In October, Titan Company Limited said it was all set to launch an invite-only retail store which will sell luxury jewellery with a minimum ticket size of ₹10 lakh. Titan was not alone in focusing on rich buyers not shy of splurging their money on premium products. Companies in several sectors from FMCG to auto to durables to housing tried to lure the rich customers. As early as in February, Italian superluxury carmaker Lamborghini, which retails cars upwards of Rs 4 crore, was already sold out for the year in India.
How premiumisation gathered pace
Premiumisation is a trend that continues from the pandemic times when locked-in affluent people splurged on large TVs and washing machines and expensive food and liquor. But in 2023, the crack in India's consumer demand seemed to widen into a split, as companies struggled to sell low-priced goods while luxury, high-priced items flew off the shelves. At least the phenomenon came to be perceived as a definite turn in the market in 2023. It developed into a major trend in 2023 when companies wooed the rich consumers to compensate for lower sales and falling margins.
While those at the lower income levels largely remained reluctant to open their purse strings after the pandemic ravaged the economy, the rich splurged on luxury items. While makers of two-wheelers and FMCG companies hoped for a demand revival in rural India, the luxury goods market witnessed high sales, with India's rich splurging on expensive cars, homes, watches, etc
Customers at the lower end, whose incomes took a beating during the pandemic, were further weighed down by inflation while the rich, who could not spend during the pandemic, indulged in revenge shopping.
From premium packs to ultra-luxury homes
FMCG consumers had started uptrading right in the beginning of the year 2023. Changes in price-pack contributions across six key categories in the March quarter of 2023 showed more consumers up-traded to high-value packs as compared to the same quarter of the previous year, TOI had reported. The shift was seen in beverages, personal care and branded commodities, according to data from Bizom, a platform that automates retail execution at 7.5 million kirana stores, In personal care, consumers up-traded from low-price packs (up to Rs 50) - which shrank 6.8% during the quarter under consideration - to medium- (Rs 50-200) and high-value (Rs 200-plus) price packs, which grew by 2.7% and 4.1%, respectively.
The consumption pattern for groceries and household products shows a sharp divergence, segmentally. There is a greater demand for pricier, more discretionary products like cosmetics in urban markets where the per capita FMCG consumption is 1.5-2 times the national average.
However, the same categories are under stress in rural areas where consumers are either downtrading to cheaper products or shifting to local brands. There is a huge demand, mostly in rural areas, for products of small and regional companies, especially in categories such as detergents, soaps, snacks and tea where the raw material costs have fallen. This is reflected in a slower pace of growth for many large, listed companies such as HUL and Britannia, especially at the mass end and in rural markets.
In 2021, the entry-level (sub-Rs 10,000) smartphone segment accounted for 35% of the market. It fell to 30% in the eight months to August this year. The premium segment, above Rs 30,000 a unit, accounted for 8% back then, and has climbed to 17% in the same period, Counterpoint Research data showed.
Mumbai, the country’s largest and most expensive real estate market, has been setting new benchmarks with property transactions. Several large-ticket record-setting transactions involving industrialists, CXOs, actors, and sports personalities have been taking place in the country's commercial capital since the last few quarters. In February an image went viral on micro-blogging site X, (previously Twitter) showing a massive crowd in front of the DLF office in Gurgaon to buy the Rs 7.2 crore luxury flats. Close to five hundred flats at Arbour, DLF’s first high-rise condominium after nearly a decade, on Golf Course Extension Road, were reportedly sold out within three days of launch.
In Q3 2021, affordable housing’s share in overall sales was 26%, mid-segment’s was 50% and luxury and premium housing's was 22%, according to CBRE. In Q3 2023, the share of affordable housing dipped to 16% and that of midsegment declined to 46%. Meanwhile the share of premium and luxury houses went up to 35%, as the well-off went for bigger and better homes.
The upbeat demand at the premium end was reflected in the performance of listed hotel chains too. In the first half of FY2024, Indian Hotels Company reported a net profit of Rs 415 crore, up by 34%, y-o-y. Madhavan Menon, executive chairman, Thomas Cook (India) Limited, told ET that the pandemic had created a mind set of YOLO (you only live once) and fuelled the desire for new experiences and bucket list-led travel.
Sales of premium televisions having screen size of 55 inches and above grew by 18% in the first six months of FY2024, y-o-y, while the overall smart television market declined by 5% in the same period, as per industry tracker Counterpoint Research. In washing machines, sales of premium, frontloading models grew by 20% in April-September, y-o-y, while the overall segment grew by only 2%, as per industry estimates.
The lure of EMIs
Easy financing has played a big role in elevating purchasing power and fuelling demand for premium products. Since there are very low profit margins in the heavily discounted low-end segments, retailers find it profitable to shift the consumer by upgrading them to a higher end product through a comfortable EMI package. Consumers walk into showrooms looking for an affordable brand but are converted quickly by the lure of easy EMIs and a better product—be it a phone, laptop, AC, television, or even a car, an industry executive had told ET.
The wave in small towns
Though demand in rural areas have largely remained suppressed, premiumisation also spread to small towns as Indians shift up the income pyramid and even small towns now have a class of consumers willing to splurge on premium products. Aspirational buying, the spread of e-commerce and digital payments, and social media whetting consumer appetite have now taken demand for premium products to small towns too.
Nestle India Chairman & MD Suresh Narayanan had told ET in July that small-town India too is moving from single packs to multi-packs and from multi-packs to premium brands. "If I can go to Gopiganj and find KitKat being picked up by the consumer by name, that tells me that the premiumisation brand journey has also arrived in those towns," he said. This new premiumisation trend, Narayanan said, is happening across categories, whether it is prepared dishes, chocolates, confectionery, coffee, milks and nutrition, health science, pet care or cereals. "Wherever we are in, premiumisation is becoming an important element because consumers are wanting better quality, better value, better aspiration brands as far as their portfolio of consumption is concerned, that is one part.
"We are surprised that some of our premium packs of coffee and chocolates are seeing a surge in demand from really small towns. Distributors too are asking us for stocks. And such markets are serviceable now. Earlier, many of these markets had no roads," Narayanan had told ET.
Nestle is not the only company witnessing this new trend. Tata’s jewellery and watch brands are also growing in smaller cities. "The contribution of top 10 cities has declined 4-5% and gone in favour of tier 3,4 cities. That long-term trend is indisputable and every retailer has to pay attention to these markets," Ashok Sonthalia, chief financial officer of Tata Group-backed Titan Company, which sells watches under the Titan and Fastrack labels besides jewellery brands Tanishq, CaratLane and Mia, along with Skinn perfumes and Taneira sarees, told ET in June.
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