India Inc.'s Premium Play

Enroute Patna to the historical town of Bodh Gaya in Bihar, an array of motels on either side of the road is inviting enough for tourists for a pit stop. In the midst of them is a new Maruti Aspire showroom with upper-end models Brezza and Ertiga on display. While one wonders if there is actually a market for these variants (priced upwards of ₹13 lakh) in an area which largely caters to rural consumers, a stroll into the store unfolds more surprises. A couple visiting the store couched comfortably in a sofa is immersed in an ArenaVerse (Maruti Suzuki's newly launched Metaverse store) to experience the Brezza. Store manager Intakhab Manzar says 40% of sales in the past year have come from upper-end cars, while mass-market Alto and Swift Dzire, the mainstay of car dealers a couple of years ago, are degrowing.

In Maharashtra's Nashik, a Mahindra Finance executive echoes similar views. He points at a second-hand car store which has on display luxury brands such as Mercedes and BMW and high-end ones such as Kia and MG Motors. While he has a long list of first-time loan seekers for high-end cars, second-hand car buyers even want luxury brands!

In Gujarat's milk town Anand, Kaushal Shah, a sales executive at Amul proudly rides his newly acquired Harley Davidson for market visits. Shah, a first-time bike owner, spent ₹2.4 lakh on the Harley Davidson against a regular ₹60,000 motorcycle. Cut to the country's financial capital Mumbai, the Vijay Sales store on Linking Road Bandra has been selling more double-door refrigerators (upwards of ₹30,000), 42-50-inch TV panels and fully automatic washing machines with features such as anti-bacterial wash since the pandemic in 2020. Seeking greater comfort, consumers working from home opted for high-end products. The trend has continued ever since. Over 70% of the store's sales are from premium products. In fact, sale of appliances priced below ₹20,000 is degrowing! The trend is similar at the Godrej Appliances exclusive store in Nashik. The store manager says it has been difficult to dissolve the inventory of single-door refrigerators and semi-automatic washing machines. A large section of shoppers at these stores is first-time jobbers, fresh out of college.

The price sensitive and value conscious Indian consumer is moving up the value chain, and the trend has thrown corporate India into a tizzy to create products and services that meet their aspirations.

Shashank Srivastava, executive director at mass market carmaker Maruti, confirms the changing attitude. "Over 25% of Maruti Suzuki's rural sales have come from its higher-end cars priced above ₹11 lakh. Buyers for such cars used to be in low single digits two years ago. In urban areas, the interest in hybrid cars is at an all-time high. Demand for Nexa has grown 80%."

While 29% of car sales in cities come from Nexa stores (as opposed to 15-17% earlier), the contribution from Nexa in smaller towns isn't far behind at 26% (it was in low single digits two years ago), says Srivastava. "We don't have too many Nexa stores in rural areas, as it won't be viable, instead we are using technology. We have launched our stores on the Metaverse — Nexaverse and Arenaverse — which are getting a lot of traction," he adds.

Anil Verma, CEO, Godrej & Boyce, claims his digital locks business has registered a 50% growth compared to regular ones. The home locker business has seen a 15% shift towards premium (upwards of ₹20,000) in the past year. "We are trying to double down on premiumisation which is seeing an uptick across product categories. Higher income households have been largely insulated from inflationary pressures and are willing to spend on attractive value propositions. Trade is also stocking up on premium portfolios. Consumer finance schemes have also helped in driving the sale of premium offerings."

There is a rapidly growing cohort of affluent Indians and companies across categories are going all-out to woo them. From premium cars, homes, appliances and beauty products to paints and even construction materials, the average affluent Indian wants to upgrade. India has 60 million people with a yearly income of $10,000. The number of affluent Indians has grown at a 13% CAGR and is likely to touch 100 million by 2027, according to a Goldman Sachs report.

