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The industrial sector grew in moderation during FY08 at 8.5% on the back of a
comparatively higher growth of 11.5% during the previous fiscal. The country’s
real GDP grew by 9% during FY08; lower than 9.6% in the previous FY.
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The key growth drivers for the Indian consumer durables industry:
• Rise in disposable income: The demand for consumer electronics has been rising
with the increase in disposable income coupled with more and more consumers
falling under the double income families. The growing Indian middle class is an
attraction for companies who are out there to woo them.
• Availability of newer variants of a product: Consumers are spoilt for choice when
it comes to choosing products. Newer variants of a product will help a company in
getting the attention of consumers who look for innovation in products.
• Product pricing: The consumer durables industry is highly price sensitive, making
price the determining factor in increasing volumes, at least for lower range
consumers. For middle and upper range consumers, it is the brand name,
technology and product features that are important.
• Availability of financing schemes: Availability of credit and the structure of the loan
determine the affordability of the product. Sale of a particular product is determined
by the cost of credit as much as the flexibility of the scheme.
• Rise in the share of organised retail: Rise in organised retail will set the growth
pace of the Indian consumer durables industry. According to a working paper
released by the Indian Council for Research on International Economic Relations
(ICRIER), organised retail which constituted a mere four percent of the retail sector
in FY07 is likely to grow at 45-50% per annum and quadruple its share in the total
retail pie 16% by 2011-2012. The share will grow with bigger players entering the
market.
• Innovative advertising and brand promotion: Sales promotion measures such as
discounts, free gifts and exchange offers help a company in distinguishing itself from
others.
• Festive season sales: Demand for colour TVs usually pick up during the festive
seasons. As a result most companies come out with offers during this period to cash
in on the festive mood. This period will continue to be the growth driver for consumer
durable companies.
Major hurdles and challenges plaguing the Indian consumer durables sector:
• Threat from new entrants, especially global companies: The domestic consumer
durables sector faces threat from newer companies, especially from global ones who
have technologically advanced products to offer.
• Rivalry and competition: Presence of a large number of players in the domestic
consumer durables industry leads to competition and rivalry among companies.
Threat from rivalry and competition poses a threat to domestic companies.
• Potential markets remaining yet untapped: A large segment of the domestic
market, mostly the rural market is yet to be tapped. Tapping this yet untapped and
unorganised market is a major challenge for the Indian consumer durables sector.
• Threat from substitute products/services: The domestic consumer durables
industry is plagued by threats from substitute products. Easy accessibility to
theatres/multiplexes, especially in urban areas has turned off the viewership from TV
to a large extent. With the advent of a horde of FM radio stations, radio sets have
now substituted TVs.
• Customer power with respect to availability of choice: The availability of a wide
product line on account of most products being homogeneous, poses a threat for
companies operating in the consumer durables sector. Customers have the choice of
both domestically produced and imported goods, with similar features.
With market liberalisation, increasing consumerism and the entry of more foreign
players, Indian markets are seeing revolutionary changes. The Indian consumer is
rapidly evolving and is spoiled for choice by a host of international brands selling
their products at competitive prices.
According to a study by the McKinsey Global Institute (MGI), India's middle class will
swell by more than ten times—from its current size of 50 million, to 583 million
people—by 2025. And over 23 million Indians—more than the present population of
Australia today—will be counted as billionaires. By 2025, India will also become the
5th largest consumer market, surpassing Germany, moving up from the 12th position
it occupied in 2007.
In the seventh annual Global Retail Development Index (GRDI) conducted in 2008,
India stood second as the most attractive destination for retail investment. It is
estimated that the Indian retail market will increase from US$ 330 billion in 2007 to
US$ 427 billion by 2010 and US$ 637 billion by 2015. Organised retailing comprises
just 4.6 per cent of the currently estimated Indian retail market. However, this
segment grew nearly 40 per cent in 2007 and is estimated to increase to 22 per cent
by 2010.
Rural Market: The Next Big Opportunity
The rural market offers great untapped potential. In 2008, the rural market grew at an
impressive rate of 25 per cent compared to the 7-10 per cent growth rate of the
urban consumer retail market. Further, according to international consultancy firm
Celent, the rural market will grow to a potential of US$ 1.9 billion by 2015 from the
current US$ 487 million.
Today, the rural market accounts for a hefty share in most market segments—55 per
cent of LIC policies, 70 per cent of toilet soaps, 50 per cent of television, fans,
bicycles, tea and wrist watches.
Also rural India is less affected by the global slowdown. Consequently, an increasing
number of marketers are targeting it across fast moving consumer goods (FMCGs),
cars, two-wheelers and consumer durables.
FMCG is clocking over 20 per cent demand in rural markets, ahead of the 17-18 per
cent growth coming from urban India.
