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Buy, India, Buy...
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As N.B. Kumar, joint managing director, Thangamayil, narrates this anecdote, an audible chant of mantras floats in from the adjoining chamber. It's not an afternoon puja for the several deities that adorn the store, but customers taking delivery after the ornaments are blessed by the lord. In this case, the customers are a couple of women, probably labourers, accompanied by a child with no footwear and dust to his knees.
All sorts of customers enter Thangamayil, from wealthy merchants from neighbouring Tenni or Rajapalayam, to the mason next door. Kumar firmly believes that "we are not here to do business only with rich customers, or only in big cities". In fact, business has been so good in places such as Madurai and its neighbourhood that Thangamayil has put on hold plans to expand into other bigger cities of Tamil Nadu such as Coimbatore. Even leading jewellers from Kerala have set up shop in Madurai on the same street as Thangamayil.
|Madurai's Thangamayil Jewellery has customers in wealthy merchants from neighbouring Tenni or Rajapalayam and also in the mason next door. Some buy jewellery worth Rs 20 lakh at one go (BW pic by M. Lakshmanan)|
Madurai is described as a C-town by a leading durables marketer while the National Council for Applied Economic Research (NCAER) categorises Tamil Nadu as a middle-income state. Still SUVs fly off (okay, drive out fast) from the showrooms. P. Kumar of Ad India, who runs a Madurai-based event management and advertising firm, points out that the town is the biggest market for Pajeros in entire Tamil Nadu.
With nearly 590 million urban consumers by 2030, from 290 million in 2001, and an estimated per capita spend of about Rs 50,000, one is talking of a huge market. (Now, how many zeroes in that number?) A McKinsey Global Institute study forecasts that the number of middle-class households with Rs 2-10 lakh income will increase from 13 million households (that is, 5 per cent of the population) in 2006 to 128 million households (41 per cent of the population) by 2025.
A Consumer Epidemic
Of course, Madurai is not the only town on a shopping binge. There is Meerut, Dhanbad or even a Bahraich. Across India, "consumers are devouring whatever comes their way", as Anisha Motwani, chief marketing officer, Max New York Life, puts it. "The profile of consumers has altered dramatically over the past few years. Income levels have gone up dramatically. The wealth effect has spread across the population. There is less penalty on conspicuous consumption," says Giriraj Bagri, vice-president, marketing, India and South Asia, Castrol.
On just another day, a grandmother in a small town in north India entered a Maruti Suzuki showroom and spent her life's savings on the car of her choice. The last thing on her mind was a driving licence for herself. Rather she wanted to experience the pride of seeing her new-born grandson being brought home in a four wheeler.
Consumer behaviour differs across regions. If some want to make a statement, others want to keep it quiet. A customer in south India insisted that his new LCD television be wrapped only in old newspapers while being delivered. The customer, a mason, did not want to alert his neighbours of his princely possession.
|Cosmos, one of Siliguri's popular malls, hosts a cache of big brands including Levi's, Adidas, Color Plus, Timex, Fab India, GKB, D'Damas, Musicworld and Reid & Taylor|
If customers in the South swear by their jewellery and their consumer durables, then people in the North-east love their clothes and food (especially chicken). In a 1 km-stretch in Guwahati's main thoroughfare, G.S. Road, one can spot more than six Levi's showrooms and nearly a dozen malls. When Kentucky Fried Chicken (KFC) opened its first outlet in Guwahati earlier this year, it had more seats than even its Kolkata outlet (144 covers as opposed to 120 seats in Kolkata). And yet, in its initial days, there were half-a-kilometre-long queues outside the outlet.