As a result, companies that address consumption from the top end of India's income pyramid are growing much faster compared to those that cater to the mass market. The trend is prevalent across categories such as FMCG, footwear, fashion, passenger vehicles and two-wheelers. Even within companies, premium segments have grown faster. HUL's premium portfolio (30% of its portfolio) has grown two times that of the company's overall revenue growth. For Diageo India, the 'Prestige & above' segment brands (80% of overall portfolio) have grown much faster than 'popular' brands. Similarly, Nestle India, which gets over 60% of its revenue from premium portfolio grew 50% between FY19 and FY23, against Hindustan Unilever (HUL) which has a greater dependence on mass products (70%) and which grew 39%. Similarly, Trent (with premium formats such as Westside) grew 130%, while V-Mart, a mass fashion retail brand, grew 70% between FY19 and FY23. In two-wheelers, Royal Enfield, Eicher Motor's premium bike brand, saw a volume growth of 4%, while the overall mass two-wheeler segment experienced a degrowth of 20%. Similarly, the volume of passenger vehicles grew 20%, while SUVs (priced at a premium) shot up over 140%.

Customer Shapes The Market

Former HUL MD Sanjiv Mehta believes premium consumption trend in India is just the tip of the iceberg. "We need to recognise that growth in our industry comes primarily on three axes — more consumers, more consumption and more benefits. More consumers would come on the back of penetration, while increase in consumption would result in premiumisation. There is no category in the country which doesn't have headroom to grow. Even those such as fabric cleaning or tea, which are universally penetrated, have room to grow in terms of upgrading," he adds.

"Stock in the premium real estate segment is completely sold out. In auto, any car priced over ₹10 lakh is selling more than a sub-₹10 lakh car. Similarly, in two-wheelers, premium bikes over ₹2 lakh are selling more than the ₹60,000 segment," says Sachchidanand Shukla, chief group economist, L&T.

With demand rising rapidly for premium products, companies across sectors are upgrading their portfolios to meet the changing tastes of new buyers. Rajiv Bajaj's Bajaj Auto, whose portfolio ranges from ₹60,000 to ₹1.71 lakh, has joined hands with British bike maker Triumph to deliver premium bikes (upwards of ₹2.3 lakh) to aspiring Indian bikers. Market leader Hero MotoCorp's Pawan Munjal, who sells bikes in the range of ₹56,000 to ₹1.45 lakh, plans to manufacture the iconic American brand Harley Davidson's bikes in India at a base price of ₹2.4 lakh.

In cars, the demand for sports utility vehicles (SUVs) continues unabated — 2024 will see at least 18 launches, majority of them in the sub-4 metre compact category, and electric avatars. The new SUV list is full of models that will hit Indian shores for the first time — some with mass appeal like the Kia Sonet facelift and Hyundai Creta facelift, to marquee products such as the Ferrari Purosangue and Maserati Grecale, and everything in between.

In the battle to lure India's fashion shoppers, the country’s three retail giants — Reliance Retail Ventures Ltd. (RRVL), Tata-owned Trent and Aditya Birla Fashion and Retail Ltd. (ABFRL) — are premiumising their portfolios and actively snapping up rights for brands in expensive couture-to-high-end labels.

While Reliance Trends is RRVL's value format, the company has launched multiple formats in the premium category such as Azorte, Cover Story, Centro and White Crow. White Crow for instance is a multibrand premium format in Tier-II and III markets which houses brands such as Superdry, Red Fleece and GAS. Its online brand, Ajio, which competes with the likes of Walmart-backed Myntra, has a segment called Ajio Luxe which offers over 80 luxury brands. Ajio also has Ajio Gold, which includes bridge-to-luxury brands such as DNMX, GAP and Netplay. Apart from this, RRVL's Reliance Brands retails over 85 luxury and premium brands such as Armani Exchange, Burberry, Canali, Clarks and Coach. The retail major is also creating premium segments in categories such as lingerie, where it has five brands, all premium — Zivame, Clovia, Amante, M&S and Hunkemoller.

