Consumption story is back, but with a difference

The recent financial downturn and the subsequent recovery has indicated a diverse pattern of impact in consumption across various segments. This clearly proves that understanding the complex diversity of the Indian market is crucial to leverage the underlying growth story. For starters, there is the rural and urban divide.

Rural India, helped by huge public investments in infrastructure, the National Rural Employment Guarantee Programme, higher Minimum Support Price and farm loan waiver, had become the key driver of growth till the party got spoilt by the drought and the recent floods.

But all these measures will ensure that the impact will be minimal. Rising prosperity and extended media reach has led to the convergence of aspirations for branded goods across categories. And when there is choice, consumer education and affordability categories will continue to blossom ��� telecom being a case in point.

Urban India has behaved differently across regions since disposable incomes and consumption patterns are driven by different segments. The North, and especially Delhi, is driven by the government employees and the eco system surrounding it. Therefore the nature of income whether in government or related segments is less volatile. Higher government pay post the Pay Commission report is a key driver of consumption. As a consequence the impact in urban North has been lower.

The West, primarily Mumbai and Gujarat, is driven by the stock market and the corporate sector, especially financial services. A top executive recently told me that fine dining and upmarket retail sales in Mumbai is directly proportional to the Sensex. So is real estate.

The urban consumption in the South is mostly led by techies and the textile exports market. This is closely connected to the global economy and therefore the recovery in South has been delayed compared to West.

So just how did the consumption pattern change? A lot of premium consumption amongst the salaried youngsters was based on future income potential ��� either ESOPs, future bonuses or the next job switch. As a result they bought into expensive real estate, durables, cares etc. with high EMI���s , splurged with multiple credit cards which led to a very low savings rate.

So when the slowdown started, dining, shopping, frequent up-trading of gizmos, durables, cars and holiday trips immediately stopped. They stopped booking expensive apartments. A similar consumption freeze happened in people whose businesses or stock portfolio got impacted. Essentially all these consumers postponed or reduced their conspicuous consumption.

While the overall consumption in the consumer goods sector did not plummet, there was downtrading in items of daily consumption and a slight reduction of impulse.

So what are the trends in the critically impacted sectors? The market is looking up at the entry points or at the lower priced segments. In any case the extreme top end segment did not get really impacted. The mastige or the mass premium segment suffered the biggest reversals. Mid-price housing, low cost air travel, entry point cars in the A/B segments and mid-priced durables are witnessing very good demand upsurge. The feel good factor is back, the malls, multiplexes, hotels and restaurants are full again.

There is one more trend shaping consumption in India ��� inclusive consumption. The UPA government is talking about inclusive growth and ��� bijli sadak pani���. Similarly there needs to be inclusive growth in consumption. Telecom is a shining example where the consumption has penetrated all strata of society and regions with affordable world class service. Can the same magic be repeated in the healthcare delivery and education? In my opinion these sectors along with packaged foods will witness the biggest consumption increase in the coming years.

The author is CEO, Consumer Products, Marico