General view across the industry – 2009

Enter 2009, and the general view across the industry is that life would become rather easy for the consumer. Inflation has ebbed. Unemployment and inflation, according to CMIE, are not a threat to consumption expenditure in 2009.

It might have been a tough year. Inflation went through the roof and interest rates hardened during 2008, leaving the consumer with little choice but to become tight fisted.

But, the worst seems to be over. Enter 2009, and the general view across the industry is that life would become rather easy for the consumer. Inflation has ebbed, indicating that daily use products such as fast moving consumer goods (FMCG) and food items would become cheaper. Unemployment and inflation, according to CEO & MD for center Monitoring Indian Economy, are not a threat to consumption expenditure in 2009. The effects of the global crisis in India are getting somewhat clearer and this does not seem to mean job losses or fall in demand. Therefore it may be possible consumer spending would increase well during 2009.

Inflation is likely to average around 4-5% in 2009, and the high base of 2008 could bring inflation down even further. All this is good news from the consumption point of view. With falling interest rates, EMIs would decline to bolster disposable incomes. This would fuel up gradation too.

Again a sign of growth for the industry. The FMCG industry is expected to witness a growth of over 10% in 2009. This growth will come from consumers upgrading it slightly moré expensive brands, which offer better value.

Because of price corrections up-trading is more likely to take place among consumers in the lower income bracket.

Consumers will be cautious on where they spend their money in the first half of 2009. But, what clearly indicates up-gradation in food and eating habit is the health and wellness category which is increasingly becoming important, particularly among urban consumers. Companies feel health and wellness will get a boost in 2009, and marketers are fast responding to this changing consumer behavior. Retail shelves are flooded with a variety of low calorie or “Lite” products, fortified organic food and sugar free items. With trans-fats out and mono-un-saturates in, the market is moving on from ‘Good for you’ to ‘Better for you’ foods. Probiotic ice cream has now hit the freezers, and more is on the way. All this will eventually translate into higher sales for food companies.

The picture of growth in rural India is even brighter. With the spiraling commodity prices in the earlier part of the year leaving more money in the pocket of farmers, the aspiration levels in rural India have surely risen. This demand growth would be further accelerated with more rural Indians shifting from the unorganized market to branded personal hygiene and health care products. In 2009 too rural markets are expected to drive demand for every day use product. Most disposable income to come from broad categories of consumers are government employees, post salary hikes, and those with agricultural incomes. The trend is expected to continue strongly with another good monsoon forecast in 2009.

The increase in consumption or growth in FMCG industry can be due to (1) more healthy food products, (2) essentials, (3) increase in population and (4) penetration into rural areas which were not covered by marketers in the preceding period.

From this we cannot conclude that the slowing down economy is back on track. For the recession or economy to be normal it may take some time beyond 2009 after government and Companies put a cumulative effort and consolidate the situations periodically. But for countries like ours that is India where high growth potential still exists we can be optimistic at least in majority of the sectors.