Nokia plans to tap the growing rural market with 93 million subscribers. It is tying up
with various micro finance institutions. Moreover, it is trying to reach into rural areas
with ‘showrooms on wheels’ and ‘Rural care on the go’— marketing and servicing
vehicles, respectively.
Brand Extensions
In a bid to garner higher market share and sustain long-term growth, FMCG
companies such as Coca-Cola, Nestle, PepsiCo, Dabur, Marico and Godrej have
adopted a brand extension strategy amid negative factors such as high inflation and
the global financial crisis.
According to marketing research company IMRB, the FMCG companies launched
251 products (223 variants and 28 brands) in calendar year 2007 as against 191
(173 variants and 18 brands) in 2006. The industry pegs the number of variants and
extensions launched in 2008 to be in line with 2007.
Nestle launched a record number of variants in 2008—from its Maggi Cuppa Mania,
Maggi Pichkoo to Maggi Bhuna Masala. Dabur too unveiled a pudina variant of its
popular Hajmola brand apart from extending its Gulabari skin-care range.
In terms of categories, brand extensions in personal-care, household-care and
processed foods drove growth in the FMCG sector.
The Indian growth story is now spreading itself to India's hinterlands. Rural India,
home to about two-thirds of the country’s 1 billion population, is not just witnessing
an increase in its income but also in consumption and production.
The interim Budget's focus on extending the National Rural Employment Guarantee
Act (NREGA) to all states with a US$ 5.83 billion outlay for 2009-10 would benefit
the rural economy. The rural economy got a further boost with the farmer loan waiver
of US$ 13.86 billion and the ambitious Bharat Nirman Programme with an outlay of
US$ 34.84 billion for improving rural infrastructure.
Additionally, the rural economy has not been impacted by the global economic
slowdown, according to a recent study by the Rural Marketing Association of India
(RMAI).
The study found that the rural and small town economy which accounts for 60 per
cent of India’s income has remained insulated from the economic slowdown.
Moreover, rural incomes are on the rise driven largely due to continuous growth in
agriculture for four consecutive years.
According to a McKinsey survey conducted in 2007, the rural India market would
grow almost four times from its existing size in 2007, which was estimated at US$
577 billion.
Furthermore, high-end brands like Tommy Hilfiger are also bullish on small towns.
Small towns currently contribute around 20 per cent of the brand’s sales. This could
go up to one-third in two years’ time.
FMCG
Rural consumers spend around 13 per cent of their income, the second highest after
food (35 per cent), on fast moving consumer goods (FMCG), as per a RMAI study.
The FMCG industry in India was worth around US$ 16.03 billion in August 2008 and
the rural market accounted for a robust 57 per cent share of the total FMCG market
in India.
Moreover, according to an ASSOCHAM study, FMCG sector in rural areas is
expected to grow by 40 per cent as against 25 per cent in urban areas.
Most FMCG companies are now working on increasing their distribution in smaller
towns and focussing on marketing and operations programme for semi-urban and
rural markets.
Industry analysts state that the increased consumption is also the result of a growing
middle class base in these markets. The total number of rural household is expected
to rise to 153 million in 2009-10 from 135 million in 2001-02, suggesting a huge
market.
Retail
The rural retail market is currently estimated at US$112 billion, or around 40 per cent
of the US$ 280 billion retail market. Major domestic retailers like AV Birla, ITC,
Godrej, Reliance and many others have already set up farm linkages. Hariyali Kisan
Bazaars (DCM) and Aadhars (Pantaloon-Godrej JV), Choupal Sagars (ITC), Kisan
Sansars (Tata), Reliance Fresh, Project Shakti (Hindustan Unilever) and Naya Yug
Bazaar are established rural retail hubs.
Pharmaceuticals
According to a report by McKinsey, the rural and tier-2 pharma market will account
for almost half of the growth till 2015. The tier-2 market will grow to 44 per cent by
2015, amounting to US$ 8.8 billion.
This growth will be further augmented with the government allocating US$ 2.35
billion for the National Rural Health Mission (NRHM) in the interim budget 2009.
Telecommunication
A Gartner forecast revealed that Indian cellular services revenue will grow at a
compound annual growth rate (CAGR) of 18.4 per cent to touch US$ 25.6 billion by
2011, with most of the growth coming from rural markets. Also, a joint Confederation
of Indian Industries (CII) and Ernst & Young report reveals that of the next 250 million
Indian wireless users, approximately 100 million (40 per cent) are likely to be from
rural areas, and by 2012, rural users will account for over 60 per cent of the total
telecom subscriber base in India.
Mobile phones in rural India also grew by close to 13.72 per cent to reach 70.83
million in April-June 2008. CII also estimates the number of subscriber addition in
rural areas to exceed the additions in metros by 2012 as about 120 million new users
are expected to adopt wireless telephony in rural areas as compared to about 62
million in the metros.