"Covid has changed consumption, especially at the higher end. Cost of travel has gone up tremendously, so people who were earlier buying in Dubai or Singapore are now buying in India. Prices are more or less similar, 3-5% higher than rest of the world," explains a senior Reliance Retail executive.

Similarly, Aditya Birla Fashion and Retail Ltd. (ABFRL) has been foraying into smaller markets with premium menswear brands such as Louis Phillippe, Van Heusen, Reebok, Forever 21 and American Eagle. Van Heusen Innerwear also sells lingerie products at an average price of ₹750 to ₹2,000 (in fact, traditional lingerie brands such as Jockey have also been on a similar premiumisation drive). Like Reliance, ABFRL is also sprucing up its international brands portfolio by roping in the likes of Ralph Lauren, Ted Baker, Hackett London and Fred Perry. The company is also premiumising through its acquisition of ethnic labels such as Masaba, Shantnu and Nikhil and Jaypore.

Tata Group's Trent Retail has always followed a private label, premium strategy for its brand Westside, which explains its 139% growth between FY19 and FY23. "Its own label business gives a 40-45% margin which allows these businesses to break-even," explains a senior retail expert. In addition to Westside, Trent recently launched its premium ethnic wear format, Samoh, with average pricing between ₹3,500-5,000.

Leading shoemaker Bata, meanwhile, is re-entering premium price points with fresh portfolios in formal and casual footwear. Not only is it doubling up its focus on brands such as Hush Puppies and Red Label, it recently partnered with American lifestyle brand, Nine West, to retail its footwear across stores. While Metro's premium focus has yielded results, the Indian shoe market has also seen the entry of D2C brands such as Fizzy Goblet and Oceedee. Priced at an average of ₹3,500, these brands are clicking with millennials.

Tata Consumer Products' profitability has gone up 37.83% in the last three years on the back of its strategy of premiumising. The company has even premiumised a commodity product like Tata Salt by launching Tata Salt Immune which contains zinc, and Tata Pink with natural minerals. The revenue of the salt portfolio grew 27% YoY in FY23. TCPL also launched its direct-to-consumer brand, Sonnets, for premium coffee. Instead of the usual masala and elaichi tea variants, it went back to the drawing board and launched Tata Tea Premium Street Chai, which celebrates unique tea drinking traditions across the country. Other variants include Tata Tea Gold Saffron and TeaVeda (Assam tea with Indian spices). Its ready-to-eat category, which contains millet-based foods, is priced 15-30% higher than its mass brands and is growing faster.

The biggest category outlier in the premium segment last year has been beauty. While Falguni Nayar's Nykaa started the trend, the industry at large has latched on to the opportunity. From SS Beauty by Shoppers' Stop to Tira by RRVL and salon brand, beauty and personal care has become an integral part of business models.

Margins in beauty are north of 45-50%, which makes it an attractive business for retailers, says Venu Nair, MD and CEO, Shoppers Stop. "We launched Estee Lauder, MAC and Bobbi Brown in India. As the customer is becoming more aware of beauty, we realised she is also looking for a beauty exclusive environment. We launched SS Beauty to focus on service and makeovers," adds Nair. In the race to premiumisation, India has also replaced France as the world's biggest buyer of Scotch whisky by volume, according to Crisil Ratings.

Why The Change

Come 2030, over 40% of the workforce will comprise millennials. It is a generation which seeks comfort, is earning substantially more than its predecessors and is willing to pay a premium for a high-quality lifestyle. According to a report by Deloitte, India witnessed a significant rise in per-capita income, from $1,400 in 2014 to $2,200 in 2022. This economic growth has led to the emergence of a rising middle class, projected to expand by 110 million households (from 190 million) between 2021 and 2030, equivalent to one-half of the current households in the European Union.

