Luxury Car Industry Analysis 2010

India Luxury Review 2011
A CII - A.T. Kearney Report

A CII A.T. Kearney Report

A CII A.T. Kearney Report
October 2011
Confederation of Indian Industry
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Contact:
Amita Sarkar, Senior Director, CII (amita.sarkar@cii.in)
Atreyee Talapatra, Consultant, CII (atreyee.talapatra@cii.in)
A.T. Kearney Limited
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Tel:+91-22 - 4097 0700
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Contact:
Neelesh Hundekari - Principal and Head - Luxury and Lifestyle Practice, India
(neelesh.hundekari@atkearney.com)
Saurine Doshi - Managing Director, India (saurine.doshi@atkearney.com)
Hemant Kalbag - Vice President and Partner, Head - Consumer Industries and Retail Practice, Asia
(hemant.kalbag@atkearney.com)
Pameela Pattabiraman - Principal, Consumer Industries and Retail Practice, India
(pameela.pattabiraman@atkearney.com)
Himanshu Bajaj - Principal, Consumer Industries and Retail Practice, India (himanshu.bajaj@atkearney.com)
Subhendu Roy - Manager, Consumer Industries and Retail Practice, India (subhendu.roy@atkearney.com)
This report has been jointly produced by Confederation of Indian Industry and A.T. Kearney Limited, the contents of which are meant only for information purpose of the reader. Readers are advised to conduct their own
investigation and analysis of information contained in this report, and not rely on the information contained in
this report for any purpose. Neither Confederation of Indian Industry, nor A.T. Kearney make any representation
regarding the accuracy or completeness of such information and expressly disclaim any or all liabilities based on
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prior written consent of Confederation of Indian Industry and A.T. Kearney Limited.
Copyright: CONFEDERATION OF INDIAN INDUSTRY 2011 and A.T. KEARNEY INC. 2011
iv
FOREWORD
The luxury market in India is gaining increasing visibility with each passing year. While the buzz generated by this sector is
disproportionately high compared to the size of the market today, it does indicate that most global luxury brands recognize
the potential of the Indian luxury market. Given the high growth rates of the Indian market compared to that in mature
economies, it is only likely that interest in the Indian luxury market will increase in the days ahead.
It is with this backdrop, that the Confederation of Indian Industry (CII) and A.T. Kearney have been actively tracking and
supporting the growth of the luxury market in India. CII, through its National Committee on Retail and Task Force on Luxury
& Lifestyle, plays an active role in creating an industry forum for players in the luxury space. A.T. Kearney, one of the worlds
top management consulting firms, serves several global clients in the luxury sector and is a thought leader in this space. Last
year, A.T. Kearney and CII had teamed up to publish a comprehensive report on the Indian luxury market Luxury in India:
Charming the Snakes and Scaling the Ladders. A.T. Kearney had published another report in 2007 with the Economic Times
India Luxury Review 2007.
The 2010 report provided a detailed assessment of all key luxury categories across products, services and assets, and included a bottom-up estimate of market sizes and five year growth potential. The report also identified the key opportunities as
well as the challenges that the luxury industry needs to address, to unlock the potential of the market and continue on a strong
growth trajectory. This years study serves as a quick refresh of the state of the luxury market in India and captures the key
trends in the luxury market over the past year.
We are grateful to all the industry leaders and consumers who spent time with us in sharing their perspectives and validating
our hypotheses. We hope that this study helps take the collective understanding of the luxury industry in India a few steps
forward.
Confederation of Indian Industry
A.T. Kearney
vi
EXECUTIVE SUMMARY
Need for a Refresh
Luxury Market in India - Reflections on the Year
Last year CII and A.T. Kearney had teamed up to do an

exhaustive deep dive into the Indian luxury market. As our
readers will recall, the unpredictable nature of the market led
us to use the metaphor of a game of Snakes and Ladders in
our report. Every move made by luxury players could result
in dramatic success (Ladders) or significant setbacks
(Snakes); companies must be watchful every step of the way.
Looking at the rapidly changing market, we decided to
refresh our study - essentially looking at key top-of-mind
opportunities (new Ladders) and risks (new Snakes) for
industry players. This report aims to accomplish this, by capturing key market highlights and trends from the past year
and revalidating projections for the years ahead. In addition,
we have conducted in-depth assessments of two interesting
sub-segments of the market - Wines & Spirits and Personal
Care.
Gone By
Total Luxury Market

5.74
Overall
+20%
2.04
Products
+29%
0.94
Services
+22%
4.81
1.58
0.77
2.45
2009
2.76
2010
Assets
+13%
The Indian luxury market is evolving more rapidly than most

of us had foreseen. The luxury market witnessed robust
growth of ~20% over the past year and is estimated to have
reached ~ USD 5.75 billion in 2010, in line with our 5 year
projections. Luxury products have grown the fastest at 29%
to reach a size of USD 2.05 billion, well above expectations
of 23%. Services have grown at 22% to reach USD 0.95 billion and assets have grown at 13% to reach USD 2.75 billion.
Jewelry, electronics, cars and fine dining have grown beyond
expectations, while apparel, accessories, wines and spirits
have continued their strong growth. Real estate and yachts
have remained more or less flat due to high prices/expectations of a correction and absence of marine infrastructure
respectively. In all categories, market leaders have grown well
beyond the category growth.
Skepticism is being replaced by an increasing sense of buoyancy and promise in the future potential of the market.
Consumers are accepting and adopting global trends much
faster than anticipated. Digital and social media have made it
possible for companies to connect with some of the once
hard-to-reach Indian consumers. On the other hand, infrastructure challenges and regulatory constraints continue to
exist and are not likely to be resolved easily in the near future,
creating doubts about the sustainability of this sector. Private
equity investments in Genesis Colors and Kimaya reinforce
the belief in the sector.
What has changed in the last one year: Luxury has gone
beyond Delhi, Mumbai and Bangalore to Chennai,
Hyderabad and Pune, which collectively now have over 30
stores in apparel, accessories, watches and personal care.
Similarly North Mumbai and Gurgaon are two new distinct
catchments that have emerged. Car dealerships are the most
penetrated with more than 50% of their dealerships outside
vii
Category
Jewelry
Electronics
Stationery
Cars
Fine Dining
Travel
Apparel and Accessories
Wines and Spirits
Watches
Personal Care
Hotels
Real Estate
Yachts
2009 Market
2009-10 Growth
(USD mn) Estimated
Actual
730
21%
30%
160
9
745
270
32
205
180
50
230
440
1440
22%
20%
32%
10%
15%
30%
22%
27%
20%
10%
15%
35%
25%
36%
40%
22%
30%
25%
29%
24%
10%
Negligible
12%
Negligible
the metros Mumbai/Delhi/Bangalore/Chennai/

Hyderabad. Trends observed have been increasing adoption
of global practices, lowering badge consciousness, companies throwing open doors to new consumers and the growing importance of digital media. However many challenges
remain to be surmounted. The key challenge still remains in
effectively reaching the target consumer. Reservations on
luxury purchases are clearly declining, with price parity with
Dubai/Singapore being very clearly attempted and communicated. The need for Indianization is being realized by
players and some efforts are visible in apparel, watches and
cars. Challenges around infrastructure still remain. There has
been limited progress here - players need to wait and watch
or get together, create luxury properties collectively or wait
for what developers will offer. The regulatory structure has
also largely remained unchanged over the past year, with the
recent news about 100% FDI in single brand retail creating
hope amongst global brands. If this does happen, it will act
as a growth stimulant and remove supply constraints. Talent
remains a challenge.
In such an environment, companies need to make strategic
choices and smart investments, always with a cost conscious
mindset. While there are several options open to luxury players operating in India today, we believe there are three paths
that luxury players could choose to take: Grow cautiously by
getting the basics right, experiment selectively to adopt a differentiated position in the market or gain first mover advantage in high potential sectors by bold market making moves.
A clear focus on the SME segment of consumers will yield
rich dividends. Domestic production of luxury goods needs
to be attempted.
Players report that they are making money at the store level,
viii
Key Drivers
Increasing gold and diamond prices and low price
elasticity
Increasing supply (modern trade)
Increasing supply and usage as gifting item
New brands and better pricing due to local production
Footprint expansion; new brands
Increasing inbound tourism
New entrants; footprint expansion
Increasing consumer awareness
Increasing supply through higher distribution reach
Introduction of new brands
New hotels; footprint expansion
High interest rates, lower supply and expected market
correction
Inadequate infrastructure
which means that the model is proven and now it is a question of adding growth capital to gain scale. A unique Indian
model is emerging. For example, with sales productivity at
60-80 Rs/sft/day, gross margins of 55-60%, rental costs of
25-30% and other costs 15-20%, leaves a small profit at the
store level. This also implies that companies would benefit
from choosing smaller store formats and being very careful
about rent and overhead.
Overall, we are likely to see continued investment in the India
luxury space. A few market making moves by leaders in this
space will help exponentially increase growth. Based on
industry interviews, sentiment seems to be positive and the
general opinion is that India is likely to remain insulated from
the impending global downturn. The Indian luxury seems set
for growth of ~20% in the year ahead.
Luxury Market in Southeast Asia - a study in contrast
An interesting contrast to the Indian market is the Southeast

Asian market (Singapore, Malaysia, Indonesia, Thailand,
Philippines, Vietnam) which is culturally heterogenous, geographically diverse and concentrated in a few big cities. The
luxury products market in Southeast Asia - focusing on
apparel & accessories, personal care and jewelry - is estimated to be USD 8 billion today, around 6-7 times the size of the
Indian market for the same segments. The composition of
the market is quite different from that of the India luxury
products market. While the Indian products market is dominated by jewelry, apparel and accessories form the largest
segment - over 60% - of the Southeast Asian market. The
consumer base is much wider cutting across age, profession
and social class boundaries. The consumer is much more
aware and luxury consumption begins at much lower income
levels at USD 10,000 per annum. Supply of luxury brands is

abundant, easy payment options encourage consumption.
Metrosexual, image conscious men are an important segment
and consumers prefer brands with a distinct local origin, sensibility or customization.
sumer segments and promote social drinking. Finally, companies may also consider developing various channels of distributions like high end MBOs and organized retail channels to
enhance the consumer retail experience and improve accessibility.
Wines & Spirits - Hiccups on the High Road
Personal Care - Fair but Not Yet Lovely
The luxury wines and spirits market, which is 1.3% of the

total wines and spirits market, is about USD 220 million
growing at ~25%. This is interesting due to few reasons - the
market is largely male dominated, growing despite strong
regulatory and commercial barriers, and very importantly
dominated by a few large players who can drive change.
There are 3 main drivers that are pushing this industry forward - increasing per capita consumption of liquor, premiumization and improved supply.
The luxury personal care market in India (8% of the relevant

