Indian consumer market to see strong growth

19 July 2017

Consumer spending in India is set to increase to $4 trillion by 2025. The country will see considerable expansion to the top two tiers of spending groups, whose share of total consumer spending is projected to reach 40% by 2025. The country's rapidly proliferating internet access is likely to see online shopping increase by 10%, along with online-influenced buying behaviour, which is projected to be involved in 25-30% of total spending.

The Indian economy is expected to see strong growth in the coming decade, with conservative estimates indicating growth of between 6-7% up until 2025. Consumer expenditure, however, is set to quadruple over the same period, with growth rates of 12% CAGR, with the total market to hit $4 trillion by 2025 – making it the world’s third largest consumer market.

In a new report from Boston Consulting Group, titled ‘The New Indian: the many facets of a changing consumer’, the strategy consulting firm considers the distribution of growth across the market as well as the effects of digital channels on the market.

Indian Households, By income

The research, which surveyed 10,000 Indian consumers across the country, reveals that the composition of the main consumer groups in the Indian economy is set to change significantly over the coming decade. The group of ‘elite’ households, i.e. those with incomes in excess of $30,800 per year in gross income, is set to grow from around 1.9% of the population in 2005 to around 5% by 2025. The second most affluent group, with incomes upwards of $15,400, is projected to expand from 8% in 2005 to 20% of the population by 2025. The number of households at the bottom of the income scale, meanwhile, are set to decrease steadily from 31% of all households last year to 18% of all households by 2025.

Share of Household Consumption Expenditure

In terms of consumption trends, considerable changes are afoot. The two highest income groups are set to increase their respective share of consumption, from 27% of the total market share in 2016 to 40% in 2025. The change in consumption is largely won from the next billion and strugglers categories, whose respective members will decrease their share of total spending in the same period from 38% and 11% respectively to 30% and 6% respectively. In addition, the firm finds that the number of ‘nuclear families’ will continue to increase from 68% last year to 74% in 2025.

Affluence Will be Much More Widespread by 2025

The research also found that various metropolitan areas are set to see changes in growth levels. Urbanisation across the country is set to hit 40% by 2025, accounting for around 60% of total consumption. The distribution of affluence is also set for considerable change, with the number of cities where more than 40% of the population belong to elite or affluent households, which was at zero last year, set to hit 48 by 2025. The number of cities where 21-40% of the population is elite or affluent is set to increase from 64 to 270. The distribution of affluent cities is projected to be relatively even across the country as a whole.

Digital Influence Will Far Surpass Online Spending

Digital shopping

The effect of digitalisation on consumer behaviour also showed itself to be in a state of flux. Internet penetration continues to rise in the country, with those using the internet in India forecast to increase to 55% of the population.The increase in internet access will apparently see the number of online shoppers as well as digitally-influenced shoppers increase steadily to between 400 and 450 million, and 300 and 350 million respectively. The firm expects e-commerce to hit around $130-150 billion by 2025, which represents 8-10% of total retail sales. According to the study, the biggest impact of digitalisation will be through the growing influence on retail spending, which could come to affect 30-35% of total retail spending raising it to $500-550 billion.

“India’s consumer market is poised for fundamental change,” remarked co-author and BCG Partner, Nimisha Jain. “As the consumer market continues to grow and evolve, companies will need to shed conventional wisdom, try multiple business models simultaneously, and be prepared for rapid change internally to adapt to changing consumer needs and behaviours.”

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Indian consumer market to surpass $1 trillion by 2021

15 October 2018

India’s retail sector appears to be on track for substantial growth over the next few years, in addition to a drastic shift in its composition. According to a new report from global professional services firm Deloitte, the sector will reach an approximate value of $1.2 trillion between 5 and 8 years from now. 

Digital disruption is a common theme globally cutting across sectors at the moment, and its manifestations in the retail sector are several and multifaceted. The most direct of these is the advent of online retail and the subsequent emergence of a host of new avenues for producers to sell their goods.

India is expected to have 850 million online users by as early as 2025, which creates tremendous potential for online commerce in India. Big Four accounting and advisory firm PwC already predicted massive growth in India’s ecommerce sector two years ago, when the share of online shopping constituted nearly 35% of monthly purchases.

Indian e-commerce market

Last year, the Boston Consulting Group released a report that predicted that 40% of the purchases in India’s fast moving consumer goods (FMCG) segment would be conducted online by as early as 2020. Deloitte’s new report on India’s consumer market has reaffirmed these claims.

As per the report, India’s ecommerce market grew by a compound annual growth rate (CAGR) of nearly 50%. Over the next three years leading up to 2021, Deloitte predicts a CAGR of 32% to take the total ecommerce sector up to a value of $84 billion. By 2026, this figure is expected to reach $200 billion.

However, digital enhancements have a number of less direct influences on the retail sector as well, which generate a range of other opportunities. Packaging is one major area in which digital innovation can be leveraged to increase speed, reduce costs and broadly increase appeal based on data analytics.

Indian retail market

The shopping experience itself is expected to change drastically in light of digital advancement. Augmented Reality and Virtual Reality technologies are now being leveraged across the globe to create a digitally interactive shopping experience, termed alternately as ‘immersive retail’ or ‘connected retail.’

Other new forms of retail include free product trials at home and what the report terms as ‘peer to peer’ marketing. Broadly, Deloitte categorises this wide variety of developments under the umbrella of ‘modern retail,’ which is expected to contribute 25% of retail revenues in India over the next five to eight years.

This number is significantly higher than the expected contribution from ecommerce, which stands at approximately 10-12%. Underlying all these developments, however is substantial growth in the overall retail sector in India, which is expected to reach a value of $1.2 trillion by 2021.

Evolving parameters in the consumer domain

The substantial growth is presumably on the back of growing income levels per capita and other demographic trends. One of these patterns, for instance, is the increase in the number of households with a corresponding decrease in the size of these households, leading to a larger pool of disposable income.

Between 2011 and 2017, India’s retail market grew by a CAGR of nearly 14% to reach a size of nearly $800 million. This figure is expected to increase by nearly 11% till 2021 and subsequently at nearly 8% to reach a value of $1.75 trillion by 2026, according to Deloitte’s report.