It is not just big-ticket purchases, but tubes of hair colour also figure in the shopping list. FMCG data compiled by consumer research company Nielsen shows that small-town India is also taking rapid strides in usage of hair colour, with more than 15 per cent of the demand being for colours other than black. R.K. Sinha, a senior Godrej Consumer Products executive, points out that it does not mean that consumers in small towns will go the whole hog and colour their hair in shades of golden or purple, but would stick to a dark shade of brown or burgundy. Of course, most of these customers belong to the North where the natural colour of hair is much lighter than in the South.
|THE CONSUMER DIVIDE|
|Does a moradabad consumer behave differently from a consumer in Mumbai? Even when all sets of consumers demand all things small and big, there are some difference between big cities and small. |
Part of the answer lies in a study by research agency IMRB on the buying patterns of fast-moving consumer goods (FMCGs). Both urban and rural areas show a preference for similar kinds of foods — categories such as noodles and bottled soft drinks show high growth rates in both urban and rural India. But the key difference lies in the reason why consumers buy them.
While the urban consumers keep one eye on ‘health benefits' in foods they buy, the semi-urban and rural masses buy for aspirational reasons. While urban India is moving towards premium personal care products, the semi-urban and rural centres are shopping for household cleaners with hygiene in mind.
The levels of aspiration also cut across regional boundaries. Sandalwood fragrance soaps were once predominantly targeted towards south Indian consumers. Now, a Godrej No. 1 mass-priced sandalwood soap has become the most sold soap in Uttar Pradesh, making the brand the largest seller in the state.
In the consumer durables business, Tier-II markets "are moving into a totally different league of products such as fully automated washing machines, two-door refrigerators and flat panel televisions", says Samsung India's deputy managing director, Ravinder Zutshi. When the cathode ray tube (CRT) televisions have been junked by most customers across India (with the category degrowing at 6-7 per cent), in Madhya Pradesh, Chhattisgarh and in some parts of Maharashtra and Andhra Pradesh, it is still growing. Other small towns are graduating to what they call Calendar TV, or LCD televisions. The 22-32-inch models have taken off very well. Then, as Yasho V. Verma, COO of LG, points out, front loading washing machines have been selling well in B and C towns in the past 10-odd months. Why? The company is in the middle of decoding the trend.
Television consumption, too, has differences. There is big demand for cartoon channels (and for Disney merchandise) in small towns, and WWE, a wrestling show on Ten Sports, in Haryana and Tamil Nadu.
It is not just the colour of hair that is important. According to consulting firm Ernst & Young, most of the demand for male skin-whitening creams — a Rs 300-crore market in India — comes from small-town India. And that market is said to be growing in excess of 100 per cent. "Gone are the days when a rural consumer was content with using mustard oil and plain soap for hair and skin. Today, she seeks special branded products for her daily skin and healthcare needs," says George Angelo, executive vice-president of sales at Dabur India.
And as Yasho V. Verma, COO of LG Electronics, points out, "Small-town consumers are not price-conscious, but value-driven. They want good returns on investment." He adds that buyers are well informed even before they enter a store because the "B- and C-class towns go online to check product trends". Motwani of Max New York Life concurs. When her company launched a talent search contest, Igenius, across India, almost 50 per cent of the applicants were from small towns, and many had applied online. In fact, the last edition's winner was from Bulandshahar, a market where the company had not even actively campaigned.
According to e-commerce site eBay, online shopping is active across 1,054 towns in India. While Tier-II cities shopped for items such as sarees and laptops, the metro consumer bought party wear and notebook PCs.
A big reason for rising incomes turning into aspiration and, finally, consumption, is the increasing penetration of cable and satellite television. While the number of cable operators in India exceeds 60,000, according to Telecom Regulatory Authority of India (Trai) statistics, DTH operators, Airtel Digital, for example, are seeing their subscription base grow largely due to demand from smaller towns. Airtel DTH expects to close 2010-11 with 34 million customers, of which more than 60 per cent are coming from beyond the top 600 cities. Now, Airtel Digital television is available in over 21,000 of the 27,000 pin codes across India.
