Rise of the Premium League: Consumers embrace luxury choices despite price hikes

Mumbai: Demand for premium products — from groceries and spirits to clothing and shoes — has bucked the slowdown trend, especially in the cities, amid a cutback in mass-priced segments due to inflation.

The likes of Hindustan Unilever (HUL), Diageo India, Shoppers Stop, Reliance Retail and Metro Brands said consumers may be truncating shopping lists of lower- or mid-priced products but the premiumisation trend continued even in discretionary categories.

“The secular trend of premiumisation remains resilient, with the premium segment growing ahead of our segment this quarter,” said Rohit Jawa, managing director at HUL. “This indicates that consumer needs and aspirations to upgrade continue to evolve, although they are currently opting for smaller packs to manage their overall spends. Premiumisation is really where the country, the market is going.”

Trend Across Channels

“We are, therefore, making all attempts to drive our premium mix higher,” said Jawa of HUL.

Hina Nagarajan, managing director at United Spirits, told investors Friday the beverages company was looking forward to some more consumption revival.

“It is encouraging to see continuity of long-term premiumisation trends, even though the top end might take a few more quarters to regain its historical momentum. There are no major signs of downtrading observed in the portfolio.”

This is despite December quarter earnings of most consumer companies indicating that urban growth tapered off, while rural demand recovered gradually.

Over the past two quarters, urban demand has been challenged by inflationary pressures, low wage growth and higher housing rentals. But companies said the situation was transitory.

Modern trade and ecommerce too showed signs of slowdown over the past few quarters, though recovering now. Companies claimed that premium products are moving faster, regardless of channels.

Reliance posted 7% sales growth in Q3, as festivals and the wedding season boosted demand, compared to the September quarter when revenues fell 3.5%.

“In the fashion lifestyle business, which was impacted by a few headwinds in the last couple of quarters, it has seen a strong, strong turnaround, and we had a very strong festive quarter,” said Dinesh Taluja, chief financial officer, corporate development, at Reliance Retail.

“There was growth across all operating metrics that we registered. Our grocery business grew at 37%,” he added.

While urban food inflation and muted sentiment has affected consumption at the bottom of the pyramid, higher-income consumers are still insulated, as reflected in their spending pattern.

“If you look at international flights, 70% of vacations today are international, versus three years ago, where it was exactly the other way around. Consumers are spending money. It's just a cyclical thing that happens, and we don't see any reason to be concerned about a slowdown of demand," Nissan Joseph, chief executive at Metro Brands, recently told investors.

Higher disposable income and a spike in weddings- —due to a higher number of auspicious days—pushed demand for lifestyle products and spirits, although it has not reached the high base that companies saw three years ago — soon after the pandemic —due to revenge shopping.

“While food inflation remains sticky, consumer social occasions have risen, and there is a sequential improvement in overall sentiment of celebration in the October-December quarter. This has helped improve demand for alcohol, which is emerging to be little more resilient than other consumer packaged goods categories,” said Nagarajan of United Spirits.