Long term view vital in India

13 July 2011

NEW DELHI: Brands hoping to thrive in India must take a long term view, as demographic shifts reshape the country's consumer base, according to a new study.

AT Kearney, the consultancy, argued certain population trends can lead to a "sweet spot" stimulating economic growth, and thus fuel demand for a range of goods.

This is essentially reliant on the dependency ratio, or the balance of the number of people under 15 years old and over 65 years old, versus the amount of individuals falling between these ages.

It suggested that countries containing large numbers of working-age citizens relative to "dependents" are typically best-placed to enjoy sustained financial expansion.

Looking at India, the organisation outlined three key factors brand owners should consider as they plan for the future.

"The sweet spot will continue until 2037," AT Kearney said. "In the next 20 to 25 years, the working-age consumer group will be dominant."

"Female earners will become an important part of this group as more women enter the work force."

However, the number of Indian shoppers within the more senior segment is also set to grow rapidly, in absolute terms, after 2020.

Indeed, during the coming decade, the over-55 year old cohort should see the fastest growth on a pure percentage point basis, the company estimated.

"Opportunities exist in introducing new products and services designed for older people – such as health foods, health services and financial services, among others," AT Kearney said.

"The challenges are in lower consumption levels of older people and reduced overall disposable income of the working-age population as old age dependency rises."

An analysis of shopper habits over the last five years, covering categories such as food, also revealed three distinct consumer segments are evolving.

These are made up, respectively, of customers under 24 years of age, those fitting in the 25-34 year old profile and their counterparts who are 35 years and above.

Rather than effectively meaning "old age" starts in India at 35 years old, AT Kearney stated a nuanced perspective is required.

"India has a higher proportion of multigeneration households than developed countries ... which means specific goods and services are purchased for an entire household."

More broadly, the consultancy warned pressing problems linked to the development of infrastructure and education must be tackled to exploit the "sweet spot".

For example, India currently has a lower per capita income, at $815 a year, than many other emerging markets in a similarly beneficial situation.

This total is nearly three times higher in China, at $2,200, and has surpassed $4,500 in Brazil, Turkey and Malaysia.

Even if India sees GDP rise by around 8% a year over the next decade or so, per capita income would still only then match China's contemporary figure.

As such, the exact level of growth in India in the coming 20 or 25 years may determine if it actually becomes a "middle class" nation, not a "rich" country.

Under the former scenario, some 70% of the population would earn annual salaries falling below $10,000, while less than 10%, or between 60m and 70m households, would achieve greater affluence.

"Marketers will have to make sharper choices in terms of identifying target groups, decision makers, products and services, value propositions and operating models, among others," the report said.

"Companies will be well served to study the underlying age drivers for demand in their industries to understand what might change in the next five to ten years."

Data sourced from AT Kearney; additional content by Warc staff