There is a slowdown in urban consumption as the middle class household budgets get stretched but that doesn’t necessarily mean all spends are down.
There’s a consumption dichotomy at play – the segment is moving to smaller packs in fast-moving consumer goods because of price hikes but are availing flexible payment schemes and EMI plans to buy premium durables and pocket heavy items like jewellery. More than 75% of consumer durable purchases are being backed by EMIs, said Nilesh Gupta, director at Vijay Sales. Five years back, this share was at 55-60%.
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Easy financing options and low EMIs have enabled the middle class to opt for premium products, Fumiyasu Fujimori, MD, PMIN at Panasonic Life Solutions India told TOI, adding that the segment is buying the firm’s IoT enabled connected appliances, inverter ACs and top load washing machines. Think tank PRICE defines the middle class as households earning between Rs 5 lakh to Rs 30 lakh per annum. Credit card companies and brands typically offer incentives to customers buying through EMIs, fuelling this trend; the repo rate cut by RBI could also allow brands to offer better EMI options going ahead, Gupta said.
“Post-Covid, we have seen consumers going for product upgradation and it has not changed,” Gupta said. There should be further acceleration in the adoption of premium products among urban and aspirational consumers on the back of the Budget boost which will increase disposable incomes, said N S Satish, president at Haier Appliances India. “The income tax relief will leave consumers with disposable incomes but this may lead them to spend on items like consumer durables using EMIs, weighing on the share of FMCG spends,” said Mayank Shah, VP at Parle Products.
EMIs essentially allow consumers to make payment for a product in smaller tranches and the trend will continue as many consumers do not have surplus savings to pay for high-ticket items at one go, said Angshuman Bhattacharya, partner at EY-Parthenon. Job-creation and increase in wages will be the long-term key to boosting consumption. “Consumers are aspiring more but wages have not risen in sync,” said Bhattacharya.
Jewellery companies like Malabar Gold are offering gold saving schemes, flexible payment options and exchange programs to allow consumers to manage price fluctuations and make purchases, said M P Ahammed, chairman at Malabar Group. Some companies, for instance, have a scheme wherein it allows consumers to make small deposits for 11 months and at the end of the period, a select section from the store inventory can be purchased at no making charges.
In the FMCG space, the scenario is starkly different. Across categories like personal care, snacks and soaps, there is a growing preference for smaller packs as consumers are seeking flexibility in managing their budgets. The trend is most pronounced in middle-income households, said Shivam Puri, CEO & MD, Cipla Health. Even in premium segments, consumers are buying smaller packs. “We are seeing growth in the premium category for lower-priced SKUs… consumers are strategically managing their spend by selecting lower-priced options within the segment,” said Rajeev Jain, SVP, corporate marketing at DS Group.