Automobiles
Passenger car and two-wheeler companies are driving on rural roads to push sales.
While growth in urban markets has been flat or negative, the rural markets are
booming, insulated from economic downturn. Rural markets' share in Maruti's overall
sales during April-January 2009 has gone up to 8.5 per cent from 3.5 per cent in the
same period last year.
Mahindra & Mahindra is also bullish on the rural and semi-urban markets, with its
utility vehicle, Scorpio clocking 60-65 per cent sales from the rural markets as
against 20 per cent earlier. TVS Motor also registered around 50 per cent of its sales
from the rural and semi-urban markets.
Consumer durables
A survey carried out by RMAI has revealed that 59 per cent of durables sales come
from rural markets.
Many leading consumer durable companies are now increasing their presence in
rural India. Recently, LG has set up 45 area offices and 59 rural and remote-area
offices. Samsung has also rolled out its 'Dream Home' road show which was to visit
48 small towns in 100 days in an effort to increase brand awareness of its products.
Road ahead
The development of rural infrastructure is an important priority for the government
and out of the total projected investment of US$ 283.83 billion to be incurred by the
centre and the states in the Eleventh Plan, US$ 80.82 billion would be spent entirely
towards improvement of rural infrastructure.
According to international consultancy firm Celent, rural markets in India will grow to
a potential of US$ 1.9 billion by 2015 from the current US$ 487 million. Rural
markets are growing at double the pace of urban markets and for many product
categories, rural markets account for well over 60 per cent of the national demand.
Exchange rate used:
1 USD = 49.82 INR (as on April 2009)
Consumer Markets
Last Updated: May 2009
New Delhi: Consumers in India appear to be shifting their focus from camcorders to
digital still cameras. Camcorder sales remained flat in 2008, recording single-digit
growth rates, according to industry estimates.
As opposed to this, digital still cameras grew by nearly 40 per cent and the category
is likely to maintain a growth rate of around 25 per cent this year.
The reason for the shift is simple. In a slowing economy, consumers appear to be
looking for reliable yet inexpensive products to fulfil their digital needs. Digital still
cameras incorporate high-end technology, allow for shorter films and, yet, are
cheaper than camcorders, reasons an industry observer.
“The digital still camera is growing rapidly in the Indian market and taking share from
the digital camcorder market based on its compact form factor, improvements in
recording capabilities like zoom, editing software, etc, and the consumer preference
for carrying a single image capturing device,” explained R Zutshi, deputy managing
director, Samsung India.
Around 18.5 million camcorders were shipped worldwide in 2008, which was 4 per
cent more than in 2007. However, the increase was mainly due to consumers opting
for sub-$250 (less than Rs 10,000) compact flash camcorders, resulting in traditional
market leaders losing market share and concentrating on digital still cameras.
“Globally, this decline has been happening over the past two years and India seems
to be following the trend,” said Alok Bharadwaj, senior vice-president, Canon India.
Camcorder technology has come a long way. The transition spans from analog
format to digital to DVD recording to hard disk and now to flash memory.
“The technology changes have been really fast and hence the life cycle of
camcorders fell, but the prices did not. A consumer is still skeptical of shelling out
extra money for the same results a digital still camera can give,” said Bharadwaj.
“With the availability of easy-to-use photo and film editing software, along with
video/photo sharing forums, consumers prefer taking shorter clips and stills and
collate them to get a better result,” he added.
Going by the shift in consumer preference, Nikon has already rolled out a high-
definition movie function in its SLRs (single lens reflex camera).
“A new market opportunity has opened up for cameras with such features, as it gives
the consumer good quality for both pictures and videos,” said Hidehiko Tanaka,
managing director, Nikon India.
The company plans to introduce more models with better video shooting options in
both still and SLR categories in the future. However, players such as Sony continue
to remain bullish on the prospects of high-definition (HD) camcorders.
“The trend away from analogue to digital signals was established quite a few years
ago, ushering in the digital revolution. Today, both in still photography and video
recording, the current mantra is HD — that is at the core of the consumer electronics
industry,” said Sunil Nayyar, general manager, sales, Sony India.
He added that the lifestyle migration, the need to capture moments forever,
affordability, accessibility and the retail boom will be some of the factors that will give
a further fillip to both the digicam and the camcorder market.
New Delhi: Airconditioner (AC) and refrigerator sales spiked 30-35% in April
compared to same month last year on the back of rising mercury levels in the
country. Consumer durable firms say demand was particularly strong in the northern
and southern parts of the country.
The growth in AC sales was largely driven by the split models which has, over the
years, been selling more compared to the cheaper window ACs. In the case of
refrigerators, growth was led by the mass direct cool segment. “The demand for ACs
surpassed supply as temperature rose sharply last month,” said Voltas vice-
president (sales) Pradeep Bakshi.
