In the latest report (Goldman Sachs Research Report – The Asian Consumer – India Consumer Close-up) India’s unique characteristics create opportunities that range from packaged snacks and restaurants to baby products, smart phones and scooters.
India’s consumer story will be shaped by its 440mn Millennial and 390mn Gen Z (born after 2000). The sheer size of India’s youth combined with improved education pave the way for sustained growth in purchasing power and makes India’s consumer story one of the world’s most compelling for the next 20 years. The nation’s challenge is to create enough jobs to unleash the productivity of India’s talented youth.
India’s GDP per capita – at US$1,650 in 2015 – is comparable to China in 2005. In the coming decade, India’s consumer story will be led by its 130mn Urban Mass consumers. This marks a different path from China, which was predominantly an Urban Middle formation story during 2002-2012.
“We believe most of the new generation of India’s youth will first fall into Urban Mass, a cohort that is 130 million people today, earning $3,200 on average. The expansion of Urban Mass, both in size and income level, will be the key driver of India’s consumption story in the coming 5-10 years,” said analysts Joshua Lu, Anita Yiu and Aditya Soman in their report.
India’s Urban Middle cohort is small. They estimate that the workforce that falls into the Urban Middle (US$11,000 annual income) stands at 27mn, or 2% of population. It will expand, but investors need to be careful in calibrating the potential addressable market for companies targeting this cohort.
Goldman Sachs highlights seven key areas of consumption desire that capture the majority of total consumption expenditure: 1. Eating better; 2. Looking better; 3. Better home; 4. Mobility and Connectivity; 5. Having more fun; 6. Well-being; 7. Luxury. It also took into consideration the “Uniquely Indian” consumer where almost half the population is vegetarian, sales of whisky dwarf that of beer, and families save for years to spend on children’s wedding.
According to market analysts, “The luxury market in India has been growing at a CAGR of 25 per cent over the last couple of years. Currently, it is estimated at $14.7 billion and would soon cross $18.3 billion. Fragrances, watches and jewellery are top sellers in the luxury market, followed by skincare, apparel and fine dining. Consumers today aspire for value, even if it means paying a premium for it.”
The report identified eight consumer segments or cohorts—movers and shakers, government employees, urban white collar or small and medium enterprise workers which comprised the urban middle; the urban mass made of the educated urban mass, urban blue collar and migrant workers; the rural mass segment made of rural landowners and the rural emerging segment made of rural land labourers and rural casual labourers.
These different segments were classified based on their income and percentage of population. The movers and shakers comprise 0.43 million or 0.08% of the working population. The income per capita per annum is $250,000 on an average for this segment. India’s number of billionaires and millionaires ranks number 4 and number 8 in the world, respectively. Government employees across the states and Centre account for 10 million or 2% of the working population with an average annual income of $11,439.
As such, brand investing will be a big theme in everything as the urban mass will trade up. However, companies need to be careful as consumers will trade up into brands that offer the most incremental value, but may not readily jump to aspirational brands. This is already seen in categories like automobile where the consumer’s first criterion while buying a car is the brand’s reputation for fuel efficiency.
However, while India is an emerging market for luxury goods, most of the purchases are likely to be made outside the country.
Pricing and distribution are the other key challenges. India’s pricing of luxury goods are generally over 20 per cent more expensive than other major markets, after including duties and taxes.