market today) is estimated at ~USD 280 million in 2010 and
growing at 22%. Typically a female consumer dominated
market in other countries, with a significant share of cosmetics and skin care, the Indian market stands out for its fragrance domination. Traditional beauty archetypes which
emphasize fairness, eyes and hair beauty over skin and the
prevalence of traditional beauty treatments are responsible
for this slightly skewed market structure. Per capita consumption is one of the lowest in the world and is growing at
16%.
The Indian wines and spirits market faces four key challenges
- prohibition mindset, regulatory and commercial barriers,
distribution difficulties and the absence of good national
liquor.
While understanding the luxury consumer continues to be a
complex task, we have been able to demystify some of the
code. We found that small and medium size enterprise owners have the least awareness of luxury wines and spirits.
Traditionally wealthy families are the least price-conscious,
while self-employed and young professionals are the most
price-conscious. Taste is the most critical purchase driver in
all liquor categories. All liquor categories are premiumizing,
with young population being the driving factor. Brand loyalty, although seen to some extent in all liquor categories, is
highly dominant in whiskey consumption. Growth will come
from increased penetration into newer consumers (the SME
segment), geographic segments (states with low penetration,
Tier 2 towns), categories (champagne, liqueurs) and occasions (e.g., food pairing).
Companies need to use these insights to deal with the challenges. Lobbying to standardize laws and regulations across
states and seeking inclusion in the impending GST regime
would be crucial. At the same time they need to consider
investing in domestic production. To further develop the
market, companies should educate the low awareness con-
Luxury consumers emphasize experience with the product as

their dominant purchase criteria. They are willing to experiment (low brand loyalty), prefer to shop in boutiques in India
and stock up on overseas visits due to the wider range and
better prices. Key challenges facing the industry are low consumer awareness, limited supply side push and
product/brand availability, infrastructure/retail channel
availability and talent.
Opportunities that the industry should seize are the increasing beauty and youth consciousness, weddings as big spend
occasions and the high penetration of beauty and skin care
services. Industry should focus on enhancing the belief in
the potential of the industry, consumer education and awareness and enhancing status appeal. In addition companies
should collectively create luxury personal care zones in
malls/department stores and enhance their geographical
penetration and invest in promotions.
Through this report, we hope to increase the collective
understanding of the industry and thus contribute to the
evolution of the Indian Luxury Industry. We believe there is
a clear opportunity to make an impact in this market, and
create a sizable, profitable business quickly.
ix
TABLE OF CONTENTS
Foreword
Executive Summary
v
vii
Chapter 1: Snakes and Ladders: Need for a Refresh
Chapter 2: Luxury Market in India Reflections on the Year Gone By
Chapter 3: Luxury Market in Southeast Asia A Study in Contrasts
15
Chapter 4: Sector Spotlight: Wines & Spirits Hiccups on the High Road
19
Chapter 5: Sector Spotlight: Personal Care Fair, but Not Yet Lovely
31
Appendix
39
References
45
SNAKES AND LADDERS: NEED FOR

A REFRESH
CHAPTER 1
SNAKES AND LADDERS: NEED FOR A

REFRESH
The Indian luxury industry is evolving more rapidly than

most of us had foreseen. Skepticism is being replaced by an
increasing sense of buoyancy and promise in the future
potential of the market. Consumers are accepting and
adopting global trends much faster than anticipated. Digital
and social media have made it possible for companies to
connect with more of the hard-to-reach Indian consumer.
On the other hand, infrastructure challenges and regulatory
constraints continue to exist and are not likely to be
resolved easily in the near future, creating doubts about the
sustainability of this sector.
The unpredictable nature of this market led us to use the
metaphor of a game of Snakes and Ladders in our report
published in 2010. Every move made by luxury players
could result in dramatic success (Ladders) or significant setbacks (Snakes); companies must be watchful every step of
the way. With this in mind, we conducted a comprehensive
assessment of the Indian luxury market last year, to provide
a perspective on how to avoid pitfalls (Charm the Snakes)
and exploit opportunities (Climb the Ladders), to win in
this sector.
While such an exhaustive deep-dive study is perhaps best
taken up once every three years, in a market that is changing as rapidly as the Indian luxury sector, every year is like
a new roll of dice - dealing an uncertain hand to all players
in the industry. There is thus merit in establishing an annual/bi-annual checkpoint focused on key top-of-mind
opportunities (new Ladders) and risks (new Snakes) for

industry players. This report aims to accomplish this, by
capturing key market highlights and trends from the past
year and revalidating projections for the years ahead. In
addition, we have conducted in-depth assessments of two
interesting sub-segments of the market - Wines & Spirits
and Personal Care. We believe that deep-dive assessments
such as these will help us get a better understanding of the
conundrum that the Indian luxury market presents.
The key questions that we set out to answer during this
study were:
How has the Indian luxury market grown over the past
year?
Are we on the cusp of any new opportunities to accelerate growth?
What are the key risks to watch out for?
Insights and recommendations in this report have been

developed based on discussions with various industry leaders
who have shared their perspectives with us, from consumer
surveys focused on the deep dive categories and from secondary research.
We believe studies like this provide perspectives that are crucial to unraveling the enigma that continues to be Indian luxury market today.
LUXURY MARKET IN INDIA

REFLECTIONS ON THE YEAR GONE
BY
CHAPTER 2
LUXURY MARKET IN INDIA - REFLECTIONS

ON THE YEAR GONE BY
Figure 1. Luxury Market Growth 2009-10 (Size
in USD Bn)
Total Luxury Market
The luxury market in India is interestingly poised today.

Market growth over the past year was higher than expected,
and this strong upward trajectory is likely to continue over
the year ahead. Optimism amongst luxury players seems to
be increasing, driven by positive consumer sentiment.
Consumers are evolving much faster than predicted, and are
quickly catching up with global trends. While several challenges exist, luxury players are now shifting focus from fighting against these constraints to innovating within their confines. In this environment, luxury players are moving forward
with a mix of hope and caution. A handful of players that
have taken bold, market making moves are beginning to reap
early rewards. While there are no easy silver bullet solutions,
we see a few emerging themes on how to grow and operate
profitably in the Indian luxury market.
5.74
Overall
+20%
2.04
Products
+29%
0.94
Services
+22%
2.76
Assets
+13%
4.81
1.58
0.77
2.45
Luxury Market in 2010: Better Than Expectations
2009
2010
Source: Interviews, Secondary Research, Probe Equity Research, A.T. Kearney

Analysis
The luxury market in India witnessed robust growth of 20%
Note: Hair care has also been included this year and hence the 2009 luxury market
size of USD 4.76 billion has become USD 4.81 billion.
Figure 2. Luxury Market Growth 2009-10 - Breakdown by Products, Services and Assets (USD Bn)
Products
Services
Overall
+29%
Stationery
+25%
Assets
Overall
0.01 2.04
0.02 0.07
1.58 0.01
0.05 0.02
0.16
Home Dcor
+25%
0.21
Watches
Electronics
+29%
+35%
0.22
Wines and Spirits
+25%
0.28
Personal Care
+24%
0.27
+30%
0.96
Jewelry
+30%
Spa
Travel
+27%
+22%
Fine Dining
+40%
0.77
0.03
0.03
0.38
Overall
+13%
2.76
0.00
0.31
Yachts
Works of Art
+15%
1.01
Cars
+36%
1.44
1.44
Real Estate
2009
2010
2.45
0.00
0.27
0%
0.75
0.27
0.18
0.23
+22%
0.94
0.03
0.04
0.21
0.44
0.49
Hotels
+10%
0%
0.73
2009
2010
2009
2010
Source: Interviews, Secondary Research, Probe Equity Research, A.T. Kearney Analysis
over the past year and is estimated to have reached USD 5.75
billion in 2010. Luxury market growth is in line with theforecasted 5 year growth forecast - set out in our report published last year.
Luxury products have led the way in the market, growing
much faster than projections. Services have also performed
well, with most categories exceeding expectations. Luxury
assets like cars have continued on their strong growth path,
surpassing forecasts for the fourth year in a row. However,
the overall growth rate in assets was hampered by a slowdown in luxury real estate. Of particular interest to note is
the growth rates enjoyed by market leaders - high double digits led by a combination of same store sales and footprint
expansion.
There continues to be a steady stream of new players entering the market across different segments. The luxury cars
market, which has witnessed significant traction over the past
four years, saw the entry of globally revered brands such as
Aston Martin and Ferrari. The luxury bikes market seems to
be finally kicking into the next gear, with brands like Ducati
and Harley-Davidson making their presence felt in this space.
The luxury products market witnessed the entry of brands
like Hermes and Paul & Shark in the apparel space, and
brands like Kiehls and LOccitane in personal care. The fine
dining market saw significant expansion by existing players as
well as the entry of new names like Hakkasan.
There were also examples of a few differentiated market
entry strategies. Instead of setting up shop in luxury malls, as
has been the trend over the past few years, Hermes has ven-
tured into market with standalone stores in iconic buildings

in Mumbai and Pune. Another interesting development was
the number of private equity deals that have transpired in the
luxury space over the past 12 months, such as L Capital
acquiring a stake in Genesis Luxury and Franklin Templeton
acquiring a stake in Kimaya.
While players continue to move cautiously in the luxury market, there is an increasing sense of buoyancy and optimism
amongst the industry leaders about the future potential of
the Indian luxury market. While companies realize that India
will not be an easy country to play in, it is definitely on the
radar of most players as a long-term growth market. Our
projections for 2015 of an expected market size of USD
14.72 billion (USD 5.38 billion products, USD 1.45 billion
services and USD 7.9 billion assets) remain unchanged.
Consumers Evolving Faster Than Anticipated
Consumers in India are evolving quite rapidly - in fact, the

pace of change is much faster than that anticipated by most
luxury players. Some of highlights of emerging trends
include:
New cities and catchments on the luxury map:
Chennai, Hyderabad and Pune are now confirmed luxury destinations with several brands opening stores in
these cities (Hermes, Paul & Shark, Diesel, Canali, Tumi
etc). Stores in cities beyond Mumbai, Delhi, and
Bangalore now account for 23% of the stores. In addition new catchments in Mumbai (North Mumbai/Juhu)
and Delhi (Gurgaon) are becoming popular destinations
for luxury. This is an acknowledgement of the wealth in
these cities/catchments and the readiness of the brands
Figure 3. Growth Rates by Category - Actual vs. Estimated

