Financial Daily from THE HINDU group of publications
Tuesday, Jan 01, 2002
Money & Banking
Agri-Biz & Commodities
Industry & Economy
Rise and growth of the consuming class
Sravanthi Challapalli Ratna Bhushan
AN explosion in product range, a multitude of brands, Indian and foreign, several finance options, large one-stop shops, colourful stores and shopping a picnic, not to mention a rise in status the consumer is having a blast. This past decade has been very important for the average consumer but how exactly have things changed for the consumer of then and now? Business Line spoke to a cross-section of experts from the FMCG, consumer durables and retail sectors to find out. Consensus was that the consumer was the biggest beneficiary of liberalisation she gets the best deal in terms of choice, price and value for money.
In 1992-93, the size of the FMCG sector was around Rs 54,000 crore, while in 1998-99, it was Rs 80,100 crore, according to the National Council for Applied Economic Research (NCAER).
"I wish there was more space on the retailer's shelf," quips Mr B. Nandakumar, President (Marketing), CavinKare Ltd. The reforms have made it far easier to source raw material, machinery, moulds and finished packaging, which have all had their impact on product quality, he adds. With all these, it is possible to make products of international standards from the supply perspective. Also, earlier, the manager would ration his stock among dealers, now he works with them as production in larger numbers is possible.
"Liberalisation has brought business into focus, it is all about capturing franchise. To me, this is the most important fallout of the reforms," he adds. Companies are forced to look at newer markets; with the wide choice of products and brands, they cannot have an assured share of the market.
According to Mr R.K. Shukla, Senior Statistician, NCAER, the key success factors that have shaped and will continue to shape consumer reform within the FMCG sector include a deeper understanding of the Indian consumer, ability to deliver quality products at low costs, ownership of brands with strong equity and the possession of distribution capability.
Mr Nandakumar says liberalisation has also helped companies employ better quality personnel. Earlier, the latter wanted to work only for the blue-chip companies, now the MBAs themselves are keen on working for smaller companies that are professional.
Liberalisation of the economy saw the entry of multinationals and a radical improvement in the models, features, technology and sizes of consumer durables available, says Mr B.A. Kodandarama Setty, Chairman and Managing Director, Vivek Ltd, the Chennai-based retailer of consumer durables.
"Showrooms have been modernised, sales staff are better-trained, display is good - the entire retail scene is more vibrant and organised. There are larger retail formats and more chain stores. It was a seller's market earlier, now it's a buyer's market. Contrary to earlier, it is the finance companies knocking at the consumer's door," he adds. With all these developments, the consumer has also become more important for the industry. In fact, a phrase that is in use very often nowadays, hackneyed and banal as it may sound, is `Consumer is king'.
Plethora of goods
According to consultant Mr P. Chandrasekhar of Infotree Solution Pvt Ltd, basic liberalisation in the FMCG and retail scene changed only around 1997. It was then that most fast-moving consumer goods were deregulated and that foreign companies which produced these put India on their business map.
This was when tissues of all kinds, foods, mineral water, juices and more came in - the trickle virtually became a cascade. Prior to this existed a large and thriving grey market that offered little choice, high prices and no guarantees to the consumer. While the prices of imported goods remain high, at least there is more to choose from and a channel of recourse if the products fail to deliver, he said.
The upshot of all this, he says, is that the consumer has access to better quality. The flipside: Indian companies see it as a threat to their dominion, as today's well-informed consumer has a heightened awareness of quality. Further, Indian importers can now afford to be "choosy" in their dealings with foreign companies that seek a market here.
According to NCAER's Mr Shukla, the typical characteristics of the FMCG business have included low capital intensity, easy availability, high initial launch cost, key role of brands and a large and diverse customer base.
In the Indian context, typical characteristics in the past decade have been low penetration of FMCGs, a complex legal and taxation structure, predominance of foreign brands and most importantly, a significant presence of the unorganised sector that is unique to the Indian market.
