Major fast-moving consumer goods companies from Nestle to Hindustan Unilever have recently warned of slow demand in urban markets. At the same time, we are seeing more and more premium products being launched in the market, from incumbents, as well as new startups. The trend is not surprising.
According to consumer intelligence company NielsenIQ, premium brands in the FMCG space are consistently growing about twice as fast as their non-premium counterparts.
"Despite overall FMCG in India facing challenges to achieve double-digit growth, the premium segment consistently grows at double-digit rates across all markets and categories, driving half of the incremental sales for the Indian FMCG industry," said NielsenIQ.
The trend is particularly visible in the South and West zones.
Also, this trend is playing out not just in FMCG, but also in the tech and durables sector, notes Nielsen. Increasing income levels, urbanisation, smartphone penetration, and a more aspirational consumer base is what are driving this boost in demand for premium products.
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"We are observing an increasing convergence of aspirational consumer preferences with higher disposable incomes, as well as the presence and access to premium products. This shift is driven by digital platforms, contributing to nearly half of the sales," said Roosevelt Dsouza, commercial head – India, NielsenIQ.
He feels market mix, channel diversity, and new entrants will further drive the adoption of premiumisation in the future.
NielsenIQ notes sales in modern trade outlets are growing twice as fast as traditional channels. At the same time, almost half of all sales on digital platforms are from premium brands, it pointed out.
Home care and processed foods have seen particularly strong growth, with consumers gravitating towards premium brands in these categories.
Also, more than 70 per cent of the urban Indian consumers are willing to pay a premium for a product that will last longer before it needs to be replaced, according to NielsenIQ.
While premium products are seeing strong demand, luxury products could be the next big bet.
"The luxury segment within FMCG stands out as the fastest-growing category, with brands priced over two times the category average achieving remarkable success," said NielsenIQ.
Modern trade is playing a key role in introducing premium and luxury products to the Indian consumer. Of all new product launches in modern trade, 58 per cent are from the premium plus segment, it noted.