In line with the growth in per capita income, the switchover to premium products is also gaining momentum. Nyrika Holkar, executive director, Godrej & Boyce sees a trend of premiumisation such as demand for larger capacity refrigerators and smart kitchen appliances. "Customers need premium products at affordable prices. They are aware of new technologies and features that get embedded in the products," says Holkar.

Rajiv Bajaj, MD, Bajaj Auto, says premiumisation will be a priority for the company for achieving the targeted growth. Bajaj Auto has an 8% market share in the premium segment, above 200cc, and has an average cost upwards of ₹1.7 lakh. The Pulsar RS200 (₹1.43-1.78 lakh), Dominar (₹1.92 lakh), Husqvarna (₹2.19 lakh onwards) and KTM (₹1.78 lakh onwards) are high-end offerings along with the latest addition of Triumph Motorcycles (`2.33 lakh onwards). The automaker, which sells bikes in the range of `61,000 to `2.5 lakh, is doubling its capacity for manufacturing premium bikes to 35,000 per month by FY24 end.

Tier-II and III cities are propelling the next phase of growth in the retail sector, fuelled by shifting consumption patterns and increased purchasing power, according to the Deloitte report. In 2022, these cities accounted for over 60% of the country's total ecommerce orders, outpacing Tier-I markets. Tier-III towns saw 65% order volume growth, while Tier-II registered 50% growth. Tier-1 cities saw 10% growth.

Going Up The Ladder

The craze for premiumisation has travelled to villages as well. In Kundewade village, 60 km from Nashik, kirana store owner Kantilal Jain displays three 100 ml bottles of HUL's premium hair oil Indulekha priced at ₹270, along with 100 ml bottles of Parachute priced at ₹140 in his 200 sq.ft. shop. The premium hair oil brand finds takers even when consumption sentiment is low due to poor rainfall in the area. Jain says he has sold 10 bottles of Indulekha in the last two months. "There is a rise in demand for some of these premium brands. Customers here see value in buying them."

Buying a high-end car, a premium home or an expensive dishwasher are obvious examples of premiumisation, but the trend is also picking up in categories such as construction materials, paints, switches, locks and farm equipment too. Pidilite Industries, known for adhesive brands such as Fevicol and Araldite, derives 45% of its growth from specialised premium products. While a 100 gm bottle of Fevicol is priced at ₹54, a 100 gm bottle of Fevicol MR Adhesive Glue for arts and crafts is priced at ₹150. The company has launched a slew of specialised products such as Fevicol Pro Bond, a specialised adhesive meant for PVC and acrylic surfaces (priced at ₹422 for a 1 kg pack), Roff, a tile-fixing adhesive (priced at ₹220 for a 100 gm pack), Dr Fixit Raincoat, a chemical water-proofing external coating product used in construction (variants are available in different price ranges, from ₹450 per litre to ₹650) and Fevistick Power, which sticks multiple materials on cardboard priced at ₹35, compared to the regular Fevistick available at ₹25. Capitalising on the growing trend of pastels, Pidilite's Fevicryl recently launched a set of six acrylic pastel shades for art enthusiasts at ₹150, while a pack of regular colours is available at ₹100.

Despite being priced 20-40% higher, these products are doing extremely well, says Sudhanshu Vats, deputy MD, Pidilite. "Consumers, as well as users (carpenters, plumbers, etc), are continuously seeking more premium and innovative products and are willing to pay slightly higher prices for better value. The quality of construction and home improvement products has improved because consumers are demanding newer features and specialisation," he adds.

Not only is demand for high-end homes on the rise, consumers are now extremely picky when it comes to buying switches, lights and even security systems. "Indians are asking for aesthetics even in mass products and are willing to pay a premium for it," says Yoshiyoki Kato, MD, Panasonic Electric Works India. Kato says there is a shift happening from non-modular switches. "A regular switch is around ₹21, while a modular switch could cost between ₹30 and ₹45, but there are more takers for the latter. Similarly, in lights, there is huge demand for fancy lights and light fixtures, which come at a 15-20% premium. Even mass consumers are looking for better features, more colourful products and superior quality," he adds.

