Good news! The Indian consumer is upgrading

Consumption plays a major role in boosting economic growth in the country, with Private Final Consumption Expenditure or PFCE constituting almost 60 per cent of the GDP. Fiscal 2018-19 hasn’t been particularly good for consumption. Amidst the gloom, the Survey brings good news that the Indian consumer is upgrading. This implies that even as volume growth may take a backseat for companies in consumer sectors such as FMCG (fast moving consumer goods), auto and consumer durables, they reap the benefits of higher profit margins from the bettering product mix.

Shifting preferences

According to the Survey, data from fiscal 2011-12 onwards show that there has been a shift in the spending of the Indian consumer from food & beverages and transport & communication which are more of necessities, towards clothing & footwear, health & education, housing & maintenance, which are considered discretionary items (see graph).

The survey points that this is a further improvement from the numbers captured by NSSO’s Household Consumption Survey from the early 2000s. Share of food (predominantly cereal, milk and milk products, vegetables) in monthly per capita consumption expenditure which stood at 48.1 per cent at the turn of the millennium, came down to 42.6 per cent by 2011-12 and further declined in the last few years. On the other hand, spends on durable goods or services such as health and education have been steadily rising since 2000. With per capita national income and per capita consumption showing high elasticity, it can be deduced that consumers are increasing their discretionary spends as their income levels go up.

Cashing in

Trends from listed consumer companies in India corroborate these findings. Leading companies such as Hindustan Unilever and Godrej Consumer have benefitted from launching premium products to cash in on the higher disposable income of consumers. Thus, over the last few years, categories such as air fresheners, hand wash, premium hair care products, liquid detergents, personal repellents as well as men’s grooming have taken off in a big way.

Britannia has moved from biscuits to cookies and is focusing on added products such as whey, skimmed milk powder and milk-based drinks which bring better margins. Even Horlicks has been given a ‘niche’ twist with the introduction of Horlicks Growth +, Cardia + and Protein + to woo the new gen consumer. Ditto with automobiles where the share of utility vehicle (which are sold at higher price points) in total car sales has moved from 14 per cent in 2011-12 to 28 per cent in 2018-19. Executive and premium bikes too are being preferred over commuter bikes, indicating up trading.

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