“Food will remain the Largest Spend Category” even in 2020 with spending of Rs.40 trillion, followed very closely by “Housing & Consumer Durable” with spending of Rs.35 trillion..!!
Most Indians, even those with incomes of $3,000 (around Rs.1.8 lakh) per-annum OR Lower, consume basic products such as cooking oil, bathing soap, washing powder, and tea. But, as they get richer, they start to purchase durable goods, with the typical hierarchy being TV and cooking gas as the top focus..
Ten years ago, Rakesh Sahu, who runs a small restaurant on the outskirts of Lucknow, ate cheap rice, avoiding fruits because of the cost involved. Now, he buys branded refined oil, basmati rice, and eats all the fruits and vegetables he wants because he can afford the extra spending…
“I don’t think twice before buying good food for my family today”, says Sahu, whose income has increased more than five times in the past 10 years from Rs.90,000 per year to Rs.5 lakh now…!!
He used to get clothes stitched for the family for special occasions earlier. These days, he buys ready-made garments —though he does not spend extra for brand names..
The amount Sahu spends on consumer goods and what he chooses to spend his money on fit into a pattern that has accompanied rising incomes in India. The aggregate consumer expenditure is likely to increase from Rs.45 trillion in 2010 to nearly Rs.150 trillion by 2020—an over-threefold jump in a decade..
Sahu, for instance, does care about brands in the durables space. His television set is an LG, which he bought after watching a programme on a neighbour’s LG. He has moved his son from a government school to the City Montessori School—an English-medium private school. “I want my son to have the best education possible”.
Where once he had no money for “Leisure or Entertainment” (discretionary spending), Sahu now takes his wife out for an occasional movie and even the spot of jewellery shopping…
We analysed consumer spending across different categories and how it is expected to change with rises in income levels and over time. Today, the No.1 item on the family shopping list is food, accounting for nearly one-third of the total consumer spending. Second on consumers’ spending list is housing and household appliances, closely followed by transport and communication..
Interestingly, the spending across different income segments is quite different and has changed with time…!!
To monitor this transition, we use a tool we call consumption curves. This helps us establish how consumers change their spending habits as they earn more. Different types of products have differently shaped curves—and this demonstrates that consumer demand for different products and categories changes at varying rates..
For items such as #Household goods, the consumption curve is an upward line, indicating a steady rise in spending as incomes rise. Other #ConsumerCategories, that rise steadily, if less steeply than Household Goods, are Transport and Communication, as well as #Education..
Expenditure on “Health”, another Major Category, only really starts to rise as people enter the upper-middle OR affluent classes, with only the tail-end of the Consumption curve bending upwards. By contrast, the #ConsumptionCurve, for Food..follows a gentler trajectory, and “actually flattens out as people get richer”… You can only spend so much and consume only so many calories…!!
Exhibit 1: shows the consumption curves for broad categories across different countries for the three different types of curves for Household-goods, #Health-care and Food. We find that the consumer off-take pattern changes with increase in income—even within the same broad category.
Exhibit 2: show the three patterns observed in India. The first type of increase is “inflection point”—observed in the mass #FMCG (fast moving consumer goods),categories such as Tooth-paste—which also have low-cost substitutes such as Tooth-powder..
In this situation, category consumption changes dramatically as the consumer enters the middle class and then remains largely flat…!!
The second pattern is “continuous growth”, which holds true for most durable goods and more premium FMCGs. Here, the consumption increases steadily with increases in income. The third pattern is “stable with income”, observed in highly penetrated FMCG categories such as biscuits and vanaspati..
In this case, the level of penetration is not significantly different across income segments…
Our research indicates that as people enter the #Middle-class, they switch their focus to Consumer-goods that enhance their quality of life Far-beyond subsistence..
Most Indians, even those with incomes of $3,000 (around Rs.1.8 lakh) per annum OR lower, consume basic products such as cooking oil, bathing soap, washing powder, and tea. But, as they get richer, they start to purchase durable goods, with the typical hierarchy being TV and cooking gas as the top focus..
Beyond this, they prioritize goods and services relating to the family, especially children…
We have calculated that 37% of the middle class household’s expenditure is devoted to children, mainly their food and education…One young couple we met in Mumbai, earning about Rs.15,000 per month and living in a one-room chawl, spends nearly Rs.1,000 per month on the school fees for their only daughter. “We want the very best we can afford for her,” they explained…!!
We have estimated how the shape of consumption is likely to change for India in the future, based on the consumption curves from 2010 to 2020…Food will remain the largest spend category even in 2020 with spending of Rs.40 trillion, followed very closely by housing and consumer durable with spending of Rs.35 trillion.
The fastest growing categories are related to “Education, Entertainment & Leisure”, increasing more than FOUR Times in the 10-year period…!!
It seems clear that Both the Size & Shape of Consumption is going to undergo dramatic changes going forward…!!