Category
Jewelry
Electronics
Stationery
Cars
Fine Dining
Travel
Wines and Spirits
Watches
Personal Care
Hotels
Real Estate
Yachts
2009 Market
2009-10 Growth
(USD mn) Estimated
Actual
730
21%
30%
160
9
745
270
32
205
180
50
230
440
1440
22%
20%
32%
10%
15%
30%
22%
27%
20%
10%
15%
35%
25%
36%
40%
22%
30%
25%
29%
24%
10%
Negligible
Increasing gold and diamond prices and low price

elasticity
Increasing supply (modern trade)
Increasing supply and usage as gifting item
New brands and better pricing due to local production
Footprint expansion; new brands
Increasing inbound tourism
New entrants; footprint expansion
Increasing consumer awareness
Increasing supply through higher distribution reach
Introduction of new brands
New hotels; footprint expansion
High interest rates, lower supply and expected market
12%
Negligible
correction
Inadequate infrastructure
Source: Probe Equity Research, A.T. Kearney Analysis, Expert Interviews
Key Drivers
to go there to tap the demand. This will most certainly

add to the demand for luxury products. Car dealerships
are the most penetrated with more than 50% of their
dealerships
outside
the
metros
(Mumbai/Delhi/Bangalore/ Hyderabad/Chennai) towns where luxury car dealerships are present are
Ahmedabad, Bhubaneshwar, Chandigarh, Coimbatore
Goa, Guwahati, Jaipur, Kochi, Kolkata, Ludhiana, Pune,
Raipur, and Surat. These are potential destinations for
luxury products as well as services and assets.
Increasing adoption of global trends: Consumers
today are accepting and adopting international customs
and trends at a much faster pace than anticipated. India
no longer continues to be the lagging market that takes
time to adapt to global changes. Consumers are wellinformed and increasingly demanding about latest trends
- especially in the luxury products space. In categories
like apparel & accessories and personal care, the key criteria for purchase is no longer price parity with international markets (which is almost expected as a given criteria), but the availability of the latest collections. In fact,
while brands do launch their latest collections in India at
the same time as they do in other markets, consumers still
complain about width and depth of range. Retailers have
to walk the fine line between trying to provide the variety
and choice necessary to provide consumers with exactly
what they want (e.g., fit in apparel is becoming much
more important) while managing the economics of
inventory and likely obsolescence, given the still small
market. Another interesting example is that of recent
trends in wine consumption. While India has traditionally been a red wine market, this summer, the consumption
of white wine went up from the typical 30% to over 50%
of the market. This mirrors trends in the European market, where consumers prefer white wine in warm weather.
Lowering badge consciousness: Indians have typically been highly badge conscious. Thus, selling famous
brands and products with prominent logos has always
been easier than introducing new brands. While the
badge is - and will probably continue to be an important factor in our market, consumers are now increasingly willing to move beyond the very popular brands,
brands that are well known in other markets and have a
clear and unique value proposition. In the apparel space,
for instance, there are a growing number of takers for
brands that are differentiated and have a strong point of
view. Several new brands like Etro, Paul & Shark,
Hackett and Superdry are making their mark in a market
that wanted to stick only to the likes of Armani, Versace
and Hugo Boss.

Throwing open doors to new consumers: Luxury
players are slowly but surely focusing on new consumers.
The traditionally wealthy who know their Guccis from
their Versaces know where to buy, at what price, just as
the flush with bonus CEO does. They will come find you
when they need something or might continue to buy
overseas. But it is the other two segments of the market
- the young (the Facebook generation) and SME (small
and medium enterprise owner) that are becoming important. A key trend being adopted by companies is to catch
them young. Given the fast growing and upwardly
mobile nature of the youth segment in India today, this
seems to be a logical move for luxury companies. While
the youth segment does not contribute to a significant
percentage of luxury consumption yet, by hooking these
consumers in at an early stage, luxury players are looking
to reap benefits in the long run. The SME owner segment we believe is still underleveraged. A real estate
implication of this desire to target the new consumer is
the firm conclusion that luxury needs to move out of its
cocoon in five star hotels and experiment with crossover
formats where luxury rubs shoulders with lifestyle.
Palladium in Mumbai is a great example of a location
where Burberry and Zara are opposite each other and the
consumer doesnt seem to mind. While luxury malls like
DLF Emporio offer a true luxury experience to the connoisseur, India probably needs more in-between formats
that are good enough for luxury and great for premium,
while luxury retailing in five star hotels will most certainly stagnate.
Growing importance of digital media: The next few
years are likely to see a paradigm shift in the way companies reach out to consumers. The internet, Facebook,
Twitter and mobile communication are revolutionizing
the ways people interact and communicate with each
other. Early movers in the luxury space are using this as a
means to reach the once hard-to-reach yet net savvy
Indian consumer. Online retailing is being suggested as
the medium of choice to target luxury consumers in cities
outside the metros. In India, in all industries the last mile
is the biggest challenge. Combine that with the needle in
a haystack nature of the luxury consumer in this country
of 1 billion+ and the problem becomes one that can seriously constrain growth. Distribution and reaching the
right consumer at a reasonable cost is the big divide that
separates the aware consumer and the eager seller.
Internet allows disintermediation like no other medium
does. The attraction is hence not difficult to understand.
Traditional wet blankets like low internet penetration do
not deter the proponents, since the penetration amongst

the target population is high. Online retailers for their part
are working on models that would appeal to a broader set
of consumers (e.g., myntra.com, fashionandyou.com, etc.)
and some have attracted PE funding as well. The products/sevices that would be most amenable to internet
retailing in the first wave would be those where the consumer has few other convenient options (e.g., travel,
hotels), where the consumer knows exactly what they
want and specifications define everything (e.g., a luxury
watch or a perfume) or where the product is meant for
gifting (e.g., small jewelry). While for net savvy consumers
in the hinterland who have no physical access to luxury
products in their own city might drive sales, continuing
concerns about things like trials, fits, etc., are issues that
will have to be addressed before this becomes a channel
that can overcome the barrier that removes the barriers of
physical separation. We believe that while marketing using
social media is probably a must do for all brands, there is
little evidence of successful breakthrough innovation in
actual selling yet.
Challenges and Constraints to Continue
In our previous report, we had listed a number of challenges

faced by players in the Indian luxury market. A year later,
there has been little progress made against these and both
regulatory and infrastructure constraints continue to plague
the market. Of all the challenges that had been identified,
most progress has probably been made on the consumer
awareness front.
10
Reaching the target consumer: Awareness and perhaps more importantly aspiration levels have certainly
gone up in the last year, driven no doubt by the increased
supply in the market. Brands are experiencing growth
upwards of 20-25% in same store sales, while new store
opening is limited only by availability of space. New
catchments in Mumbai (North Mumbai, e.g., Juhu), Delhi
(Gurgaon) and penetration into towns like Pune,
Ludhiana, Chandigarh are clear indicators that luxury
retailers are willing to go beyond their zone of comfort.
As can be seen from the table, the penetration of brands
across the country is now much better than a year ago.
Many CEOs that we spoke to agreed that micro-segmentation of the market is essential, though absence of data
implies the need for focused effort. The hardest to reach
is probably the SME segment.
Reservations about luxury purchases: The Indian
consumer continues to surprise players. Reservations are
clearly declining, yet a lot still needs to be done:
a. Experimentation: The extremely experimental

nature of the consumer is coming in handy. Brands
tell absolutely unique stories about how the most
unlikely consumers make purchases. Have money,
will buy, but please treat me well seems to be what
the consumer is saying.
b. Price parity: The message about the value conscious
nature of the consumer is now very clear to the
brands. Eliminating unnecessary frills and matching
prices to Dubai and Singapore is now more or less a
given. Except in the United States, the wonderland of
fantastic pricing, and the preferential pricing in home
countries in Europe for brands, brands are trying to
match the close shopping alternatives such as Dubai
and Singapore
c. Indianization: Whether it is a preference for twotone metal watch belts in India over the rubber belt
revolution that is sweeping the rest of the world or
the need for garments that will flatter the figure of
the Indian middle aged woman, the need has never
been more obvious. For example, for the Middle East
markets where traditional wear dominates womens
wear, luxury brands have introduced abayas. We await
some significant steps by brands in this direction.
Admittedly, it wont be easy to create customized collections for a market which is still very small, and
designers and brand CEOs both would need a lot
of convincing before we see substantial
Indianization.
Infrastructure limitations - no end in sight:
Availability of high quality real estate at the right prices
continues to be the key concern for growth. With five
star hotels losing their sheen as preferred luxury destinations, and high streets still to emerge as a credible alternative, players are jostling for space in premium malls.
Limited new supply on the mall front, with players in the
lifestyle segment vying for quality real estate as well, continues to be a challenge for most luxury players. Mall
activity, which had slowed down in 2009, has caused a
setback with very limited new space available immediately. Players need to either wait and watch or get together,
create luxury properties collectively or wait for what
developers will offer.
Regulation - some hope: The regulatory structure has
largely remained unchanged over the past year. In some
cases (eg: wines and spirits), new duties and age restrictions have been introduced, which are likely to have negative impact on the luxury market. FDI in multi-brand
retail is not likely to be permitted any time in the near
future, putting a damper on the plans of many players.
Reports of the proposed 100% Foreign Direct

Investment (FDI) in single brand retail have caused some
excitement in a market which has been waiting for a
change in regulation for the last several years without any
relief. Most luxury brands would want 100% control of
their destiny if they want to consider serious investment
in a country. A 100% subsidiary also means greater psychological commitment from the brand, which leads to
greater awareness and understanding of the unique issues
on the ground and a much greater desire to work towards
changing them, all of which would be welcome consequences. For most international brands, the party is still
on in China and Southeast Asia is a much larger and easier market, so why would they not wait till India decides
to liberalize its regulations? We believe if the government
actually manages to push through 100% FDI in retail,
many international players who have been sitting on the
fence or have been less than bullish will decide to enter,
removing one of the most critical constraints on growth
- supply. Multi-brand retailing would be an even better if
as it would allow multi-brand formats to enter, a necessity for getting the consumers to experience many brands
while the market matures.
Lack of Skilled Talent: There has been very little
change on this front. High quality talent continues to be
limited. With the entry of new brands and footprint
expansion by most companies, luxury players are facing
high attrition rates resulting in increasing personnel costs.
Little progress has been made in setting up an
educational ecosystem to provide for talent to the luxury
industry.
Supply constraints: Perhaps due to the above factors
and partly due to alternative growth opportunities in
China and Southeast Asia, the market still remains supply
constrained. Expansion is still slow, Mumbai and Delhi
are still the hub of action and store footprints, and product distribution is still low. We believe the industry should
look at luxury cars as an indication of potential. Luxury
cars have continuously defied growth projections even
though ticket prices for cars are one of the highest, duties
on cars are undoubtedly the highest, roads are pathetic
and most of these are cars to be self-driven in a country
where the rich dont drive. To be fair, a car is perhaps
unmatched as a status symbol, you cant carry it in your
suitcase from abroad and fit is much less important.
However luxury car dealerships enjoy the highest penetration amongst any luxury category and should be an
indicator of the latent demand scattered around the
country. On the whole, however, challenges exist and are
not likely to be resolved easily in the near future. In such
a situation, what could happen if the global financial

turmoil impacts India and fears of a slowdown turn
serious?
Potential impact of a slowdown? Maybe not much
As business news from the West becomes more and more

