An Indian transported in time from the 1980s into an average mall in urban India would probably think that he has been transported to another planet, not just another point in time. The range of products, the number of brand choices, even the sheer exuberance of stocks on display, would have been virtually unimaginable to an Indian consumer who had grown up during the years of socialism and planned development and the severe constraints on consumption placed by the Licence-Permit Raj.

The bewildering array of products cramming the shelves of any store in India – even the smallest village store would be able to offer customers the choice of a dozen soap brands today – is just the outward sign of a consumer marketplace which has been transformed by unique combination of demographics, economic policies – and the drive of the players in the marketplace themselves.

Nothing illustrates the transformation of the consumer marketplace better than the balance sheet of India’s largest consumer products maker, Hindustan Unilever Ltd. In 1993, as India embarked on its ambitious reforms journey, India’s largest consumer goods company Hindustan Lever Ltd, as the Anglo-Dutch multinational was then known, had revenues of around $400,000. By 2013, the rebranded Hindustan Unilever was not just reflecting the new reality of the Indian marketplace – of that of a globally integrated economy – in its name alone. Its revenues had also grown more than eleven-fold to over $4.6 billion.

Early entrants

This transformation was wrought by HUL’s ability to spot the changes in the marketplace – and adapt to them. For instance, HUL was one of the early entrants into the rural marketplace, where rising growth, better technologies and supportive government policies, as well as the growing penetration of infrastructure and telecommunication, were combining to transform the traditional rural economy. Today, with half of India’s estimated consumption market for packaged consumer goods and durables – that rural bet has paid off.

Nevertheless, in the past two decades, HUL did lose one thing. It is no longer the largest consumer products player in India’s estimated Rs 1,86,000-crore FMCG market. The top slot now belongs to cigarette manufacturer ITC, which has ridden the reform wave to transform itself into a food, consumer products, packaging hospitality and information technology conglomerate.

In its report ‘FMCG Roadmap to 2020’, consultancy major Booz & Co picked out the reasons. “The FMCG industry in India has grown rapidly and the growth rates across different product categories are good indicators of how the Indian consumer has evolved,” it pointed out.

For instance, within the category of food products, which accounts for nearly 45 per cent of the industry size, staple products such as edible oils have grown at single digits given a high degree of penetration as well as established usage patterns. Fruit juices, on the other hand, have reported exponential growth, moving from near-zero levels in 2000-01 to in excess of Rs 1,000 crore last year.

Explosive growth

This is the kind of explosive growth which is attracting a host of new players into the marketplace – with homegrown upstarts giving stiff competition to multinational brands. In hair oil, for instance, the top four players are Indian brands which were either unheard of, or niche players two decades ago. Today, Marico leads the pack with a 42 per cent share, followed by Dabur (15 per cent ) Bajaj (8 per cent) and Emami (5 per cent). In shampoos, number one and two are still HUL and arch-rival P&G – but three and four are Cavin Care and Dabur.

In skin care, another rapidly growing segment where rising incomes and a young and looks-aware population have combined to produce double-digit growth rates, the market leader is HUL – but followed closely by Dabur and Emami. In fruit juices, the market leader is not global beverage giant PepsiCo, but home-grown Dabur.

In the durables space, the transformation has been equally dramatic. The incredible transformation in mobile telephony has transformed the market with India, with over 700 million connections, now the world’s second biggest marketplace. Global brands such as Korean giants Samsung and LG, as well as traditional leaders such as Sony, which rode the first wave of transformation, selling television sets and refrigerators and air-conditioners to a newly-minted middle-class, are now scrambling to reinvent themselves as technology brands.

Consumer financing company GE Capital listed the key reasons for the growth in the durables market in India, while predicting an average growth rate of 15 per cent per year for the sector over the next five years. They are favourable demographics, with 64 per cent of the population in the working age category, increasing urbanisation, rising number of nuclear families (which means multiple washing machines, airconditioners and TVs), rising disposable incomes, falling prices driving increasing affordability, as well as easier access to financing and the growth of organised retail. In fact, the growth of modern format retail has already transformed the fortunes of both the FMCG and the durables sector, even as India finally overcame the many political obstacles to the idea and allowed foreign direct investment in multi-brand retail just a few months ago.

That policy shift is yet to yield the first concrete investment. But domestic entrepreneurs such as Kishore Biyani’s Future Group, or the retail ventures of large houses such as Reliance and the Aditya Birla Group, are already well on their way.

The Indian retail industry has expanded by 10.6 per cent between 2010 and 2012 and is expected to increase to $ 750-850 billion by 2015, according to a report by Deloitte.

The foreign direct investment inflows in single-brand retail trading during April 2000 to June 2013 stood at $ 96.96 million, according to government data.

online retail

But the India Brand Equity Foundation says an ever bigger change is happening in online retail. Quoting global digital measurement and analytics firm comScore, it says India has surpassed Japan to become the world’s third largest Internet user after China and the US with almost 74 million Internet users. And online retail Web sites have witnessed a 65 per cent rise in traffic from the previous year, according to a survey by Assocham.

Clearly, if reforms transformed the Indian economy from a lumbering elephant to a roaring tiger, the unleashed potential of the Indian consumer has been a key driver of that change.

>raghavan.s@thehindu.co.in

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