwear, where significant growth happened in the premium sports and athleisure segment. Footwear sales doubled from 1.8 bn pairs to 3.6 bn pairs, whereas sports and athleisure grew 3.3x. International brands like Nike, Adidas, Puma along with domestic brands such as Anta, Li-Ning and 361 Degrees captured the market with innovative designs and marketing. Healthcare spends in China increased from 3% of the GDP to 7% of the GDP during this period.
As India is embarking on the journey, it will have three pronged changes in the consumption
Economic transformation
Social transformation
Digital transformation
Economic transformation:
Changing shapes of these triangles (below) tells you the story of economic transformation. How every decade, lower income households are migrating upwards. As this migration accelerates with economic growth, it will accelerate consumption, and each class will consume More, New and Better.
Source: WEF, PRICE projections based on ICE 360 surveys (2014, 2016, 2018), Bain, Future of consumption in Fast-Growth Consumer Market: INDIA, F-Forecast
One of the obvious trends is Premiumization is - If you compare the store placement of Vijay Sales 20 years ago and now, you will get glimpse of what’s likely to happen in future. In the last 3 years, there has been considerable growth in the sale of premium vehicles. SUV sales have grown at 2.5x whereas hatchbacks and sedans have declined. Every second car sold is an SUV. As the per capita increases, people want better quality and branded products which drives the higher growth in premium products. This can be witnessed by the growth in luxury watch imports from Switzerland which have increased by 45% over the last 2-3 yrs. Also, we have seen the highest RAC sales at 4 million units and most of them came from first-time buyers who have upgraded from fans. Coming to alco-bevs, Prestige and Above category for United Spirits has seen a CAGR growth of 12% over the last 4 years whereas the popular category has declined by 20%. With higher disposable income people prefer to drink better than drink more.
Social transformation
This another important transformation is underway to influence India’s consumption. Nuclear family, working women and Rapid urbanization are three major social transformation happening in India. India’s focus on Women led development is leading to a greater number of working women. Women participation in labor force has increased from 23.3% in 2018 to 37% in 2023. Along with this economic migration, another migration is inevitable is urbanization. More than 60% of India will reside in Urban centers by 2047 from current 36%. As a result, India is rapidly moving from joint family system to nuclear family which creates whole set of new consumption patterns.
Digital Transformation
Whole world is witnessing rapid digital transformation, but India is leapfrogging this at a very different pace. Internet penetration has increased the addressable market multifold and tier II, III and IV cities have now become new hotspot of consumption. India has more than 820 million active internet users at present. Over half of them — 442 million — now come from rural parts of the country. With the rapid internet penetration and e-commerce, a consumers living in Jhumry Taliaya have access to the same fashion and products as someone in Mumbai. Earlier new trends and fashion used to take years to reach small towns, now it is at the same time, which has transformed the consumption landscape in a significant way. As a result, trends and cycles are shorter and the need for adaptability is higher than even before.