Consumer 2.0 | Volume no. I, Issue 7, May 2008 | | Not so good, not so bad Not so good Rampant inflation, lower aggregate temperatures across North India, and uncertainties in the stock and commodity markets all point to a less than expected consumer expenditure growth this quarter. For the past month, inflation has spelt bad news for the Indian consumer, hitting a three year high rate of 7.61%. Backed by spiraling food and energy prices in the open markets, the consumer is feeling the pinch unlike ever before in the last few years. Inflation has also forced the government to tighten on liquidity and availability of easy credit, again affecting consumer expenditure growth. All in all therefore, the next few months will see a sluggish growth in the consumer markets. The urban middle classes are expected to be affected adversely due to a combination of inflation and tight liquidity. But that is only one side of the story. The not so bad Overall economic growth is expected to continue to be around the 7-8% range in the coming quarters. There is significant growth of incomes especially in the highly educated, skilled, and professional segments. Construction activity is in full swing and as greater number of households move into new homes, there will be a consequent increase in durable expenditures. But perhaps the most important of all - agriculture harvests have been good this year, moreover good harvests have been accompanied by an increase in agriculture commodity prices. Large surpluses with households are currently being generated in rural India, and this will have a strong positive impact on rural consumer purchases. Continued growth of rural India; high income or premium segments in urban India; and small town India will be the defining forces of Indian consumer markets in the coming few months. | 
Source: District GDP of India, 2006-07 | Sectors
The clothing and other consumer product brands that are positioned at the middle or the lower premium end of the market are likely to be caught in the no-man's land and face increasing pressure on sales in coming months. Though the summer marriage season has commenced, the lower than usual temperatures especially in North India, will also affect the clothing segment sales adversely. In general, expect a general dampening in the 'mall' segment this summer. The branded segment therefore will need to see greater efforts at penetrating the small town market, as well as attracting the middle class buyer with a judicious combination of price and quality - whether that succeeds or not is yet to be seen. The consumer durable industry has seen a sluggish growth in the past few months. Lack of festivals, tightening interest rates, and seasonality were the key factors behind this low growth. Though marriages as well as new home ownership are positively impacting this market this season, there are a few downsides as well. Credit continues to be costly and difficult to access, the famed heat wave has not happened yet in the northern planes, and monsoons are said to be arriving a week or so earlier. This summer, the AC market is also observing two new trends- demand for split and smaller capacities AC are higher this summer. Samsung launched its new advanced 'Freshtech' Refrigerator Series, aimed to capture the masses. In the line is Godrej, which is shortly entering the highly competitive television market by launching its range of LCD televisions. The demand for the high end goods will continue to increase with increasing wealth concentration in the hands of the premium segment. Therefore inflation will have a lesser impact on the upper end products since their buyers are less sensitive to price rise. The month of May is also witnessing its share of new launches and expansion plans, especially in the premium segment with Adidas India launching its global lifestyle brand, 'Adidas Originals' in Chandigarh and Sony coming up with 'S-Frame' digital photo frames that offer vibrant LCD screens and stylish designs focusing mainly for the premium class There is some good news for the FMCG giants, who are likely to sustain their robust growth momentum supported by higher demand, better lifestyle trends, higher margin product-mixes, greater pricing flexibility, increased realizations and contribution from acquisitions. An expected good monsoon combined with the strong overall GDP growth across the economy is likely to continue, driving consumer demand in its way. Also, higher disposable incomes are bound to have a positive effect on the consumer's purchasing power and thus overall growth of this sector - and especially so in the rural segments. | 
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