Mr Chandrasekhar echoes Mr Setty's views when he talks about Indian retailing. "The supermarket today is more colourful. It offers the chance to touch and feel. There is an added pleasure to shopping nowadays." However, he adds that while all this is well, the personal touch probably goes missing. Your friendly neighbourhood storekeeper would recommend a brand of say, toothpaste, something that the supermarket or retail store personnel usually do not do.
Mr Setty of Vivek says the electronic media has opened up the world for the consumer now he wants more and spends more to get it.
"The consumer is younger and has everything at his feet. His earning capacity is higher. The use of credit cards, particularly in the last five years, has gone up tremendously." He feels the consumer's lifestyle has taken a turn for the better on account of the modern gadgets she now has easy access to. It's not just the TVs and the refrigerators, there's a plethora of household and lifestyle appliances one can buy. He also points to the growth in the number of nuclear and double-income families, which leads to higher demand and spending. "When the customer changes, nothing can stop it," he says.
As for retailing, he sees it holding enormous opportunity and good potential. Earlier, the business was more unorganised, more inefficient, and owners were individuals rather than business groups. "All that has changed for the better now, it is very professional."
Mr Chandrasekhar sees Indian retail coming on a par with that in Singapore or Malaysia by 2005. The removal of quantitative restrictions has seen the market opening up and many foreign companies look at or could consider India as their hub for Asia. Prices of imported products, however, may not come down unless these companies set up ventures that involve production locally, he adds
Liberalisation has seen duties, tariffs and taxes coming down and production going up, factors which have hastened the change in consumers and spending. The prices of consumer electronics have dropped in the last five years. "Once upon a time, one came across air-conditioners and computers only at offices, now they are in homes too," points out Mr Setty.
The basic mobile handset, which first beeped on the Indian landscape officially back in 1995, has perhaps acquired the status of `Gizmo of the Decade'. Not only are cell-phones being used for functional conversations, but also for SMSing, chatting, surfing the Net, e-mailing, faxing, call conferencing and much more. Soon it could well be a way of life with cell-phone operators cutting down on usage charges. The past decade has seen the usage base of cell-phones expanding from executives on the move to even vegetable vendors, fishermen, carpenters and bus drivers.
According to latest estimates of the Cellular Operators' Association of India, the cell-phone subscriber base in the country has now touched 5.22 million, adding over 2.1 lakh additional customers in the month of November alone. Usage tariffs which began at a steep Rs 18 a minute on prime time six years ago, are today hovering at anywhere between Rs 1.50 and Rs 2.50.
One element that has undergone a sea change in the past decade is packaging. Mr K.A. Rahim, Director, Packaging India Pvt Ltd, a CavinKare group company, and one that has clients such as Hindustan Lever, Britannia Industries, Henkel SPIC, Godrej and Tata Tea, says liberalisation, by allowing for easy imports of printing technology, made a vast difference to packaging. Simplistic, almost primitive packaging, has given way to vibrant, colourful labels with more pictures. Packaging is also no longer meant merely for storage, the label nowadays addresses concerns about the product's ingredients, shelf life and so on.
According to him, packaging is "now more a component of the brand's image than ever". Tins and cartons have given way to sleek pouches, sachets and plastic containers. Then there are innovations in packaging such as the zip-lock, the easy-pour technology (as in oil packs), packs which come with nozzles on them so that there is no wastage, better packaging material which allows for good reproduction of graphics, more yield and therefore savings in costs.
The reforms have also made it possible to import machinery which will allow faster production, making it less labour- and time-intensive. The cost of packaging has come down by 10-15 per cent over the past ten years, given these developments, he adds. He points to the shampoo sachets that stormed the market in the late '80s being the trendsetters in innovative packaging. However, fighting spurious brands is a grave concern. Holograms can deal with this menace effectively but this would imply a 30 per cent mark-up in the product's price, Mr Rahim adds.
An abundance of goods, slicker packaging, greater choice, swankier stores... the consumer is not just pleased, she's delighted. Now, only disposable incomes need to swell faster.
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