Wine vs Tea: India’s consumption trends show a sharp divergence

• Inflation has been eating into the purchasing power of lower and middle income groups with many essentials’ sales falling.
• Majority of the upper and upper middle class respondents saw their household incomes go up more than inflation.
• There is a dichotomy seen in online festive sales too as premium products are bought with discounts and purchase options say experts.

There are two Indias within the great sub-continent. One where the day-breaking drink of tea has become dearer for many this year and the other half is doubling down on wine purchases. Neither of them are affected by the base effect of last year. Tea sales were down last year too, and wine sales were up — darkening the ‘K’ line on economic recovery charts.

Madan Sabnavis, the chief economist of Bank of Baroda calls it a schizophrenic pattern of consumption. “Sales are doing better in categories where price does not matter,” he tells Business Insider India.

It’s discretion not price

The categories of goods where price matters are seeing low growth in output – a reflection of demand. Some of the casualties are detergent powders, groundnut oils, shampoos and hair dyes. Their output fell between April to August 2023, compared to the year before, as per BoB economics research.

Inflation has a more indirect effect on these purchases. For example, tea and shampoo saw moderate inflation but their demand fell. Inflation was high in coffee, toothpaste and soaps but their demand grew. “The generalized inflation factor has been at work where real income has come down thus leading to lower purchasing power,” said BoB.

In a survey conducted by UBS, about 46% of respondents said that they’re buying less personal care and packaged food compared to last year. For purchase of home care products, the respondents were largely neutral versus last year, it added.

India’s largest FMCG player Hindustan Unilever with a large presence across rural and urban India has seen a direct impact of it in the quarter that ended in September 2023. Its overall urban volumes grew 3% and rural volumes fell 1%.

“Rural recovery is likely to remain gradual,” the company said in its investor presentation indicating that the situation might not see any dramatic recovery in the coming months. Rural India saw reverse migration during the pandemic, but not all of them have gone back, opines Sabnavis.

A chunk of downtrading is also being seen in urban areas amongst income groups that are facing the heat of inflation, experts add.

At the other end

This is, however, only one half of the story. At the other end, many Indians are not blinking while making discretionary purchases. A majority of the upper and middle class respondents – 65% – surveyed by UBS, saw their household incomes go up more than inflation.

“The top 20% of the population account for the bulk of discretionary consumption. The survey results support our view that affluent consumers‘ income levels are holding up, as reflected in corporate wage growth that continues at double digits,” said UBS.

Lalit Jhawar, co-founder and CEO, LandCraft Retail says that high-end gourmet products in urban areas have been steadily increasing over the last few years. He owns a luxury gourmet retails store- Food Square in Mumbai, which sells cheeses, truffles, caviar, artisanal breads and all the other international food items.

“Affluence in urban areas has grown, resulting in a larger number of consumers with higher discretionary income,” Jhawar tells Business Insider India.

Online sales: A story of dichotomy

Another sign of higher spending is seen in the e-commerce festival sales. The first week of the many festival discount sales saw ₹47,000 crore worth of goods being sold, which is 19% higher than last year, says Redseer Consulting.

Online sales, which now sees a good measure of metro and demand from Tier 2 and Tier 3 cities, is showing a dichotomy as well, say experts.

“Two Indias have come into play where one India is saving up and waiting for prices to come down to clinch a good deal on premium products. On the other hand, there are low-value product sales i.e value-for-money purchases that are being bought more frequently,” said Abhishek Tandon, engagement manager at Redseer Strategy Consultants.

The sale season, which is manna for bargain hunters, is also enthused by the number of Buy Now Pay Later and EMI options. “When it comes to big ticket purchases, premiumization is bolstered by financing options and discounts that make it affordable,” adds Tandon.

In the pre-festive period between April and August,however, most consumer durable sales were in a negative zone, due to the high-base effect of last year, says Bank of Baroda’s report. Refrigerators, mobiles, readymade garments all showed a negative output – also indicating that discounts play a large role in discretionary purchases.

Indian consumers have always been complicated and price has always played a big role in purchase decisions, choice of brands and more. But it’s no longer a linear story. One end of the market, driven by affluence, is veering towards premium purchases. The other end is looking for ways to survive with less in hand as inflation is eating into their purchasing power.

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