Deciphering India s Demographic Puzzle: A Consumer & Retail Perspective

Transcription

1 Deciphering India s Demographic Puzzle: A Consumer & Retail Perspective The projected shift in age groups, emergence of large distinct income groups, increasing relevance of urban India and growing share of large cities within urban India are important triggers for companies in consumer facing industries to revisit their strategies, else risk being caught off guard, say Pankaj Gupta, Practice Head - Consumer & Retail and Rajiv Subramanian of Tata Strategic Management Group. Between 2006 and 2016, India s increase in population is expected to be 157 Mn, which is a little greater than the current population of Russia. Within this addition, demographic shifts like a larger working population, increasing urbanization and a burgeoning middle class have been topics of extensive discussion. However, certain other trends like the decrease in the <14 age group, increase in >60 age group, greater concentration of urban India and rapid increase in the number of high income households may have been overlooked. These trends could be crucial for companies in the consumer centric products and services domain in identifying future opportunities and threats. India s Changing Age Mix 118 Mn old age population (>60 ) by Mn reduction in the <14 age population U.P, Maharashtra, Bihar, Rajasthan and M.P contribute to >50% of the addition in working age(15-59 ) population Table 1:Shifting Age Mix (Mn Persons) > ~356 ~340 < Table 2: Shifting Age Mix Proportion (Percentage) <14 <14 27% 32% >60 60% 64% 9% >60 8% Source: Population Projections (Census Commissioner), Analysis by Tata Strategic Projections indicate a 35 Mn increase in the old age population (>60 ) between 2006 and This is facilitated by the anticipated improvement in the life expectancy levels from 68.1 in 2006 to 71.1 in States like Tamil Nadu, Andhra Pradesh, West Bengal, Maharashtra and Uttar Pradesh are the major contributors of this addition. Page 1 of 6

2 In the 0-14 age group, a 17 Mn population reduction is expected in the period (Table 1), of which the age group will be the major contributor. This trend is expected across all states with the exception of Uttar Pradesh and Delhi. The projected increase in working age population (15-59 ) has been repeatedly cited as the foundation for India s future positive economic direction. Uttar Pradesh, Maharashtra, Bihar, Madhya Pradesh and Rajasthan are expected to contribute more than 50% of the 142 Mn increase in the labor pool between 2006 and Emergence of Large, Distinct Consumer Income Segments Four fold increase in households with annual income >Rs 12 Lakhs 3.4 Mn households in the highest annual income band (>Rs 24 Lakhs) 4 Mn reduction in low income households (Annual income< Rs 2.4 Lakhs) Table 3: Income Pyramid No of Households in Mn ( Prices) Annual Income E Income Level Rs. Lakhs (USD 000s) >24 (>60) High ( 30-60) 6-12 (15-30) (6-15) Middle High Middle Low <2.4 (<6) Low Total ~205 ~237 Source: NCAER, Tata Strategic Between and , the number of households with annual income greater than Rs 12 Lakh (USD 30,000) will grow nearly four fold. Within this band, there are 3.4 Mn households with an income in excess of Rs 24 Lakh (~USD 60,000) at prices. This segment is likely to include more than 15 Mn people, greater than the population of Denmark, Finland and Ireland put together. By 2014, the middle-high income band will consist of a substantial 11 Mn households. At a median income of USD 22500, this segment represents a total income pool of nearly USD 250 Bn. With spending patterns similar to the high income group; this segment represents a very significant chunk of the consuming base. Page 2 of 6

3 A positive trend is seen in the middle-low band as well, where the number of households is likely to increase from ~14 Mn in 2006 to over 35 Mn in While low income households will remain the largest segment, their numbers are expected to decrease by about 4 Mn (0.3% CAGR) in the same period. While these households are largely rural, a substantial portion would be in urban India as well. Increasing Relevance of Urban India Urban population in India ~400 Mn (2016) Highly urbanized states have higher incomes and urbanize faster 75 cities with population greater than one million will contribute ~63% of India s urban population (2026) Urban NDP to contribute 61% of total NDP (2011) Table 3: Changing Urbanization Map Of India Haryana, Punjab, Delhi Maharashtra, Gujarat Tamil Nadu, Karnataka Urbanized population as % of total population Low 0-20% Medium 20%-35% High > 35% Source: Population Projections (Census Commissioner), Analysis by Tata Strategic While public memory is constantly refreshed that India lives in villages, with urbanization levels slated to cross 31% by 2016, the urban population will be ~400 Mn. Tamil Nadu and Maharashtra with a population of 63 and 81 Mn respectively in 2001 are expected to cross the 50% urbanization mark in 2007 and 2020 respectively. Page 3 of 6