"Developers are expected to focus on smart homes with cutting-edge technologies, eco-friendly features and amenities, promoting an enhanced work-life balance. The anticipation is for increased demand in residential spaces, leading to the rise of expansive, smart townships in the outskirts," says Pavitra Shankar, MD, Brigade Enterprises.

Premiumisation has picked up steam in the construction sector as well. UltraTech is working to improve the share of blended and premium cement products to improve profitability. According to the company's FY23 annual report, it has developed Weather Plus and UltraTech Premium to provide enhanced performance in terms of strength development and better resistance to water permeability.

"UltraTech has ensured the reach of high-quality and GreenPro-certified products till the last mile. Along with cement and application-based concrete solutions, we offer contemporary building products to modern, aspirational individual home buyers as well as landmark infrastructure projects," says K.C. Jhanwar, MD, UltraTech Cement.

Tata Steel, meanwhile, is working on premiumising its business with the launch of new products. It is ramping up its new materials business (NMB) — which includes composites, graphene and medical material and devices. JSW Steel, on the other hand, is rapidly scaling up its downstream capacities to address the growing demand for specialty steel in India — especially in user industries such as renewable power, automobile and white goods. The company has scaled up its value-added/specialty product capacities to 60% of its overall sales.

FY24 has been a lacklustre year for the farm sector, and tractor sales are likely to register a degrowth at the end of the fiscal. However, over 40% of the sales of most tractor companies have come on the back of higher horsepower (HP) tractors. There is a higher demand for 50-60 HP tractors, while the 20-40 HP tractors which have been the mainstay for several years have been degrowing. The higher horsepower tractors cost 20-25% more, and the new generation of farmers who want to get rid of the drudgery are willing to shell out the extra amount. They are looking for features such as four-wheel drive, dual clutch and auxiliary valve, which can be attached only to higher horsepower tractors. Labour shortage is another reason why farmers are embracing premiumisation.

Farmers are not just buying higher horsepower tractors, but investing in equipment such as rice and wheat transplanter, rice harvesting machine and rotavators. "Our farm mechanisation business is up 40%. Even farmers want to do more with less. They want a tractor with a rotavator, they don't want to plough. Our market share of rotavators used to be 9% two years ago, now it is 22%," says Hemant Sikka, president, Mahindra Farm Equipment.

In home-furnishing categories such as bed sheets and towels, consumers are moving up the value chain to charcoal-infused bed sheets, hygro cotton towels and temperature-regulating sheets. Companies such as Welspun get over 40% of their sales from premium products. The demand for premium products even in a category such as bed sheets and towels is not restricted to the higher strata. Welspun's two-in-one bed sheet and quick-dry towel are among their largest-selling SKUs (stock-keeping units) in Tier-II and III markets. Priced higher by 10-15%, these products, says Dipali Goenka, MD and CEO, Welspun Living, are specially designed for Tier-II and III audience. "With the expansion of the higher-income bracket in the Indian pyramid, consumers are increasingly inclined to invest in products that offer superior quality, design, and functionality. This trend spans various demographics, highlighting a widespread appreciation for the value addition that premium products bring to homes and lifestyles," says Goenka.

The consumer durables industry is investing to upscale capacity and create an ecosystem of domestic manufacturing of components as the PLI (Production-linked Incentive) scheme catches pace, significantly in mobiles, AC components, lighting and IT hardware. According to LG Electronics, the demand for premium products such as bigger-screen TVs, higher-capacity washing machines, and large-size refrigerators is increasing in the country.