DTH, in fact, is a case that shows how all of India is consuming at the same time. Earlier, in most categories — such as mobile phones, LCD televisions, two-wheelers — the traditional percolation growth model was at work. Big cities adopted them first, followed by larger towns, smaller towns and then villages. The critical difference in new technologies such as DTH has been the almost equal spread — smaller population-areas adopt DTH either at the same time or, in some cases, faster than many urban areas. Similar trends can also be seen in mobile phone entertainment, where states such as Kerala and Punjab lead in consumption of entertainment through mobile handsets, according to a study by mobile advertising company Buzzcity.
At one level, even the broad definition of ‘small towns' is changing. Earlier, when marketers mentioned top cities, one could be reasonably confident that it was a reference to the top four metros (Mumbai, Delhi, Chennai and Kolkata) and later on, the top six metros (including Bangalore and Hyderabad). Now, most sales and marketing directors keep an eye on not just the big metros, but also on Tier-I towns (more than 1 million population), Tier-II towns (more than 500,000 people) and even Tier-III towns (more than 200,000 population). But as marketers are realising, even that is not enough.
The McKinsey study on urbanisation of Indian cities indicates that the number of cities in India with 1 million-plus population (Tier I) could go up from the current 42 to 68 by 2030. So, today's Tier-II town could be tomorrow's Tier-I, a Tier-III could become a Tier-II, and so on. And what marketers now loosely term as rural, for anything beyond the top 100 cities, may also be in for a redefinition.
In the current context, what is coming through loud and clear, is that as most consumption indicators remain focused on either big cities or the villages where most of India still lives, the mid-rung and smaller towns are coming on to their own with a sizeable middle-class driving consumption. Numbers from various sources bear this out.
|EAR TO THE GROUND|
Irfan, a counter salesman at a large department store in Guwahati, points in the direction of Christian Dior, Giorgio Armani and DKNY on the shelves. Without a second thought, customers pick up the bottles of perfume that cost Rs 6,000. "People here do not shop looking at price tags. They shop from their heart," he says. Two things are evident at the Guwahati-Shillong Road (G.S. Road, the largest shopping stretch in Guwahati) — the construction boom and the retail explosion. Less than 10 years ago, this was marsh-land. Now there is a mall every 100 metres. Retail rentals, some say, are Rs 100-125 per sq. ft per month — equivalent to rentals in Mumbai's suburbs. As a counter salesman, Irfan takes home only Rs 4,000 a month. But the land that his father had bought for a little under Rs 2 lakh some years ago, a few kilometres away from the store, is now worth nearly a crore.
In Madurai, a sales assistant at a large organised chain of home furniture outlets has a similar story. Households own agricultural land, but also have non-agricultural incomes. Then, there is a lot more employment being created in non-agricultural sectors in small towns. A study by Assocham indicates that in 2010-11, 17 Tier-II cities such as Pune, Bhubaneswar, Chandigarh, Lucknow and Surat cornered 38.8 per cent share in creating 253,702 jobs; 33 Tier-III cities such as Allahabad, Udaipur, Agra, Ajmer, Kota and Meerut accounted for 23 per cent share with 150,391 new jobs. K.V. Seshadri of rural marketing specialist Anugrah Madison points out that focus groups among sugarcane growers made one thing very clear — their children would not get into farming.
While the Indian Readership Survey numbers indicate the numbers rising for both number of households and consumption of goods in towns with less than 500,000 population (see ‘Long Shopping List', page 38), a study by the McKinsey Global Institute, called Bird Of Gold, forecasts that urban consumers will form 62 per cent of the market by 2025, up from 43 per cent in 2006.
Some companies are already witnessing the results of focusing beyond metros. Samsung expects 30 per cent of its sales to come from Tier-II towns and below by 2013, from 23-24 per cent at present. Dabur's 30 per cent sales are from Tier-I and Tier-II markets. "Tier-II is growing the fastest within the segment — almost 50 per cent more than metros. And these trends are similar across India's four regions," says Dabur's Angelo.
Clearly, the code to tapping India's huge consumer base does not lie in either the metros or villages. The answer lies somewhere in between.
(This story was published in Businessworld Issue Dated 02-05-2011)