Inflation may stop indulgence in consumer buying except essentials

The ultimate luxury is an exquisite meal and with a tradition of lavish meals and a diversity of exquisite cuisines, it’s not surprising that fine dining is a booming segment of the luxury market.

In India, unlike in other markets, it’s people aged 24-36 years who are the biggest spenders on luxury goods and services and that includes the fine dining and beverages segment. To tap the potential of this segment, hotels are offering contemporary food to tickle the taste buds of the young Indians.

The idea is to catch them young. Bars are opened in hotels to attract the young crowd and they are doing exceptionally well.

Imitating western restaurants in Indian market is not a good idea. People here want to see lots of food on a big plate, not small quantities presented well.

Indians typically like to eat in groups, with their friends or family, so while the per cover spend in Indian may not be higher than its global counterpart, the revenue for restaurants are higher.

And along with that, spending on wines is increasing. But growth will be constrained until Indians are sure of what they are drinking. Indian consumers still need to be educated about wine which has today become a fashionable drink.

Call it the chaos theory: the conventional wisdom on Indian consumers is that they would prefer to do their shopping in a cluttered, busy, friendly neighborhood market environment. Retail chains which have opted to differentiate are few and far between until you look at the very top end of the market.

For luxury brands, being culturally sensitive is important, but just as critical is making sure the soul of the brand is expressed through its store. At a session entitled ‘The store as a brand extension’, the discussion flowed around how store design could be used to draw a sketch of a brand’s heritage.

Even in what are considered emerging markets, ground realities make for very different needs from a retail environment. Russia, for instance, with its rich royal past, is familiar with the opulence. But in a Hong Kong store, consumers might be in need of some subtle education.

Over and above design elements, it’s all about service, though. A consumer walking into a luxury store needed to feel not just comfortable, but delighted by the brand experience, and in an Indian context, that included the now-legendary Indian tradition of impeccable service.

It was important for brands to be culturally in sync, and that takes intensive training on their part — in Russia, for instance, store staff are taught not to touch customers, and when seeing them out of the store, to wait until they had safely driven away.

But Circa 2008 is a different ballgame altogether. Prices of consumer durables have dropped significantly. Technology has moved very fast and the number of options available to a consumer today is unbelievable. More disposable money flowing into the hands of consumers and the marketers are elated. This implies an increase in purchasing power, hence an increase in purchase of lifestyle products.

By lifestyle products companies such as LG and Philips mean to say that there will be an increase in demand for flat panel televisions and home theatres. Government employees in different salary slabs will have different aspirations. For the urban customer they plan to promote our range of home theatres followed by flat panel televisions. And for semi-urban customers they will push semi-auto washing machines followed by 21-inch televisions.

For the Korean major which has just earmarked an investment of Rs 360 crore in India on brand building and other marketing initiatives to garner 40% market share in the premium segment of the consumer electronics and home appliances businesses by 2010, the pay commission’s announcement brings a major impetus to its plans.

Even smaller players such as TCL Holdings, which is fighting for a foothold in the highly competitive durables market, is keeping its fingers crossed. Due to the announcement there will be a demand for air conditioners and LCD televisions. The announcement would certainly lead to boost sales in the consumer durable industry especially in products like ACs and LCD’s.

Hike in salaries will raise disposable income. There will surely be some positive impact on sales of consumer durables, including cars.

The recommendations, if implemented, will mean more buying power in the hands of customers.

The excise duty cut on two-wheelers in Budget ‘08 and the consequent reduction in prices of all models are also likely to have a positive impact on our sales. Already, the inflation has entered the 10% plus danger zone. So any disposable income seems to be vanishing.

The financial services sector may emerge a dark horse in the race for the total pie and considering the Indian consumers’ attitude towards savings it could be a major gainer. Indians still believe in saving and investing regularly for the future, though a trend analysis for the last four years shows a growth in expenditure vis-à-vis savings. This is in sharp contrast to other economies such as some Southern European countries and Russia.

Out of the total savings, around 50% Indians put their money in the bank (either in savings or fixed deposits), 15% buy insurance and the rest invest in other financial instruments.