discouraging and inflation and interest rates dampen the
enthusiasm in the Indian market, business discussions in all
industries in India inevitably touch upon the likely impact of
a slowdown. The nascent luxury industry should worry about
what a slowdown could mean for them. As we discussed this
issue with several business leaders, while we noticed a certain
cautiousness, there was a clear feeling that the impact if any
is likely to be muted. In the last recession in 2008-2009, the
industry did not de-grow or stagnate, it just grew at a slower
rate. While the market size potential lost was around 10%
during that period and international brands did defer their
entry plans, it wasnt a huge damper on the spirit of the players. The feeling amongst CEOs is that domestic consumption in India is more insulated than we think it is. Unique
characteristics such as wedding driven purchases (which are
funded from inherited wealth, savings or debt depending on
who the consumer is and hence relatively immune), wealth
driven consumption for millionaires and the relatively small
ticket prices of at least the product segment explain this
belief. What could go wrong? Serious job losses if they happen could dampen the spirit of the young consumer and
force them to conserve rather than spend and a severe recession might mean that the wealthy might defer purchases not
because they cant afford them, but they might not want to
be seen spending.
Given all the new opportunities that are unfolding
themselves while challenges continue to exist, what should
companies do? We explore potential solutions in the next
section.
Uniquely Indian Solutions Needed
The key challenge for players in the Indian luxury market is

that the market is small, growing fast but not exponentially
and while growth is evident, bottomline rewards are insufficient. The key question to think about is what could be done
to the constraints on growth, and while we wait for it to happen, how do we find a way to make some money?
Aggressive market making moves may be good for the
growth objective and also provide first mover advantage in
the long term, but could be risky in the short term. Too cautious an approach and sooner or later, the global parent
might lose interest or patience and decide to withdraw and
re-enter later. It is worthwhile remembering that for a global
11
luxury brand, India is only one of the many options available

for growth. With China proving to be not only a fast growing, but also a lucrative market, companies could choose to
play a wait and watch game in India, while focusing on the
larger Chinese market. We believe that the right approach
would be a combination approach that allows companies an
opportunity to grow without losing their shirts, while preparing them for capturing exponential growth.
We believe there are three paths that luxury players could
choose to take in India.
1. Grow Cautiously - Most players have chosen to adopt a
wait and watch route to market. Companies following
this path have largely focused on expanding in select
cities such as Mumbai and Delhi. While this is a fairly safe
ploy, the downside to this strategy would be that companies risk losing out to other players that take more
aggressive steps. Working within the confines of this
strategy, there are a few measures around getting basics
right that companies can take to ensure that they remain
preferred players in the luxury space:
a. Targeted marketing - Luxury brands need to invest
in continual brand building and marketing activities
to stay top of mind with consumers. This becomes
all the more important in the luxury products space,
where brands need to decide how best to channel
marketing monies - and balance between providing
an outstanding store look and feel and targeted marketing activities.
b. Superior range and availability - For companies
that are not looking to make bold moves in the market, providing sufficient range and width of products
and services is crucial. Based on interviews that we
conducted, lack of sufficient range and non-availability of latest merchandise is the single biggest reason
for Indian consumers to continue to make purchases
outside India. Another factor that is often overlooked
by luxury players is the need to ensure high availability of products - stock-outs are simply not tolerated
by luxury consumers.
c. Pricing parity - Competitive pricing with international markets is now expected almost as a given by
most Indian consumers. With increasing price transparency available to consumers, companies need to
ensure that pricing is not significantly higher than the
international market.
d. Ladder products - While we had spoken about ladder brands last year, there is also a need to have products at lower price levels within the range. This will
12
help in introducing the Indian consumer to new

brands and creating aspirations that are likely to pay
off as the consumers evolve.
2. Experiment Selectively - To adopt a differentiated position in the market, companies can choose to experiment
in select areas. This enables players to make strategic
investments, with relatively low risks.
a. Customized product offering - Luxury players
need to develop customized product offerings and
tailored solutions for the Indian market. This will not
only overcome the concern around sufficient range
availability, with consumers getting access to products
available only in India, but will also help increase
brand loyalty. This is not a move that is new to luxury players - for instance, in the apparel space, several
top design houses like Christian Dior and Alberta
Feretti sell designer abayas that retail for as much as
USD 10,000 in Saudi Arabia. While there has been
some movement in this space in the past few months,
such as Hermes and Marc Jacobs designing sarees
and Zegna and Canali retailing Nehru jackets, there is
clearly a long way for most players to go.
b. Frugal luxury model - There is little luxury in running a luxury business in India. As one of the luxury
CEOs said, In India, you need to run luxury the frugal way. We couldnt agree more. Companies in India
need to find a local model that works in the context
of infrastructure challenges, high rental costs, low
real estate availability and lack of skilled talent. Indian
consumers are used to different scales for infrastructure in the Indian environment and abroad (as seen in
the case of the housing market in Mumbai for
instance) and are quite amenable to making do with a
frugal luxury model. On the other hand, expectations of service are extremely high. We continue to
believe that working with smaller store formats till
such time that real estate rentals become reasonable is
perhaps the only option, apart from using the store as
a base for serving a much wider clientele by taking the
store (i.e., products) to the consumers home.
3. Market Making - To gain first mover advantage in high
potential sectors, companies could look at bold market
making moves. While these could require higher upfront
investment, the benefits in the long run are likely to be
significant.
a. Focus on the SME consumer: Amongst all the target consumer segments, we believe it is this segment
that needs the greatest attention and offers the great-
est returns on investment. This segment comprises

owners of small and medium sized businesses, who
have enough surplus cash for spending, are traditional in mindset, largely unaware of luxury products and
brands, are not readers of fashion magazines, not
very internet savvy, do not have clear tastes or preferences and still feel intimidated or hesitant when dealing with flashy, big, stiff upper lip brands. This segment needs the real education and hand holding. The
rest will find their way to the brands one way or the
other, but this segment has to be made aware, educated, attracted, hand held, treated with tender loving
care and made to feel good and pampered while they
shop. The rewards could be dramatic - they have the
money, but dont feel they have the status and want to
use the money if they could to arrive. Their children
are already spenders, having been educated abroad or
in good institutions in India. Converting this consumer will however mean that brands have to walk
the extra mile for these consumers. The largest luxury category - jewelry- thrives precisely on this very
segment and here we believe brands still need to learn
a lot and bring about changes in the way they go
about attracting and converting these consumers. A
stiff, aloof, impatient approach will not work, rather
an enticing, service oriented, patient and empathetic
approach is the way to go.
b. Domestic production - Companies with serious
aspirations for the Indian luxury market need to
strongly consider domestic production. This will help
bring down entry prices and make luxury products
accessible to a significantly larger percentage of the
population. One segment that has effectively utilized
this concept is the luxury car market - which is beginning to reap significant rewards. Government policies, rules and regulations are also likely to be much
less stringent with domestic production - which
would be very helpful in segments like Wines &
Spirits.
c. Internet and digital revolution - Internet and social
media are beginning to play a much larger role in luxury consumption than ever before. Companies can
use the internet to reach consumers in a targeted
manner as well as to penetrate Tier 2 markets at a low
cost, thus minimizing their risk while maximizing

chances of getting that extra 10-20% of sales.
While there is no proven model for the Indian market yet,
there are emerging solutions for players to operate profitably
in this space - at least at a single store level. At the corporate
level, companies still need to build scale to set off high overheads and break even. A high level assessment of the productivity and cost structure required for profitable single
store operations (apparel and accessories example) is given
below:
Lower footfalls translating to lower sales productivity, lower
gross margins due to duties and discounting, and much higher rentals characterize the Indian model. Lower salaries is the
only succor, leaving a small store level profit. The model is
hence very delicately poised and explains why some brands
could lose money even at the store level. Getting the store
size and rental right is critical for store profitability and managing overheads and getting the right scale is critical for the
chain economics to work out favorably. The good news is
that many players report that they are making money at the
store level, and overall profitability is within sight based on
scaling up plans. A model which starts to make money at the
store level is right for attracting growth capital - where infusion of capital will help acquire scale faster, thus improving
the economics of the chain.
Figure 4. Business model for India, apparel
and accessories example
P&L Item
Revenue/Sq ft/day (INR)
Gross Margin
Rentals (% of revenue)
Other Costs (% of revenue)
Global
110 - 170
~70%
10-15%
20-25%
India
60-80
55-60%
25-30%
15-20%
In summary, we are likely to see continued investment in the

Indian luxury space. A few market making moves by leaders
in this space will help exponentially increase growth. Based
on industry interviews, sentiment seems to be positive and
the general opinion is that the Indian market is likely to
remain reasonably insulated from the likely global downturn.
The Indian luxury market thus seems well on course for a
healthy growth of ~20% in the years ahead.
13
LUXURY MARKET IN SOUTHEAST

ASIA A STUDY IN CONTRASTS
CHAPTER 3
LUXURY MARKET IN SOUTHEAST ASIA

A STUDY IN CONTRASTS
Most studies on the luxury industry in India typically compare the market with China, to draw upon best practices and
takeaways for local players. While China is indeed the fastest
growing market for luxury companies globally, it is quite different from India culturally as well as in size and scale. In this
section, we focus on a comparison of the India luxury market, specifically the luxury products segment, with that of
Southeast Asia - comprising Singapore, Thailand, Malaysia,
Philippines, Vietnam and Indonesia,. There are several reasons why this makes for interesting comparison. Southeast
Asia, like India, is both culturally heterogeneous and geographically dispersed. The market is still not very deep, with
luxury consumption being limited to a few large cities another similarity to the Indian market. While the luxury
products market is Southeast Asia is much more established
than that in India, and there are several differences between
the two geographies, there are still a few key insights to take
away from the growth of this market.
The luxury products market in Southeast Asia - focusing on

apparel and accessories, personal care and jewelry - is estimated to be USD 8 billion today, around 6-7 times the size
of the Indian market for the same segments. The composition of the market is quite different from that of the Indian
luxury products market. While the Indian products market is
dominated by jewelry, apparel and accessories form the
largest segment - over 60% - of the Southeast Asian market.
Extremely high consumer awareness levels and aspirations: The Southeast Asian luxury consumer cuts
across age, profession and social class boundaries. Unlike
in India, luxury consumption is not limited primarily to
traditionally wealthy families, businessmen or successful
professionals in the corporate sector. Even consumers
who earn USD 10,000 per annum are willing to spend on
luxury products, unlike in India, where rupee millionaires
(with incomes of USD 20,000) still hesitate to venture
Figure 5. Southeast Asia luxury products market break-up

SEA Luxury Product Market Growth (USD Bn)
Vietnam
Indonesia
Malaysia
Philippines
Thailand
Singapore
Thailand &
Indonesia expected
to grow faster than
the other SEA
countries
Apparel & Accessories
+16%
+16%
+15%
16
0
2005
2010
Personal Care
+14%
0
1
0
0
2015
+7%
+7%
11
2005
1
1
2010
Watches & Jewellery

8
+24%
4
3
2015
+22%
2005
2010
2015
Watches & jewellery category has been
Singapore expected to grow much faster than before due to newly
fastest growing due to the growing
developed Integrated Resorts which attract tourist influx to gamble at casinos
number of nouveau riche (new millionaires)
and shop at new Marina Bay Sands and Resorts World Sentosa luxury malls
and growing upper middle class households
purchasing them
2005
2010
2015
Source: A.T. Kearney research and analysis
17
18
into this space. In fact, in a survey conducted by A.T.

