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.”