Upgrade. Aspiration drives consumer spending post-Covid

From iPhones to luxury chocolates to SUVs, the taste for an aspirational lifestyle has caught the consumers’ fancy.

A household that would usually buy a hatchback is now opting for an SUV or sedan and savings from Covid-induced niggardliness is being invested in the latest iPhone. This trend exists across sectors, as seen from premiumisation in consumer electronics and durables to luxury lifestyle retail.

Take the case of Apple. Earlier this week, CEO Tim Cook said that Apple had doubled its business in India. Apple, which occupies the premium segment in electronics in the country, had earlier achieved a quarterly record in October last year and has been showing double-digit growth in the Indian market.

Average spend rises

According to Faisal Kawoosa, CEO and Founder of Techarc, even the average spend on smartphones has been rising for the past 2-3 years. “Post the pandemic...on the consumer side, since many smartphone users were already owning smartphones priced at ₹10,000-20,000 they are now looking to upgrade to higher price segments, which again pushes the average selling price or spend per consumer on smartphones. All this translatesto a 30-35 per cent increase in the average spend on smartphones in 2021,” said Kawoosa.

Kamal Nandi, Vice-President of Godrej and Boyce, a leading player in the consumer durables segment, told BusinessLine that Godrej’s premium offerings have far outpaced the growth that they saw overall. “In the past six months, while our business has grown 25 per cent overall, growth in the premium segment has been in the order of 35 per cent. Consumers increasingly want products related to health and sanitation, and want products with better capacities,” he said.

SUVs rise in popularity

In the automobile sector, the SUV category has seen a major rise in popularity. In India, sales of SUVs contribute to 40 per cent of the overall PV sales. According to the data provided by the Society of Indian Automobile Manufacturers (SIAM), sales of the premium category vehicles (premium compact, compact UV and other SUVs) have seen a major uptick between FY19 and FY21. The contribution of the premium compact segment to the overall sales has increased from 12-13 per cent in FY19 to 14-15 per cent in FY21.

Utility vehicles are also seeing a major rise, with compact UVs seeing a whopping 7 per cent increase between FY19 and FY21, from 10-11 per cent to 17-18 per cent. On the other hand, the entry-level lower compact has seen an 8 per cent drop from 47- 48 per cent in FY19 to 39-40 per cent in FY21. Here, the reasons behind the trend are a little more complicated, according to Hemal Thakkar, Director, Crisil Research. “The income segment that would usually opt for the entry-level lower compact has seen a major income crunch due to the pandemic, with the rising inflation and economic downturn they are unable to make such purchases, once the economy bounces back, entry-level cars will make 40-45 per cent of the segment.” he said. However, Thakkar agreed that people who can afford to purchase a vehicle will opt for the best of what is on offer, “Every model sold by OEMs comes in three categories, depending on the number of additional fixtures that the model will come with — the low variant, the mid variant, and the high variant.” Thakkar explained, “now, especially the millennial generation will increasingly go for the high variant, even if it adds another ₹3,000 to their EMI. They want the best of what is on offer,” he said.

The hardships brought about by the pandemic compelled people to live in the moment. Now, one hears stories of someone impulsively buying a sports car. For Boys and Machines, a pre-owned luxury car start-up, this was a blessing. “Our venture, which started in October last year, has seen robust demand as people have started to live in the moment. We now plan to open four showrooms instead of 2 and are looking at a turnover of 60 crore by the end of this year,” said founder Siddharth Chaturvedi.

Lifestyle retail

Jermina Menon, Founder & Chief Strategy Officer, Knowetic, a boutique business strategy and retail marketing consultancy, observed immense growth in the lifestyle retail segment since Covid.

“The pandemic has definitely made people more conscious of how they are consuming – whether it’s the food they intake or the fashion items they purchase or even how they travel and celebrate. Customers are increasingly seeking high-quality, ethically-sourced ingredients and are willing to pay a premium if it ensures fair wages to the workers, weavers and farmers. They are also willing to pay a premium for organic, earth-friendly products. Their own health consciousness ensures they are more mindful of what they intake and ingest – internally as food or on their bodies be it skincare products or clothing,” Menon explained.

So, what is the reason behind the rise of aspirational brands? According to Anuj Kapoor, Professor of Marketing at IIM Ahmedabad, “It's economics (surplus income for those with stable incomes during the pandemic and who are willing to spend) and psychology(on aspirational products that make users feel good and evoke hope) and this is the reason for the uptick in spending on aspirational products and services.”

Moreover, it is the people who have had stable income during pre-pandemic days. According to Kapoor, these users will have surplus income that they would like to spend. This discretionary spending is likely to be on products and services that take them a level up in their existing social, economic and psychological level and aspirational products fit the bill. Hence, these users are likely to be upper middle class or middle class.

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