Consumerism in India, which is based on around 208 million households, is buoyed by current GDP growth in the region of seven to eight percent.
Of the total households, only a little over six million are "affluent" - that is, with annual household income in excess of 215,000 Indian rupees (INR), the equivalent of $4780 in U.S. dollars (USD). Another 75 million households are considered "well-off," earning between 45,000 INR and 215,000 INR ($1000 - $4780 USD).
In the recent past, the organized consumer goods sector has concentrated almost exclusively on the affluent category. The challenge for organized retailers, distributors and consumer goods manufacturers is to capture more rupees from consumers in the much larger well-off category, as well as increasing penetration and returns among the affluent.
One noteworthy demographic is that India's consumers are predominantly young: 54 percent of Indians are under 25 years of age. That means public finances will come under less strain than in most other countries, making infrastructural investment easier and allowing the economy to continue growing well above the global trend.
According to the National Council of Applied Economic Research (NCAER), this pro-growth demographic factor will be an important contributor to the expansion of consumer markets in India. The NCAER forecasts that the number of consumers driving growth will rise from 46 million households in 2003 to 124 million in 2012.
On the other hand, India still has a relatively narrow middle-class, reflecting a lower proportion of urban households compared to some Asian countries. It is estimated that around 70 percent of Indians live in the countryside.
Rural India consists of 720 million consumers across 627,000 villages. It is estimated that 17 percent of these villages account for 50 percent of the rural population and 60 percent of the rural wealth, implying the need to reach over 100,000 villages to address even half of this rural opportunity.
Discussion Question: Going by the urban-rural consumer divide in India, how can international players map out a retailing format and distribution strategy?
For the organized sector, distribution would be the key. Poor quality of infrastructure coupled with poor quality of the distribution sector, results in logistics costs that are very high as a proportion of GDP, and inventories, which have to be maintained at an unusually high level.
Food and beverage offer the greatest organized retail growth opportunities, say companies. The main growth opportunity in the segment is in processed foods: rapid growth in the processed food segment is already apparent; changing lifestyles and food habits are resulting in the rapid expansion of branded food outlets and café chains.
In terms of product categories, it is estimated that food, beverages and tobacco currently account for $195 billion out of $300 billion in retail sales. The apparel category follows with $21 billion. Two categories - personal care, and jewelry and watches - each account for $15 billion currently. Consumer durables and IT together are currently estimated to be worth $14 billion in the organized sector.
Roger Corbett, independent consultant, Woolworth's, says the Indian consumer has a high understanding and desire for the latest in technology.
One interesting example is Infiniti Retail, a 100 percent subsidiary of Tata Sons, which owns and runs Croma, a countrywide consumer electronics and durables chain. It opened its first store in October 2006. In an effort to help consumers make informed decisions, Croma has been equipped with trained professionals who are undergoing an extensive training program that will equip them with in-depth knowledge of the products and brands available at the store, thereby allowing them to provide the right kind of guidance to the customer.
Considering the potential of growth of organized retailing in India, tipped to touch $637 billion by 2015, there are strong indications that the market can accommodate all the new stores and higher-end products. But for foreign product manufacturers, the possibility of dominating the shelf space would largely depend up on their understanding of consumer choice, buying behavior and distribution strategy.