Kearney, 40% of Southeast Asian consumers with annual incomes less than USD 20,000 were open to buying
luxury products. Over 70% of the consumers surveyed,
across all income segments, were actually likely to spend
more than 20% of their income on luxury items. If the
propensity to buy in India were only half as much, we
would see an explosive growth in the luxury market in the
country.
High luxury product availability driving growth: A
key driver of luxury growth has been increasing supply
over the past few years. Cities like Singapore and Kuala
Lumpur are preferred destinations for luxury product
sales for people from all over Southeast Asia. Singapore
in particular, with its multitude of high-end shopping
malls, wide range of product offerings and competitive
pricing, attracts with tourists across the globe looking for
a world class luxury shopping experience. Luxury shopping has been typically limited to malls and department
stores, unlike Europe with its array of luxury high streets.
Interestingly enough, both luxury discounters or factory
outlets and online retailing of luxury goods - channels
that have picked up in a big way in the more developed
markets - are yet to take off in Southeast Asia.
Easy payment options: A big driver of growth in the
market has been the availability of flexible payment plans
(installments), which make luxury products accessible to
a wide base of consumers. With high penetration of
credit cards and most companies willing to adopting flexible pay options, Southeast Asia seems set for increasing
adoption of luxury products.
Men are the new gem: The Southeast Asian luxury
market has seen the rise of a whole new consumer segment - metrosexual men. Greater media exposure and
increasing image consciousness have led to extremely
high demand for male grooming products. There is a big
potential to tap into this market and exponentially grow
the luxury segment.
Think globally, act locally: Given the diverse nature of
the market, adapting to local tastes has been a crucial success factor for most luxury players. Interestingly, this is
especially important in the apparel sector, where over
90% of consumers are willing to buy domestic luxury
brands as they reflect local preferences and tastes. One of
the moves that has worked successfully is for global
brands to partner with local brands or boutiques and
tapping into local designer talent.
While the Indian luxury market still has a long way to go to

catch up with Southeast Asia, there are several trends and
practices that global players looking at increasing presence in
the India could learn from. As mentioned in the previous
chapter, a strong supply side push, with customized models
for the local market, is necessary for the next wave of growth
in India.
SECTOR SPOTLIGHT: WINES &

SPIRITS HICCUPS ON THE HIGH
ROAD
CHAPTER 4
SECTOR SPOTLIGHT: WINES & SPIRITS

HICCUPS ON THE HIGH ROAD
We have seen in Chapter 2 that the Indian luxury market has

had robust growth despite impending global slowdown. We
shall now turn the spotlight on one exciting category - luxury wines and spirits. This is a very interesting category - largely male dominated, growing despite strong regulatory and
commercial barriers, and dominated by a few large players
who can drive change. We have stuck to the definition of luxury that we have used earlier. Luxury wines and spirits
include all products with a retail price above USD 75 per
bottle.
than overall alcoholic beverages market and be ~1.5% of

total market by 2015, growing from USD 220 Mn in 2010 to
USD 670 Mn by 2015.
Figure 7. Luxury Market Segmentation in India

by value (2010)
Other Spirits
1%
White Spirits
4%
Wines
10%
Luxury wines and spirits - small but fast growing
The total alcoholic beverages market in India has grown to

USD 28 Bn in 2010. The luxury market is a small fraction of
the total market at ~0.8%. But it is expected to grow faster
Figure 6. Luxury Wines and Spirits market in

India (USD million)
670
Whiskey
85%
Source: A.T. Kearney Analysis
+25%
The luxury market has grown in line with our estimates last
year. The market is dominated by whiskey.
220
175
2009
2010
2015e
It is interesting to note here that liquor consumption in every

country follows a different pattern based on the dominant
liquor. In many cases, local produce drives consumption
habits. This explains why China has a big market for specialty spirits, while Russia embraces vodka - both have large
domestic production in these categories respectively.
Similarly, food habits drive consumption. In France, con-
21
Figure 8. Dominant liquor consumption in different countries (excludes beer) in 2010

Whiskey
85%
Wine
Vodka
Specialty
Spirits
Wine
78%
56%
55%
38%
India
France
Russia
China
USA
Source: Datamonitor, A.T. Kearney Analysis
sumers drink wine with meals. Similarly Russians prefer

vodka. Indians do not associate liquor with food. Whiskey is
the most acceptable form of social drinking and is accompanied by snacks.
Another difference in the Indian market is the size by region.
The South is the biggest market and the East the smallest. In
the South, the regional population is highly receptive to new
products and flavours, and hence companies prefer to launch
new products in the region. In the North, most of the highend market resides in cities like Delhi, Gurgaon, Chandigarh
and Ludhiana, and these cities are expected to continue to
see increasing demand for premium and imported brands,

particularly in whiskey and wine. Similarly, the West luxury
market is driven by major cities like Mumbai and Pune.
Finally in the East, luxury sales are lower than those of other
regions, as income levels and awareness among the majority
of consumers are far below those of their counterparts in
other regions.
Having looked at the market structure, let us now understand
the key drivers for growth, look into the world of the Indian
luxury consumer, identify opportunities for companies and
assess challenges facing the industry.
Growth drivers - consumer and supply led
Figure 9. Regional Distribution of Alcoholic

Beverages Market in India (2010)
West
25-30%
East
10-15%
Source: Euromonitor, A.T. Kearney Analysis
22
North
20-25%
South
35-40%
There are three fundamental growth drivers for the luxury

wines and spirits market:
1. Increasing per capita consumption: India has a low
per capita alcohol consumption, however it is growing
fast. Alcohol consumption is spurred by higher disposable income, reduction in stigma associated with drinking
due to western influences and increased foreign travel by
the high end consumer. Rapid increase in eating out,
increasing number of women and young drinkers, pub
and party culture in metros are all driving consumption at
the higher end.
Even though the per capita consumption has increased
over the past few years, a comparison with other countries shows that it can increase further. This will come
both from adding new consumers as well as increasing
consumption from existing ones.
Figure 10. Per capita consumption (in liters) of

alcohol in India
3.7
2.9
2007
2010
Source: WHO, A.T. Kearney analysis
Figure 11. Per capita consumption (in liters) of

alcohol across countries
16.0
8.0
pubs and bars is relatively easy; consumers dont mind

trying out new drinks even though they may be expensive. This behavior is not restricted to any particular category of alcohol, but can be observed whether it is
whiskeys, wines, white or specialty spirits.
3. Improved supply: Along with the increased demand
from aspiring consumers, improved supply dynamics
have also fueled growth. International travel and duty
free purchases have got Indians hooked on international
brands which were either not available or were expensive
due to duties. These consumers are now shopping for the
same in the country - when they cant get it duty free.
Organized retail is aiding the availability of high-end
liquor. Over the past few years, we have seen many exclusive organized liquor stores, which have spurred availability of more brands across urban and semi-urban centers.
Some examples are Dom Perignon Bar in Delhi and
exclusive liquor areas in hypermarkets. Similarly, liquor
companies are investing in marketing and promotional
initiatives. They have started targeted promotions, like
tasting and appreciation sessions to drive consumption.
This creates awareness among new consumers, especially
in the wealthy, but less aware segments with traditional
preferences. Liquor companies are also actively pushing
traditional retailers to grow and focus on premium consumers. While this upscaling of the supply side is most
visible in the metros, the demand for premium products
extends well beyond as even these consumers trade up.
Brands are also sprucing up their distribution network to
serve these customers.
3.7
Indian consumer - luxury seeking and tough to

please
Russia
China
India
Source: WHO, A.T. Kearney analysis
2. Premiumization: The liquor dinking Indian consumer is

clearly wanting to premiumize. They want to try new and
more expensive liquor - partly to experiment and partly
to demonstrate status. With more money in their hands
and exposure to trends across the world, these consumers are moving up to aspirational brands. While for
the previous generation in India, imported liquor, e.g.,
scotch, was considered out of reach and no one knew
what wines were, the sky is the limit for the new consumer. Interviews with the trade reveal that upselling in
The Indian luxury consumer is unique. We conducted a survey among high-end liquor consumers to gain an understanding of their attitudes and behaviors. Some interesting
insights emerge:
1. Awareness: Small and medium size enterprise owners
have the least awareness of luxury wines and spirits.
Their consumption habits are traditional and liquor being
a social taboo in their circles, they have the resources but
are constrained in their consumption. They have the
means, but companies need to educate them about
high-end liquor. This segment is also the least taste conscious.
2. Price consciousness: All segments except the traditionally wealthy families tend to be highly price conscious,
self employed and young professionals are the most price
23
Figure 12. Luxury wines and spirits - consumer segment insights
Criteria
Medium
Size
Enterprise
Owners
Traditionally
Wealthy
Families &
Large
Industrialists
Corporate
Executives
Self
Employed
Professionals
Young
Professionals
Awareness
Taste Consciousness
Price Consciousness
Badge Consciousness
Propensity to buy overseas
Source: A.T. Kearney consumer survey
Very High
conscious. In the case of liquor this is directly linked to

propensity to buy overseas. All segments buy from
abroad. The consumer hates to pay the very high duties
and does not mind stocking up every time he/she travels
abroad. A peculiar behavior observed with respect to
price consciousness is that it depends on the consumption occasion. Purchase for personal consumption is
most sensitive to price, but when someone else is paying
for it (e.g., paid for by the employer) or when the consumer is entertaining to impress he/she is willing to
spend more.
While this reflects the overall luxury products market,
there are subtle differences when it comes to wines and
spirits. Thus, we see that small and medium size enterprise owners are much less aware of luxury liquor than
any other category, due to traditional societal taboo on
drinking. As a contrast, when compared to apparel, we
find most badge consciousness to be exhibited by young
professionals, while in luxury liquor, it is exhibited by traditionally wealthy families.
Very Low
4. Brand loyalty - highest for whiskey, lowest for wines:

Although seen to some extent in all liquor categories, loyalty is highly dominant in whiskey consumption.
Although some amount of switching does take place in
whiskey, it takes place between brands in a similar price
range. Wine consumers are at the other end of the spectrum and switch their brands regularly. This is partly due
to low awareness in the wine segment, due to the huge
variety of wines available and the way wines are branded.
In wine, the country of origin (old world/new world),
name of the grape producing region and name of vineyard are all important and together combine to create the
brand. One needs to be a frequent wine consumer to
know the wine you prefer. With very little exposure still
to wines, consumers tend to decide based on broad
Figure 13. Purchase drivers for different liquor
categories
9%
0% 0%
6%
8%
0% 1%
9%
11%
18%
3. Taste: Taste is the most critical purchase driver in all

liquor categories. Within categories, whiskey and vodka
consumers are most brand conscious. Consumers like
and remember the taste of their favourite brands and go
seeking them in all categories. This behavior is most pronounced with regard to whiskeys with their distinctive
tastes and flavours and comparatively least in vodkas
where some mixer is normally used, with wines falling in
between. In vodkas, variety of flavors is becoming an
interesting purchase driver. This can be attributed to the
evolving taste patterns among younger consumers and
their willingness to experiment.
24
Setting
2% 1% Brand advertising
8%
Flavour variety
11%
Convenience / Availability
12%
Price
24%
Brand image & name
42%
Taste
15%
12%
59%
Whiskey
52%
Wine
Vodka
parameters such as country of origin (European preferred) and price bracket (<1500, >2000, etc). As such if
price is high, consumers tend to switch between wines.
The few consumers who are brand loyal usually stick to

more famous go-to brands which they have tried or
heard of, not necessarily because they have chosen them
from many alternatives. Vodka consumption is split
approximately equally among loyalists and switchers. Like
whiskey, vodka consumers experiment within price categories and the presence of various flavors and extensive
marketing encourages switching. Vodka consumers however, rarely trade down.
Figure 15. Place of consumption for different

liquor categories
20%
Off trade
80%
On trade
35%
50%
65%
Figure 14. Brand loyalty and switching for different liquor categories
0%
Whiskey
0% 4%
22%
33%
7%
7%
Look for value for money

