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Business News›News›Economy›Indicators›The great Indian demand divide: The rich
set the cash registers ringing



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THE GREAT INDIAN DEMAND DIVIDE: THE RICH SET THE CASH REGISTERS RINGING

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The great Indian demand divide: The rich set the cash registers ringing
ET OnlineLast Updated: Apr 17, 2023, 02:24 PM IST
Synopsis


BOTH THE SHOPPING SLUMP IN RURAL INDIA AND THE SPIKE IN THE WEALTHY CATEGORY ARE
DRIVEN BY THE POST-PANDEMIC EFFECTS. WHILE CUSTOMERS AT THE LOWER END, WHOSE
INCOMES TOOK A BEATING DURING THE PANDEMIC, ARE STILL NOT SPENDING TOO MUCH AND
WANT TO SAVE MORE, THE RICH, WHO COULD NOT SPEND DURING THE PANDEMIC, ARE NOW
INDULGING IN REVENGE SHOPPING.

iStock
The pandemic has left a clear split running down the middle of India's consumer
demand. While those at the lower income levels are still reluctantly opening
their purse strings after the pandemic ravaged the economy, the rich are
splurging on luxury items.

Recent data shows retail sales of two-wheelers, an indicator of demand in rural
areas, are still 16% below their pre-Covid levels. The FMCG makers, who have a
large chunk of their sales coming from rural India, are hoping for demand to
pick up in the coming quarters. But the luxury goods market is witnessing high
sales, with India's rich splurging on cars, homes, watches, etc.

Weighed down by the rising cost of living, consumers in India are cutting down
on non-essential spending, according to a survey conducted by PwC. The survey
found that 63% of Indian consumers are tightening expenditure on non-essential
goods and services, while 74% of the Indian respondents said they were worried
about their personal financial situation.



Both the shopping slump in rural India and the spike in the wealthy category are
driven by the post-pandemic effects. While customers at the lower end, whose
incomes took a beating during the pandemic, are still not spending too much and
want to save more, the rich, who could not spend during the pandemic, are now
indulging in revenge shopping.

The spurt in luxury demand
India Sotheby's International Realty (India SIR) recorded a 50% increase in
gross property sale turnover for FY 2023 over FY 2022. The firm, which
specialises in luxury residential sales and large capital market property
transactions, has augmented its property inventory by more than 30%. Amit Goyal,
MD for India, Sri Lanka and the Maldives, for SIR. told ET recently that in FY
24, the firm aimed at achieving a sales transaction turnover of $1 billion. In
2021, the company sold 182 luxury properties worth $280 million, up from 102
properties valued at $190 million in the previous year, while sales in 2022
amounted to over $300 million.

The staff at Rolex showroom in Delhi’s high-end Chanakya Mall, which showed
empty counters, told TOI about the waiting periods and lack of immediate
availability due to heavy rush”. Santosh Iyer, MD & CEO of Mercedes-Benz India,
told TOI despite strong sales in 2022 the company was carrying a “healthy” order
bank even at the end of March 2023.



“We are optimistic for the current sales momentum to continue, forecasting
double-digit growth for the remaining year. We have ramped up our production to
meet demand and are striving to reduce waiting periods, which currently range
from two months for an E-Class to 16 months for a GLS Maybach.”




The rich are splurging on art and elite designer products too. More than half of
ultra-high net worth individuals in India are likely to purchase art along with
watches and luxury handbags during this year for passion-led investment,
according to real estate consultant Knight Frank India. According to Knight
Frank Luxury Investment Index (KFLII), which tracks the value of ten investments
of passion, has increased by a healthy 16 per cent during 2022, comfortably
outpacing global inflation rate whilst outperforming the majority of mainstream
investment classes, including equities and gold.

Premiumisation is growing
Demand among not just the rich but other upper segments of consumers too is
high. This has triggered premiumisation across a variety of products. Indians
are buying more premium products, pushing up the average selling price (ASP) of
several categories such as televisions, refrigerators, laptops, smartphones and
shoes by up to 18% in the past one year, ET has reported recently.

While ASPs had gone up in 2020 and 2021 as well, that was driven by both price
increases and premiumisation. But now, with prices remaining stable for the past
six months, an increasing shift towards premium products is solely driving ASPs,
industry executives said. The strong ASP growth has come even as sales of entry-
to mid-level segment products, which contribute 70-80% to total sales in their
categories, are still to reach pre-pandemic levels.

As per the latest numbers from market researcher GfK India, the ASP increased 9%
for laptops, 4% for TVs and 4-6% for appliances in 2022 compared with the year
before.

Changes in price-pack contributions across six key categories in the March
quarter of 2023 show more consumers have up-traded to high-value packs as
compared to the same quarter of the previous year, TOI reported. The shift is
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 have
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 demand at the lower end
Consumer goods companies saw green shoots in rural India in February with volume
sales growth for many firms, raising hopes of a full recovery for the
worst-affected market during the Covid-19 pandemic. Now margins of select FMCG
companies have started to recover for the first time in five quarters with
decline in raw material costs, but rural growth continues to drag behind urban
numbers.

Retail sales of two-wheelers in the local market have risen for a second quarter
in a row, indicating a turnaround in consumer sentiment in rural markets where
demand has been under pressure the last couple of years. But the sales have yet
to reach the pre-pandemic level. Several executives from two-wheeler companies
have told ET that with better agricultural output, higher minimum support prices
for farm commodities and availability of water for irrigation because of healthy
reservoir levels would help increase the disposable income and improve the
consumer sentiment in rural India, a major market for them. This, they expect,
in turn will help local sales of motorcycles and scooters grow in double digits
in the financial year that started April 1.

Two-wheelers aren't the only product where rural demand has yet to come up to
the pre-pandemic level. Kamal Nandi, business head at Godrej Appliances, told
TOI rural demand has lagged pre-pandemic levels in many durables’ categories,
such as refrigerators, washing machines and air conditioners. “These categories
have been growing in rural areas over the past year, but still lag pre-pandemic
levels, mainly due to the build-up of inflation. However, now the numbers are
picking up and we are confident that pre pandemic volumes would be breached even
in rural areas."


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