Demographic shifts, where consumers live, technology, and growth in rural buying will be some of the key trends that will drive growth of consumption in India, says Radhika Sridharan, partner at Boston-based consulting firm Bain & Co.
Addressing a gathering of top executives from the country’s largest midsize companies and policymakers at the Fortune India Next 500 summit in New Delhi, Sridharan said it was important to ask how technology can improve access, change aspirations and get more out of the consumer.
“What will consumers aspire to in future? How will those aspirations be different from those in the past? And therefore, what does it tell us about how we should change the consumption experience?” Sridharan said.
An important part of the consumption story, according to the Bain consultant will be the growth of the middle class. She said that the Indian middle class has grown while the base has shrunk. The middle-income households will form 80% of the country’s households together with lower-income groups. Sridharan says the economy will move from being led by the bottom of the pyramid to being led by the middle class. She said looking from a consumption perspective, the economy is expected to take a diamond shape in the next 10 years, something like what the Chinese economy looks like. The middle class is expected to spend $40 trillion in the next 11 years, 40% more than what they spend today.
“That’s the great promise of consumption that we have been waiting for so long,” she said. “The upper middle-income group, we expect will punch above their weight. So for about 40% number of households…more than 50% of consumption will be driven by that bucket.”
Sridharan also noted that these are the families that can already aspire to premiumise, to buy better, and change the shape and nature of what they buy.
She also shared highlights of a study conducted by Bain and Co. on what consumers think will be the biggest driver in the change in consumption spend.
“The high-income ones are the ones who’re saying that more than a third of their incremental spend is likely to come by just buying better. Which means trading up, buying better brands,” she said. Low income households will consume more but that will be driven by penetration. More households will be buying what they can’t afford to buy today, she said.
Meanwhile, the “sachet economy” continues to remain relevant. “The price of that individual sachet may go up a bit keeping with inflation but affordable products will continue to remain extremely important,” she added.
The other aspect driving consumption growth would be the so-called ‘children of liberalisation’. Sridharan said that 77% of Indians by 2030 will be either millennials or gen Z but generally the ones who grew up in the post-liberalisation era.
“They are much more likely to be influenced by things like the Internet and social media and these millennials are less trusting of mass communication channels that used to work earlier, like TV, newspaper or radio. They are also a lot more brand aware and less tolerant of buying local or unbranded products,” she said.
Indians are also expected to become more value conscious, compared to now when they like to buy during the sale and the festive season.
She also predicts that in the future, value for money products that are feature packed will see a rise, the share of the rural market in overall consumption will increase, while metros will continue to remain important.