Slowly trade up as per my lifestyle
40%
Switch regularly
73%
47%
44%
Loyal
23%
Whiskey
50%
Wine
Wine
Vodka
hence this aspect needs to be explored carefully. As an

example, the carbonated beverages industry has taken
great efforts to pair their drinks with food items and create bundled offerings. The pairing of alcohol with food
can be used by companies to design their marketing and
promotional campaigns and tasting sessions.
Vodka
5. Consumption location - on-trade more popular

channel. This is not surprising given that fewer Indian
consumers are comfortable drinking at home. A deeper
look into consumption patterns reveals the outlets within the on trade channel which vary between categories.
Wine is consumed more frequently at restaurants and
large events or banquets on account of its easy pairing
with food and image as a social sophisticated drink.
Vodka on the other hand is mostly consumed at pubs,
clubs and bars on account of it being a drink which can
be easily mixed and its more unisex image. In the off
trade channel, travel retail plays a large role for luxury
liquor purchase. Place of consumption impacts pricing as
well, five star hotels for example add huge mark-ups on
liquor (which they import duty free and hence liquor is a
high margin driver) which in turn limits consumption.
6. Pairing with Indian food still nascent: Wines are primarily paired with meals and this is a good driver of consumption internationally. In India, consumers normally
have water with their meals, while liquor is in the form of
pre-dinner cocktails. Fundamental changes in consumption habits is the most sustainable form of growth and
Opportunities for growth
The luxury wines and spirits market is expected to grow from

0.8% of the total market in 2010 to 1.5% by 2015. Most of
this growth is expected to come from increased consumption
in underpenetrated consumer segments, geographies and
occasions.
Underpenetrated consumer segments: Traditionally
underpenetrated consumer segments are the small and
medium enterprise owners and their families. This is a
profitable, but traditionally untapped segment.
Awareness, education, facilitating experimentation,
attractive pricing and convenient distribution to encourage uptrade to luxury liquor will get this consumer class
to start consuming
Underpenetrated geographies: While metros will continue to drive growth, penetration and focus on Tier 2
cities and currently underpenetrated states (regulation
permitting) need to be focused upon.
Underpenetrated categories: India is largely a whiskey
market. Just as vodka consumption is gradually increasing, companies should drive consumption of other categories like champagne, liquoers and other spirits. This
will need to go hand in hand with change in consumption
habits - hence difficult, but as has been proven in the case
of wines (wine drinking was unknown in the country, not
so long ago) and white spirits, continuous promotion will
25
eventually make it happen.

Underpenetrated occasions: The pairing of alcohol
with food can be a very good lever to encourage consumption. This aspect needs serious consumer research.
Overall, there is enough headroom for growth in the luxury

wines and spirits category. The luxury market is a small part
of the overall market, though the drivers and opportunities
are similar for luxury and premium liquor are similar.
Companies in this sector can drive increased consumption by
increasing the variety, experience and availability to consumers.
Challenges for the industry
Having looked at the growth opportunity, we now turn our

attention to three key challenges that face the industry - prohibition mindset, regulatory and commercial barriers and
absence of good national liquor.
1. Prohibition mindset. While most countries have some
kind of prohibition laws that seek to control and curtail
alcohol distribution and consumption, Indian regulation
literally creates multiple countries within one country. A
very strong pre-independence prohibition mindset still
dominates government policy and makes it very hard for
companies to sell or distribute and consumers to consume. On the other hand, this sector contributes significantly to the revenues of state governments, creating
enough barriers for changing any policy that could leave
the states poorer. The prohibition mindset is manifested
in the controls on distribution and very high taxes and is
best exemplified in the differences in the extent of prohibition across states. In few states like Gujarat, Nagaland
and Mizoram, alcoholic drinks are simply banned.
Alcohol prohibitionists are active in other states like
Kerala. As late as June 2011, Andhra Pradesh government launched a new anti-alcohol campaign to propagate
the policy of prohibition. The regulations also greatly
control the channels through which the product is distributed. If a company wants to conduct a sponsorship
event they cannot source directly from the wholesaler but
need to buy their own product from a retailer. This makes
sponsorship events very expensive. Figure 16 explains the
extent of prohibition in every state (color codes - green low, red - very high).
2. Regulatory and commercial barriers. Liquor tax rates
in India are the highest, compared to most Asian
economies. This increases the price of liquor in India,
artificially creating barriers for in-country purchases. This
always drives purchase of liquor while returning from
Figure 16. Levels of prohibition in select Indian states

Region
North
East and North East
West
South
26
State
Delhi
Punjab
Haryana
Chandigarh
Uttar Pradesh
Rajasthan
Jammu and Kashmir
Uttarakhand
West Bengal
Bihar
Orissa
Meghalaya
Manipur
Mizoram
Nagaland
Andaman and Nicobar
Maharashtra
Gujarat
Goa
Daman and Diu
Tamil Nadu
Andhra Pradesh
Karnataka
Kerala
Lakshadweep
Prohibition Levels
Age and Duty Driven Prohibition
Age and Supply Driven Prohibition
Age Driven Prohibition
Low prohibition
Supply Driven Prohibition
Holy cities are complete prohibition, rest is duty driven
Low Prohibition
Low Prohibition
Age Driven Prohibition
Complete Prohibition
Low prohibition
Age and Supply and Duty Driven prohibition
Low Prohibition
Low prohibition
Supply and Duty Driven Prohibition
Low prohibition
Supply and Duty Driven Prohibition
Figure 17. Statewise liquor market structure in India
Sikkim
Pondicherry
Goa
Arunachal Pradesh
Daman and Diu
Low
Rs. 10-Rs. 50
per proof liter
Excise Duty
Manipur
Bihar
Uttar Pradesh
Madhya Pradesh
Jharkhand
Chhattisgarh
Haryana
Himachal Pradesh
Karnataka
Orissa
Assam
Meghalaya
Tripura
Delhi
Tamil Nadu
Kerala
Andhra Pradesh
Rajasthan
Punjab
Uttarakhand
Maharashtra
West Bengal
Jammu and Kashmir
Govt. controlled
Auction
Open
Mizoram
Medium
Rs.50-Rs.100
per proof liter
Gujarat
Nagaland
Lakshadweep
High
Rs.100 and
above per
proof liter
Prohibition
*States in bold are larger markets
Type of Distribution Market
overseas. For example, even compared to Europe, prices

are much higher due to tariffs - a Moet Chandon bottle
costs approximately USD 40 in France as opposed to
USD 100 in India. Similarly, the liquor tax and regulation
structure in India is very skewed. Every state has a different law and import duties for alcohol are very high. The
law seeks to discourage consumption by imposing constraints on the consumer and the seller in multiple forms
- complete prohibition, permit requirements, high import
duties, controlled distribution, high tax rates, etc. Due to
the skewed tax structure, there is a thriving gray market
in wines and spirits. This is a problem for companies
since they have no control over the quality, counterfeit
goods and this channel. It causes brand dilution and is a
threat to sales. State governments meanwhile are unwilling to change this structure, due to the revenue generation from the industry.
3. Absence of a good national liquor. This is a key reason why alcohol is not part of our consumption habits
and is still considered a taboo on many dinner tables.
Countries with high per capita consumption have a
strong national liquor. French and Italians have wines,
Scots have scotch, The United States has bourbons,
Japan sake, Russia and Poland have vodka. All of these
are a source of forex, employment and national pride and
also form part of consumption habits. This also creates a
negative image of alcohol in India.

4. Distribution challenge: The multiple statewise regulation regulations make it impossible to create a national
luxury liquor chain and traditional outlets are slow to
change. Talent is not easy to get due to stigma associated with the industry. Also not all outlets are ready to sell
liquor. There are only 60,000-65,000 outlets for liquor
(dining and retail included) as opposed to FMCG goods
which have a universe of 8 million outlets.
Action agenda for the industry
We have seen so far that while the market potential for wines
and spirits is high, there are numerous daunting challenges.
We believe there are a handful of initiatives that the industry
should focus on as the Indian consumer finds a position in
the world of luxury wines and spirits.
1. Lobbying to standardize laws and regulations:
Companies will have to combat the prohibition mindset
head-on by emphasizing the lifestyle and entertainment
connotation of wines and spirits. Change in this arena
will be slow to come, given that it is a politically difficult
proposition for governments to be seen as promoting
alcohol. Liquor as a major revenue stream complicates
matters. Companies need to emphasize the need for a
reasonable duty structure to prevent the gray market and
27
a uniform and standardized regulation across the country

to prevent cross state movement of liquor within the
country. The industry should lobby for standardization of
the tax structure and other regulations that govern consumption and distribution. A good opportunity to get the
regulation simplified would be the GST (proposed
Goods and Service tax) that is expected to be implemented next year. While alcohol and tobacco have been kept
out of GST primarily due to resistance from the states,
the industry should lobby for migration to GST, since the
next round of systemic reforms will be some time away
and pushing through a major regulatory change will bring
relief. Even if the duty remains the same as it is today a
simplified business environment would be a quantum
leap forward. Companies should also clearly articulate
that they are against irresponsible drinking by taking the
high moral ground and promoting causes such as prevention of drunken driving. It is not so much the absolute
amount of tax as the variations and different administrative mechanisms that create multiple countries within a
country.
2. Invest in Domestic Production: Possibly the best way
to overcome the pervasive prohibition mindset is to
focus on domestic production of luxury liquor. High end
liquor that can be produced locally would enjoy a duty
free access to the Indian market. As we have seen in the
case of wines, domestic production has created a positive
attitude on the part of the government apart from creating pride amongst consumers. Creation of employment,
foreign exchange earning potential and creating an Indian
luxury brand are key value proposition levers that need to
be driven. This will also allow companies to develop
product ranges which are possibly more suited to the
Indian palate.
3. Invest in Developing the Market
a. Educate the SME owner consumer segment: The
Indian consumer is still at the early stages of the
learning curve when it comes to high end wines and
spirits. The consumer tends to consume a narrow
range of brands compared to the very large range
available in most other markets and even in duty free
shops - the popular destination for Indian shoppers.
While education of all segments of the Indian consumers continues to be a high priority, the specific
priority is to focus on the small and medium enterprise owner segment. This segment has the requisite
spending ability and can be encouraged to trade up to
luxury brands or enhance the range of their consumption basket. Companies can educate consumers
through focused initiatives such as tasting sessions
28
and on-trade promotion events, where the consumer