Premium Experiences

Rewind a decade back, the alcoholic beverage industry was perhaps the most unglamorous of all sectors. Apart from stringent, unfriendly policies, the retail experience was far from delightful. Upwardly mobile consumers mostly shopped for their preferred brands at duty free stores of airports worldwide. But the industry has had a complete facelift over the last few years. The country today has a slew of premium made-in-India liquor brands such as Amrut, Godawan and Longitude77, handcrafted Indian whiskies launched by Diageo India and Pernod Ricard India, respectively. India has also made its mark in premium gin with brands such as Tamras, Hapusa and Greater Than. Around 80% the revenue of top alco-bev companies comes from their premium portfolio, priced upwards of ₹1,000 for a 750 ml bottle.

There are also a host of premium alcohol retail stores such as The Liquor Warehouse and Mansionz which have made alcohol retail more experiential. Jean Etienne Gourges, chairman and CEO, Chivas Brothers, attributes the dramatic change in the alcohol consumption landscape to the pandemic. "During the pandemic, in India, there was more consumption at home. This brought newer consumers on board. The habit has stayed on. People are more knowledgeable now, and the shopping environment is much more female-friendly. This has led to a broader spectrum of consumers and paved the way for premiumisation," says Gourges.

The expansion of the consumer base has enabled brands to innovate better. "Indian consumers want experiences that create memories. It's no longer about buying a product and being happy, it's about buying an experience, buying a purpose. Premiumisation earlier was all about higher cost per unit, now it is translating to value per experience," points out Shweta Jain, chief business development officer, Diageo India. Apart from recrafting the spirit of its popular brands such as Royal Challengers, and McDowells to appeal to a wider mass, Diageo India has forayed into craft whisky with Godawan. Distilled in the dry, arid region of Alwar in 40-degree centigrade temperature, Godawan is the complete opposite of the famed Scotch whisky. The company recently launched a limited-edition series, Godawan 100, priced at ₹91,500 for a 700 ml bottle.

If one associates luxury food retail with Harrods and Selfridges in London or Agata & Valentina in New York, India is right there. The RPSG Group recently launched Nature's Basket Artisan Pantry, its luxury food retail offering. The 12,000 sq.ft store boasts of unique gastronomic experiences from across the world. "We are selling caviar for the first time in India, not just fish but also vegetarian. Our truffle bar not just has packaged truffles, but a wide assortment of fresh truffles as well. Almost everything that you get would be artisanal in the store, unique to the store, and uniquely sourced," says Shashwat Goenka, chairman, Spencer’s Retail.

Consumers shopping for premium food brands at Spencer's Nature's Basket chain of stores are asking for luxurious experiences. "We worked closely with our priced consumers and understood what they looked for in each category, that’s how we developed this format," adds Shashwat.

Road Ahead

Premiumisation is here to stay, says former HUL MD, Mehta. "If as a country we were to grow at 7.7% for the next few years, our per capita income would also go up. This will change the consumption story. People at the bottom of the pyramid would move up to lower middle class and lower middle class would move up to higher and their propensity to consume would go up significantly," he adds.

Gopal Asthana, CEO, TataCliq agrees. "The latent desire for premium products in India has always been present, but in the last five-six years, it has seen consistent growth. Multiple industry reports indicate a strong economic outlook, fostering a desire to upgrade lifestyles and fuelling demand for premium products. In addition, growth in order values is expected, particularly as non-metro areas embrace premium categories," says Asthana.

L&T's chief economist, Shukla, has a conservative take though. "The K-shaped recovery is based on the premise that consumption and income level of people in the top tiers have stayed intact. Their purchasing power is higher as they couldn't buy anything during the pandemic years. There is an income effect as well as a wealth effect, as markets have done well. However, bottom incomes have not come back to their desired levels. Any consumption category that caters to these income levels has been impacted," he explains.

However, a trip into the heartland brings alive the aspiration of the average Indian. Bad monsoons are no doubt a dampener, but the urge to consume exists. A farmer wanting to upgrade to a SUV from an entry level car may have postponed his plan for the time-being, but he is sure that having his dream car is just a matter of time. The Indian consumer no longer wants to make do with mediocrity, and that gives companies enough room to innovate.