Premiumisation: The new normal
Even as private consumption showed signs of slowing down, the appetite for premium goods continued to grow. According to the latest GDP data, private final consumption expenditure dropped to 6% in the July-September quarter from a seven-quarter high of 7.4% in the previous quarter. Yet, this did not deter the appetite for expensive, high-quality products.
Fast-Moving Consumer Goods (FMCG) companies are betting on these premium categories to drive growth in tough times.
Convenience has been key to this shift. The rise of quick commerce platforms like Blinkit, Zepto, and Swiggy Instamart has made it easier for consumers to access premium products swiftly.
The competition in this space is heating up, with giants like Amazon, Flipkart, and Big Basket entering the race. These apps have revolutionised how people shop for everything from daily essentials to high-end electronics like iPhones and gold coins, especially during festivals like Dhanteras.This trend has been fueled by the rise in disposable incomes and rapid urbanisation. More and more consumers are willing to splurge on luxury items and big-ticket purchases. Whether it’s buying an iPhone, a high-end SUV, or splurging on experiences like concerts, the Indian consumer is increasingly willing to pay a premium for quality and convenience.
Splurging is no taboo now!
In 2024, splurging has evolved from a taboo to a social norm. The frenzy over Coldplay’s concert tickets is a prime example of this shift.
Concert-goers were willing to pay top dollar to see the global sensation live, reflecting the growing purchasing power of Indian consumers.
Also Read: The year of the HNIs: How India’s rich splurged in 2024
The wedding season in 2024 further highlighted this trend. Big-fat Indian weddings, once the exclusive domain of the ultra-wealthy, have become more widespread, with the average wedding budget now standing at Rs 36.5 lakh. Destination weddings are even more extravagant, with budgets soaring to Rs 51 lakh. This increase is largely driven by rising venue and catering costs.
Slowing sales amid heavy discount
Not all segments of the consumer market thrived in 2024.For instance, the automobile industry faced a challenging year in 2024. Car sales showed a slowdown, especially in the months leading up to Diwali, despite hefty discounts offered by automakers.
The inventory pile-up at car dealerships and a 13% drop in retail sales in November compared to the same period last year pointed to weakening demand.
Also Read: Car companies may hit road to robust sales next year
Yet, there are signs of a mild recovery. Sales in November did increase by around 4%. Thissuggested that demand is stabilising after the festive rush.
Meanwhile, the two-wheeler market has seen healthy growth, particularly in rural areas, where consumer sentiment remains strong.
Rising rural Bharat
In an interesting turn of events, the biggest growth in consumer demand came from rural India.
In the July-September quarter, rural demand grew twice as fast as urban demand. While urban demand for FMCG products increased by 2.8%, rural demand surged by 6%. This trend was reflected across various sectors, from food staples to mid-sized company growth.
According to NielsenIQ, FMCG growth in rural India has outpaced urban growth for several quarters, thanks in part to improved weather conditions and diversified income sources.
Also Read: How 2024 proved to be both good and bad for the Indian economy
The rural revival has been a key driver for FMCG companies, which are now expanding their reach to India’s hinterland. Rural India’s growing consumption is also boosting the demand for FMCG products, as companies focus on distribution expansion in smaller towns and villages.
Urban consumption faces pressure
In contrast, urban demand has been a mixed bag. While the premiumisation trend persists, mass-market segments are showing signs of strain. The FMCG sector, for example, has seen slower growth in urban areas due to high food inflation, which is eating into household budgets. A Prabhudas Lilladher report pointed to signs of stress in mass and economy segments, as high commodity prices are making everyday goods more expensive.
The quick commerce sector, a largely urban phenomenon, has played a role in reshaping consumer shopping patterns. Companies like Zepto, Swiggy Instamart, and Zomato’s Blinkit are benefiting from a growing demand for instant fulfilment of low-to-moderate value purchases. This trend is also disrupting traditional retail, as consumers increasingly expect fast delivery for everyday essentials.
Boom in retail lending
Another standout trend in 2024 has been the growth of retail lending. The surge in credit card usage and personal loans has been instrumental in driving consumer spending.
The RBI’s decision to cut the Cash Reserve Ratio (CRR) by 50 basis points is expected to further boost consumption by making credit more affordable. However, there are concerns about the explosive growth in unsecured credit, with the RBI issuing cautionary notes to lenders.
As 2024 draws to a close, it’s clear that India’s consumer market is evolving rapidly. On the one hand, premiumisation is pushing the demand for higher-quality goods, from luxury products to experiences. On the other hand, slowing consumption in urban areas, coupled with a reliance on quick commerce and retail lending, paints a more complex picture of consumer behaviour.