gets to experience the product in the right ambience
along with the imagery and legacy of the brand.
Champagne brunches offered by five star hotels for
example have become quite popular and have allowed
the consumer to experience and gradually ask for
champagnes.
b. Social drinking and food pairing: The traditional
image of drinking to get drunk needs to change to a
more developed country concept of social drinking
in a responsible way on the one hand and pairing with
food on the other hand. Wine would go with continental food, sake with Japanese. The promotion of
social drinking is essential because most state governments have created rigid laws in the country based on
the belief that alcohol consumption leads to uncivilized behavior and is harmful to the society. It is necessary to change this image of alcohol in minds of
consumers by framing it as a sophisticated and moderate means of having fun - allowing consumers to
enjoy new flavors and experiences. Pairing alcohol
with Indian food is potentially the largest opportunity for wines. We believe companies need to do a lot
more research on Indian food habits and find opportunities for connecting liquor consumption with
those.
4. Focus on developing new channels of distribution:
High end MBOs and organized retail channels are one of
the best ways to reach the high end consumer and provide an experience. This, however, is still very nascent there are very few purely high end outlets, given the difficulties of obtaining licenses and the high rentals.
Hotels, pubs and bars have realized the importance of
luxury liquor since it helps attract high end consumers,
and they are a very important channel - the five star
hotels get to import liquor duty free and make very high
margins. Unfortunately retailers have not taken a similar
favorable stance. A potential solution would be identify a
few top end retailers and encourage them to move away
from the low end of the market. Differing regulations
will prevent the emergence of a liquor retailing chain.
Indian travel retail (duty free) does add significantly to
revenues where the duty free revenues are counted as
part of the Indian business. Buying on arrival has been
encouraged by attractive pricing in Indian duty free and
opportunities to buy when you travel out and collect
when you return schemes. This allows consumers to
avoid lugging liquor on flights while still enjoying the best
of international duty free rates.
5. Innovative Brand Building: Given the ban on advertis-
ing, brand building is restricted to Below The Line (BTL)

marketing activities. No amount of creativity is enough
given the huge opportunity and the complete lack of
flexibility.
grow in excess of 25%, companies are facing multiple hiccups in their journey. Steely determination and a faith that
the consumer will eventually force open this market should
keep the large players going and new ones excited about
entry.
In summary, while we do believe this market will continue to
29
30
SECTOR SPOTLIGHT: PERSONAL

CARE FAIR, BUT NOT YET
LOVELY
CHAPTER 5
SECTOR SPOTLIGHT: PERSONAL CARE

FAIR, BUT NOT YET LOVELY
The personal care market in India is estimated to be around

USD 3.2 bn in 2010 and includes cosmetics, skin care, fragrances and hair care products. This category is still in an
early stage in India with miniscule per capita spend on personal care as compared to other developed and developing
countries.
Luxury Personal Care
We have defined the luxury personal care market to include

all cosmetics and skin care products priced at greater than
USD 25, fragrances priced at more than USD 50 and hair
care products priced at more than USD 10 per bottle.
Luxury personal care market is estimated to be around 8% of
the overall segment adding up to ~USD 280 million in 2010.
This Indian market is fairly small compared to neighboring
Asian markets like China and Southeast Asia.
While the segment is still very small in India, the growth rate
has been robust. It has grown at 24% in 2010 as compared
to our earlier projection of 20% and is expected to grow to
~USD 700 million by 2015. This would make it 13% of the
total personal care market.
Fragrances-dominated luxury market: In India, the luxury personal care segment is quite different from the overall
personal care market. The mass and premium segments of
the market are dominated by hair and skincare products,
while makeup and fragrances form a small share. The luxury
segment, on the other hand, is dominated by fragrances,
which constitute over 50% of the total luxury personal care
market.
A key reason is that luxury consumption (except jewelry and
designer apparel) is still dominated by men in the Indian market, and fragrances is the only personal care category that
Figure 18. Per capita spend (USD) on personal care across countries
245
215
192
163
93
54
18
3
India
China
Brazil
Poland
Russia
USA
UK
France
Source: Euromonitor, Kline and Company, A.T. Kearney analysis
33
Figure 19. Luxury Personal Care market in India, Southeast Asia and China (USD Mn)
+20%
700
2,133
2,000
+22%
280
156
280
2007
2015
2010
India
South
East Asia
China
appeals to the entire male population. Additionally, fragrances are one of the first products consumers buy as they
acquaint themselves with luxury brands. Fragrances allow
consumers to experience a big luxury fashion brand at a
fraction of what it would cost to buy a suit or a watch.
Fragrances have also been much more widely available in
department store formats, where other products of the same
luxury brands would never be found.
Makeup is a small sub-segment in luxury, but growing rapidly at 30-35%. Key drivers are rising disposable incomes,
increase in the number of working women and consequent
increasing focus on personal grooming.
The market structure is also very different compared to other
countries including Asian neighbors.

There are multiple structural reasons for these differences like
Infrastructure availability: This dominance of skin
care and makeup in other Asian countries can also be
explained by the availability of high quality retail infrastructure that allows brands to sell and consumers to
experience the skin care products.
Varying skin requirement: While having good skin
that is radiant and glowing is an important part of beauty in most other countries (all western countries, even
Japan, Korea and China), in traditional India, beauty
archetypes are typically restricted to fair complexion,
pretty eyes and long black hair.
Traditional solutions: In addition, for skin care, tradi-
Figure 20. (a) Total Market and (b) Luxury Market Segmentation in India by value (2010)
Skin Care
28%
Hair Care
22%
Skin Care
19%
Makeup
9%
Hair Care
55%
Makeup
12%
(a) Total Market
Fragrances
4%
Source: Industry interviews, Euromonitor, A.T. Kearney Analysis
34
Fragrances
51%
(b) Luxury Market
Figure 21. Breakdown of Personal Care Market

by Value (2010)
Figure 22. Decision-making criteria for personal care purchases

Salesperson
6%
19
29
22
Skin Care
15
Makeup
27
Fragrances
Price
6%
9
58
20
51
13
Brand Reputation
30%
26
Past Experience
58%
3
36
22
26
25
India
China
Russia
Hair Care
Brazil
tional home remedies are available in abundance in India

and these are considered to be good enough even for
wealthy consumer classes.
Source: Consumer Survey, A.T. Kearney analysis
But another key element is the small base of the Indian market. As the category expands, it is expected that the structure
of the Indian market will start mirroring the global markets.
This will mean increased growth for skin care and makeup.
lower, since the luxury brands have to rub shoulders with

premium and even mass labels..
Open to experiment: The Indian consumer is open to
experimenting with new brands and brand loyalties are
still very low. This is only to be expected for a category
like personal care which is nascent in India. This would be
a good time for luxury brands to make a push and start
inculcating strong brand loyalties amongst consumers.
Stock up on overseas trips: Consumers still make a sig-
The Indian personal care consumer - willing to

experiment
A consumer survey among high income consumers provides

interesting insights about the personal care consumers in
India:
Experience with the product is the key decision

making criteria: Most luxury personal care users typically make purchases based on previous experience. There
appears to be a vacuum in terms of adequate product
knowledge being provided at the point of purchase, leading to consumers having to rely on past experience.
Interestingly, price happens to be the least important factor. Consumers tell us that these being small ticket items
of frequent use, they do not mind spending a little extra,
if they find products that really appeal to them.
Boutiques are the preferred channels: People prefer
shopping in standalone stores over other retail formats
because in standalone stores people are able to experiment and feel the products. In other formats like departmental stores, the whole brand experience is significantly
Figure 23. Brand Preferences

I frequently experiment
with new brands
3%
I usually stick to
my brands
24%
I am open to experimenting,
but I have some preferred brands
73%
35
Figure 24. Purchase location preferences
I only buy
overseas
15%
I buy in both places

but more overseas
32%
I only buy
in India
11%
I buy in both places

but more in India
34%
I buy
approximately
equal amounts
in India and
overseas
9%
as well as gifting. Compared to several other categories such

as designer apparel, jewelry, and watches, penetration of personal care products for this occasion is still limited.
Services penetration: Services have driven the consumption of the premium products. The target consumers for luxury are accustomed to using services of high end salons. It is
now time to get the same consumer to trade up, using top
end salons as routes for exposure to the brand. Tie ups with
top end salons can also be a way of directly reaching the target consumer or for developing a better understanding of
their tastes and preferences.
Challenges hurting the industry
nificant proportion of their personal care purchases

abroad. The key reason for this is that consumers feel
that the range and availability of products in India is low.
Our interviews with luxury personal care consumers also
clearly reveal certain trends that could translate into tangible
growth opportunities.
Opportunities for growth
Greater beauty consciousness, much earlier: Slowly, but

surely, Indian consumers are changing their tastes and preferences.
Fairness and hair as beauty archetypes are strong, but

focus on skin and youth is increasing
Consumers are starting young, with girls in their early
teens beginning to use basic beauty services
Openness to using chemical based skin care products is
quite high, breaking the myth of traditional, home remedies being the preferred skin care solution.
Mens grooming is a new trend in India; the concept of
the metrosexual male is taking off - driven by Bollywood
and the fashion industry. This is a big trend in Southeast
Asia and China, though still in nascent and small in India.
Weddings: Weddings are big spending occasions in India

and drive growth of many luxury categories. Spends are relatively immune to inflation and economic cycles. Weddings
are an important driver of consumption in the professional
personal care services segment (bridal skin care and makeup)
36
Consumer awareness: Consumer awareness for personal care is much lower than other categories like apparel
and accessories, which have been around longer and have
a more broader appeal in India.
Limited customization and availability: Luxury
brands in the personal care space have only now started
showing some active push in the market. Boutiques by
Lancme, Clarins, and Estee Lauder have had a salutary
effect on brand building and spreading awareness. Many
other brands operate through a distributor which limits
the amount of involvement of the brand in the market.
Given the small size, India specific innovations have been
limited and in many cases even the range available is low.
Channels and Infrastructure: The infrastructure issues
that plague the rest of the industry challenge this industry even more. With limited personal care focused MBOs
(multi-brand outlets), it is hard for the brand and consumer to find each other. In standalone boutiques, low
awareness drives low sales productivity and at high
rentals makes the store viability a longer journey, necessitating patience. Department stores have even masstige
brands in the same adjacencies making it an unviable
option for luxury brands.
Talent shortage: Experienced associates with high levels of product knowledge and the right attitude to
encourage, coach and convert are difficult to find. This
Problem is more acute at the store manager level.
Action agenda for the industry
We believe the industry could take several actions to enhance

the growth of this category:
Believe in the market: There is enough evidence to show
that it is possible to grow in the Indian luxury market and
start making money. Supply side innovations and push have
played a big role in the same. Focus and attention from the
majors are absolutely necessary to open up the market.