All top brands, including LG, Samsung, Whirlpool, Voltas, Carrier and Godrej, have
switched to star-rated products. As per government’s Bureau of Energy Efficiency
(BEE), all electrical appliances are to be star rated on a scale of 1-5 depending on
their energy consumption. Higher energy efficiency gives a product higher star
rating.
Retailers say most consumers are opting for products with 2-3 stars as they are
affordable and attract the first time buyers. Every additional star rating for an AC
costs between Rs 1,000-2,000 depending on the model and Rs 500-1,000 in case of
refrigerators.
Appliance firms say that the premium on higher star rated products are more than
compensated by lower electricity bills. Market leader LG, which claims to have sold
two lakh ACs in April — up 30% over the previous year, says almost two-third of
sales came from 2-3 star-rated models. Its refrigerator sales grew 35%.
“Due to production constraint, companies offer only up to three stars in window AC,
whereas for split, all star ratings are available. With the awareness of energy
efficiency catching up, demand for four and five star rated products will increase in
future,” said LG India airconditioners business group marketing head Ajay Bajaj.
Samsung, which saw up to 25% growth for both refrigerators and Acs in April, is
selling only five star rated refrigerators. Godrej Appliances witnessed up to 30%
growth in AC and refrigerator sales last month. Although sales proceeds from the
North were low in March, it went up steadily in April as summer set in. Whirlpool, for
instance, saw almost 35% of its overall AC sales in North India last month.
Bangalore: You know of designer clothes. Not long ago, we brought you a story on
designer laptops. Now, you have Dolce & Gabbana, Armani and Prada mobile.
Designer phones are an emerging trend, as consumers become more style
conscious. A unique mobile phone is seen to act as a personalized lifestyle
statement.
“Along with performance, the design, the form factor, colour, the size of the display,
are increasingly becoming relevant for consumers,” says Ruchika Batra,
spokesperson for Samsung.
Samsung tied up with Emporio Armani to introduce a co-branded mobile phone
earlier this year. The phone shows off the Emporio Armani design and logo with a
signature Emporio Armani LED display. Motorola has combined with Italian design
brand Dolce & Gabbana (D&G ) to launch a gold and silver mobile phone.
The phone has exclusive wallpapers, screensavers , MP3 ring tones, animations and
comes with a D&G gold pendant. Motorola also had a special edition Ferrari mobile
phone for car racing enthusiasts. The phone features the Ferrari logo on the outer
body and comes loaded with
“Luxury consumers are abandoning the bling and shock value of high-end handsets
and seeking minute details of quality and craftsmanship. Discerning shoppers are
putting a premium on superior materials, close attention to detail and quality that you
can actually see,” says Faisal Siddiqui, head of India operations (mobile devices) for
Motorola.
Motorola’s recently launched Aura, a luxury mobile phone inspired by high end luxury
watches, boasts of handcrafted design etching on the outside, and colour schemes
that “look to redefine artistry”. The phone has a circular display similar to that of a
watch.
LG has tied up with Prada to launch a touch screen mobile phone with a gloss-black
finish. Its sleek, slim and slender look reveals the Prada style. It does not have a
keypad and the buttons are displayed on the screen in a touch format. Most of the
luxury/designer phones come in the Rs 30,000 plus range, going up in some cases
to several lakhs of rupees.
The Aura for instance costs Rs 1,11,492.
Mumbai: The consumer durables industry seems to have weathered the economic
slowdown better than other sectors. Both manufacturers and retailers have recorded
double-digit growth, with the recent cut in excise duty giving the sector a further
boost.
India's 24,000 crore rupee consumer durables industry has had a turbulent year. A
sharp rise in commodity prices, double digit inflation, tougher credit requirements,
and consumers postponing big-ticket purchases made for some tough times.
But the recent fall in interest rates and excise duty cuts seem to have turned things
around. Experts say the sector could see a robust 15 percent growth this year,
against 2007.
Samsung says that the sale of consumer appliances such as washing machines and
refrigerators has gone up by as much as 30 per cent this month. It has also recorded
a 25 per cent growth in LCD TV sales, compared to December 2007.
Rival LG expects 2008 turnover to come in 15 per cent higher than the 9,500 crore it
recorded in 2007. The company recently cut prices by 1.5-2.5 per cent after the
government slashed excise duty.
Lower excise duties seem to have brought shoppers back to retail outlets too. Tata's
Croma, for instance, says it has seen sales surge in the last two weeks, with LCDs
selling much faster than conventional televisions.
Same store sales are also around 15 per cent higher than last year. Croma hopes to
cash in on this growth, and will open 8 more outlets by April 2008.
Croma's not alone in its expectations. But analysts say overall sector growth will
slowdown in the next quarter, which traditionally sees lower sales.
And with no new stimulus on the horizon, consumer durable retailers may have to fall
back on promotional offers to reel in the customers.