4 Table 5: Current vs Projected Urbanization 100% 40% 35% Delhi Maharashtra Gujarat Karnataka Punjab Tamil Nadu A&N Isl. Urbanization % (2001) 30% 25% 20% 15% 10% West Bengal INDIA MP AP Kerala Jharkhand J & K Rajasthan UP Meghalaya Nagaland Orissa Assam Bihar HP Sikkim Uttaranchal Chhattisgarh Haryana 5% 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Expected change in urbanization % ( ) Note: (Urbanization: Expected change in urbanization) Manipur-26.7%:-2.4% Lakshwadeep-42..7%:-23.6% Daman & Diu-33.8:-18.3% Source: Population Projections (Census Commissioner), Analysis by Tata Strategic 100% Urbanization trends across geographies indicate that states with high urbanization have higher income levels and tend to urbanize faster than others. Thus, current high incomehigh urbanization states like Delhi, Tamil Nadu, Karnataka, Punjab, Haryana, Maharashtra and Gujarat assume greater importance for marketers in future (Table 5). By 2026, the number of million plus cities is expected to increase from a current 35 to 75. The contribution of these 75 cities to the total urban population is likely to go up from 48% in 2001 to ~63% in Most likely their contribution to the total urban spend would be much higher resulting in higher concentration of spending power. Table 6:Ratio of Urban to Rural PCI Table 7:Ratio of Urban to Rural NDP Urban to Rural PCI Ratio Source: Analysis by Tata Strategic Urban NDP as % of Total NDP % Page 4 of 6

5 Incomes are slated to increase faster in urban India than in rural India. The ratio of per capita incomes in urban to rural India is expected to go up from 3.3 in to 3.7 in (Table 6). Expectedly, share of urban India in the country s net domestic product would go up from 52% in 2000 to over 60% in 2011 (Table 7). Increasing Marginal Utility Of Time Lack of time is increasingly shaping consumer preferences in urban India Rise in urban working women has amplified the trend Lack of time is fast becoming the basis for many consumer preferences in urban India. Smaller trends listed below are contributory factors to this shift in consumer behaviour. Indians have been typically referred to as hard workers. This perception has been strengthened by a recent study which revealed that Indian business leaders typically put in the maximum number of working hours (57 hours) per week as compared to their counterparts from 31 other countries. The non-working time available to an urban Indian has been gradually eroded by the increased travel time caused by the increase in traffic on the roads. Sales of two wheelers and passenger cars put together have increased from 42 Lakhs in to ~70 Lakhs in With a less than proportionate increase in the length of roads, traffic on the road is bound to go up resulting in increased travel times. Indian women traditionally stayed back at home to look after the kitchen and the household. There has been a gradual but steady increase in the working urban women in India. This has led to an increased realization of lack of time in double income households in urban India. This need is more likely to be felt in the southern states of Andhra Pradesh, Kerala, Karnataka and Tamil Nadu which have a higher urban working women proportion of 16% as against a national average of less than 12%. These factors contribute to the increase in marginal utility of time in urban India with lesser number of hours available for the same or more number of tasks. Page 5 of 6

6 Implications To understand the implications of the above discussed trends, let us analyze their broad impact on the food sector. While the projected economic prosperity is likely to reduce share of food in overall consumption expenditure, processed food will take a bigger share within the food pie. The increase in the population of the age group will aid this shift towards processed food with increasing demand for convenience from this consumer set. While health and wellness food segments are likely gainers from the increase in the old age segment, a projected decrease in the <14 population might hinder the growth story of companies in children focused food categories. With distinct income groups emerging, companies will need to look at a differentiated portfolio in order to leverage the increase in willingness to pay. The need for differentiation can be better understood by taking the case of the drinking water category. Some of the possible product offerings are tap water, bottled tap water, mineral water, sparkling mineral water and enhanced water. While tap water satisfies the basic need at the bottom of the income pyramid, enhanced water which is expensive would be an apt offering for the sizeable high income group in India. Also, companies might need to review their route-to-market to maximize efficiencies while targeting these different income groups. For example, traditional retail outlets catering to predominantly high income and low income households may require different Route-To-Market approaches by companies. With Indians expected to become Time Poor Money Rich, product segments answering the need for convenience are likely to exhibit higher growth. Urban India is likely to spearhead these demand shifts with faster growing incomes and favourable consumer preferences. Throughout the 90s and the early part of this decade, marketers were taught that the key to growth lay in increasing rural penetration. However, with greater urbanization and faster increase in urban incomes, the urban consumer is gradually regaining centre stage. With such fundamental shifts taking place in their consumer base, companies in sectors like food, financial products, healthcare, consumer durables, personal care, household products and apparel need to revisit their strategies, else risk being caught off guard. Tata Strategic Management Group. No part of it may be circulated or reproduced for distribution without prior written approval from Tata Strategic Management Group. Page 6 of 6