Educate, customize, enhance status appeal: The Indian
consumer is willing to learn, experiment and adapt fast if she
is given the right product and experience at the right price.
This is now being proven across categories. There is also
enough evidence that the consumer spends pretty substantial
sums when the status value proposition is clear. Players
need to find a way to help the consumer communicate the
status value of their purchases. Customizations are necessary
and the sooner brands do it, the sooner they will start seeing
breakthroughs.
Collectively create luxury personal care zones: Players
could get together to create luxury personal care zones in
top end malls to differentiate themselves from the masstige
segment as well as to create a draw where the consumer can
experience a wide variety of luxury brands.
Enhance penetration: Penetration of luxury personal care
brands is much lower than other categories. A simple first

step would be to follow the luxury apparel/accessories
brands as they penetrate the metros. These being small luxury items, brands could be a little more aggressive and even
target the high footfall but cross-over kind of malls while
defending their positioning.
Promotions and experience: End of season sales have
played a role in allowing more and more Indians their first
experience of luxury. While this might not apply to personal
care, brands need to find ways to get the consumer to experience the brands. Wine tasting sessions have likewise helped.
Promotions and experience sessions need to be targeted.
In summary, while the luxury personal care market has strong
fundamentals and looks set for steady growth, there are still
a number of barriers between the consumer with the ability
to spend and successful brand performance. A strong collective push by luxury players will be required to tap the potential of the market.
37
38
APPENDIX
APPENDIX I
I. Geographical Footprint of Luxury Product Brands
Category
Accessories
Apparel
Apparel, Accessories
and Personal Care
Apparel, Accessories
and Personal Care
Personal Care
Accessories
Personal Care
Home Dcor
Personal Care
Watches
Personal Care
Apparel
Brand Name
Alfred Dunhill
Blues Clothing
Bottega Venetta
Brioni
Burberry
Canali
Chanel
Total Stores
3
8
3
2
5
6
2
Mumbai
1
1
1
1
1
1
1
Delhi
1
6
1
1
2
2
1
Bangalore
1
0
1
0
1
1
0
Chennai
0
0
0
0
0
1
0
Hyderabad
0
0
0
0
1
1
0
Others
0
1
0
0
0
0
0
Christian Dior
Collective
Diesel
Ermenegildo Zegna
Estee Lauder
Etro
Gucci
Hermes
Hugo Boss
Jimmy Choo
Just Cavali
Kimaya
Lancme
Lladro
LOccitane
Louis Vuitton
Omega
Parcos
Paul and Shark
Paul Smith
Salvatore Ferragamo
3
9
4
3
3
3
3
3
3
2
10
11
11
8
4
5
2
4
3
4
1
2
1
1
1
1
1
1
1
0
2
1
1
1
2
2
1
1
0
2
1
1
1
1
1
2
1
1
1
1
4
4
1
3
1
1
1
1
1
1
1
1
1
1
1
0
0
1
1
0
1
4
2
2
1
1
0
0
1
1
0
1
0
0
0
0
0
0
0
1
1
1
2
0
0
1
0
1
1
0
0
1
1
0
0
0
0
0
0
0
0
0
1
0
0
0
0
1
0
0
0
3
0
0
0
0
1
0
0
0
2
1
4
2
0
0
0
0
0
0
Accessories
Apparel
Accessories
Accessories
Apparel
Tods
Tom Ford
Tumi
Van Cleef and Arpels
Versace
3
1
2
1
2
131
1
0
0
1
1
33
1
1
0
0
1
42
1
0
1
0
0
26
0
0
1
0
0
11
0
0
0
0
0
6
0
0
0
0
0
13
Source: Company websites
41
II. Geographical Footprint of Luxury Car Dealerships

Category
Cars
Cars
Cars
Bikes
Cars
Cars
Cars
Cars
Source: Company websites
42
Brand Name
Aston Martin
Audi
BMW
Ducati
Ferrari
Jaguar/Land Rover
Mercedes
Porsche
Total Stores
2
15
19
3
2
9
24
5
79
Mumbai
1
2
2
1
1
1
4
1
13
Delhi
1
1
2
0
1
1
3
1
10
Bangalore
0
1
1
1
0
1
1
0
5
Chennai
0
1
1
0
0
1
1
1
5
Hyderabad
0
1
1
0
0
1
1
1
5
Others
0
9
12
1
0
4
14
1
41
APPENDIX II
Acknowledgements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
Bhavesh Somaya - Diageo

Bruno Yvon - Moet Hennessey
Danielle DLima - Wine Society of India
Darshan Mehta - Reliance Brands
Dinesh Dayal - LOreal
Gulam Zia - Knight Frank
Ishu Datwani - Anmol Jewellers
Kiran Gill - Lakme Studios
Manishi Sanwal - LVMH
Pradip Hirani - Kimaya
Ratish Pandey - Bose Corporation
Rahul Balachandra - YLG
Renu Basu - Taj Hotels Resorts and Palaces
Sanjay Kapoor - Genesis Colors
Shakeel Kudrolli - Aquasail
Sharmistha Ray - Art Expert
Stafford Braganza - Lancme
Suvodeep Das - Kaya Skin Clinic
Vikram Madhok - Abercrombie and Kent
Vinod Bamalwa - Nemichand Bamalwa and Sons Jewellers
Viren Bhagat - Jewelr
Yashovardhan Saboo - Ethos Swiss Watch Studios
43
APPENDIX III
A.T. Kearney Team
Neelesh Hundekari - Principal and Head - Luxury and Lifestyle Practice, India
Saurine Doshi - Managing Director, India
Hemant Kalbag - Vice President and Partner, Head - Consumer Industries and Retail Practice, Asia
Pameela Pattabiraman - Principal, Consumer Industries and Retail Practice, India
Himanshu Bajaj - Principal, Consumer Industries and Retail Practice, India
Subhendu Roy - Manager, Consumer Industries and Retail Practice, India
Manoshi Kamdar
Avanti Maluste
Ritika Tawani
CII Team
Amita Sarkar, Senior Director, CII
Atreyee Talapatra, Consultant, CII
About CII
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes.
CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in Indias
development process. Founded over 116 years ago, it is Indias premier business association, with a direct membership of over
8100 organizations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over
90,000 companies from around 400 national and regional sectoral associations.
CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialized services and global linkages. It also provides a platform
for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting
industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country
carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity
management, skill development and water, to name a few.
CII has taken up the agenda of Business for Livelihood for the year 2011-12. This converges the fundamental themes of
spreading growth to disadvantaged sections of society, building skills for meeting emerging economic compulsions, and fostering a climate of good governance. In line with this, CII is placing increased focus on Affirmative Action, Skills
Development and Governance during the year.
With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore,
South Africa, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves
as a reference point for Indian industry and the international business community.
About A.T. Kearney

A.T. Kearney is a global team of innovative, insightful and collaborative experts who deliver creative, meaningful and, above
all, sustainable results. Were a team of management consultants that generates powerful strategic insights to address practical, real-world needs - and we see each project through to completion. By daring to challenge conventional thinking, we create customized approaches, rightly suited to our clients challenges, which help them achieve both immediate and long-term
business objectives. With deep expertise across a wide range of global industries, and a proud legacy of collaboration, we pride
ourselves on delivering great outcomes for every one of our clients.
We believe, above all else, that by doing good, we will do well for our clients, ourselves and our community. We do this with
passion for people, ideas and the world in which we live.
44
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Datamonitor
Euromonitor International
Federation of Swiss Watch Industry, World Distribution of Swiss Watch Exports, 2011
HVS, India Hotel Industry Survey, 2009-2010
IWSR, India, 2011
Merrill Lynch and Cap Gemini, World Wealth Report, 2011
Probe Equity Research, 2011
Research on India, Wines, 2010
SIAM, Automobile Sales in India, 2010-2011
WHO, World Health Statistics, 2011
45

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India Luxury Review 2011

A CII - A.T. Kearney Report

India Luxury Review 2011

India Luxury Review 2011

Confederation of Indian Industry

Luxury Market in India - Reflections on the Year

Last year CII and A.T. Kearney had teamed up to do an

Total Luxury Market

The Indian luxury market is evolving more rapidly than most

the metros Mumbai/Delhi/Bangalore/Chennai/

An interesting contrast to the Indian market is the Southeast

levels at USD 10,000 per annum. Supply of luxury brands is

Wines & Spirits - Hiccups on the High Road

Personal Care - Fair but Not Yet Lovely

The luxury wines and spirits market, which is 1.3% of the

The luxury personal care market in India (8% of the relevant

Luxury consumers emphasize experience with the product as

Chapter 1: Snakes and Ladders: Need for a Refresh

Chapter 2: Luxury Market in India Reflections on the Year Gone By

Chapter 3: Luxury Market in Southeast Asia A Study in Contrasts

SNAKES AND LADDERS: NEED FOR

SNAKES AND LADDERS: NEED FOR A

The Indian luxury industry is evolving more rapidly than

opportunities (new Ladders) and risks (new Snakes) for

Insights and recommendations in this report have been

LUXURY MARKET IN INDIA

LUXURY MARKET IN INDIA - REFLECTIONS

The luxury market in India is interestingly poised today.

Luxury Market in 2010: Better Than Expectations

Source: Interviews, Secondary Research, Probe Equity Research, A.T. Kearney

The luxury market in India witnessed robust growth of 20%

Wines and Spirits

Apparel and Accessories

tured into market with standalone stores in iconic buildings

Consumers in India are evolving quite rapidly - in fact, the

Figure 3. Growth Rates by Category - Actual vs. Estimated

Increasing gold and diamond prices and low price

Source: Probe Equity Research, A.T. Kearney Analysis, Expert Interviews

to go there to tap the demand. This will most certainly

and Hugo Boss.

not deter the proponents, since the penetration amongst

In our previous report, we had listed a number of challenges

a. Experimentation: The extremely experimental

Reports of the proposed 100% Foreign Direct

a situation, what could happen if the global financial

As business news from the West becomes more and more

The key challenge for players in the Indian luxury market is

luxury brand, India is only one of the many options available

help in introducing the Indian consumer to new

est returns on investment. This segment comprises

cost, thus minimizing their risk while maximizing

In summary, we are likely to see continued investment in the

LUXURY MARKET IN SOUTHEAST

LUXURY MARKET IN SOUTHEAST ASIA

The luxury products market in Southeast Asia - focusing on

Figure 5. Southeast Asia luxury products market break-up

Apparel & Accessories

Watches & Jewellery

Source: A.T. Kearney research and analysis

into this space. In fact, in a survey conducted by A.T.

While the Indian luxury market still has a long way to go to

SECTOR SPOTLIGHT: WINES &

SECTOR SPOTLIGHT: WINES & SPIRITS

We have seen in Chapter 2 that the Indian luxury market has