In the latest episode of the State of Economy podcast. Chitra Narayanan speaks to Shiv Shivakumar, Chief Operating Partner at Advent International, and Rajesh Shukla, Co-founder of PRICE on the changing dynamics of consumption among India’s middle class, particularly considering recent comments from Nestlé India’s Suresh Narayanan.

Middle class dynamics

Shukla argues that the narrative suggesting a contraction in the middle class due to soft demand for fast-moving consumer goods (FMCG) is misleading. “The narrative that India’s middle class is shrinking due to soft FMCG demand is completely misleading. In reality, the middle class is expanding.” He references three decades of data showing that the middle class is, in fact, growing. Defining the middle class as households with an annual disposable income between ₹5,00,000 to ₹30,00,000, he claims it now constitutes approximately 39% of households, up from 31% in 2021. This growth is accompanied by declining poverty levels and stable GDP growth, suggesting a robust economic foundation rather than a contraction in consumption. He further emphasises, “If poverty is declining, everything is actually moving.”

Shivakumar supports Shukla’s perspective, emphasising that the number of people earning above $10,000 per year has significantly increased. He asserts, “I don’t agree that the middle class is dropping at all,” highlighting that the middle class is not shrinking but rather evolving. The two experts stress the importance of data in understanding market trends, urging FMCG companies to adapt their strategies to cater to this changing demographic.

Shifting consumer preferences

A central theme of the discussion is the changing preferences of consumers, particularly the younger demographic. Both agree that today’s middle-class consumers have distinct expectations compared to their counterparts from previous decades.

Shukla points out, “The young generation is consuming and saving much wiser than the older generation,” reflecting a shift in financial consciousness. The rise of digital platforms has transformed how consumers access products and make purchasing decisions, necessitating that companies innovate to stay relevant.

Shukla further notes that younger consumers are increasingly drawn to premium products that promise longevity and value, stating, “By 2031, we expect that 65% of the demand will be for premium products.” This shift in mindset requires FMCG companies to refine their offerings and consider regional variations in consumer preferences.

The role of distribution channels

A key point of contention is the importance of distribution channels versus brand power. Shivakumar asserts that while brand recognition remains important, the evolution of shopping habits—especially with the rise of quick commerce—has made distribution channels critical. He introduces the DICE model (Digital, Innovation, Consumption triggers, Ecosystem partnerships) as a framework for FMCG companies to adapt to the fast-changing landscape.

Shukla complements this by discussing the emergence of omnichannel strategies, blending online and offline access to cater to diverse consumer needs. He emphasises that “the fragmentation of consumer demands—especially between urban and rural markets—is crucial for effective marketing strategies,” underscoring the need for nuanced understanding in targeting different demographics.

Contrary to the perception that the middle class is shrinking, data suggests it is expanding and changing in terms of preferences and consumption patterns.

Listen in to know more.

Host: Chitra Narayanan, Producer: Siddharth Mathew Cherian.

About the State of the Economy podcast

India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders.