From hero to zero, before you knew what hit you. In the cut-throat world of smartphones, it has been a recurring story―from Nokia dominating the scene at one time to going ‘crash-boom-bang’, to BlackBerry’s transition from everybody’s buddy to a nobody.
Chinese phone maker Xiaomi would truly understand it. A decade ago, it stole the thunder of desi smartphone brands like Micromax and Lava with a slew of inexpensive but feature-rich smartphones through brands like Redmi, Mi and the sub-brand Poco. It soon became the largest seller of mobile phones in the country. Even the Covid-19 pandemic and the anti-China sentiment post the clashes in Ladakh did not slow it down. But then it got hit by a curious shift in the Indian consumers’ preferences.
About a year ago or so, more and more Indians began coveting premium phones, moving away from Xiaomi’s budget offerings. With the market share of phones costing less than Rs10,000 falling significantly, Samsung overtook Xiaomi as India’s top-selling phone brand.
Premium smartphones sales more than doubled in the April-June period, while sales of the ultra-premium foldable phones tripled last year. This is when the overall smartphone market declined 3 per cent.
This new trend could solidify now, as Diwali sales hit a crescendo. “Many people time their purchases with the festive season, and they are increasingly opting for premium smartphones,” Arushi Chawla, senior analyst with Counterpoint Research wrote in a blogpost.
It is not just phones. As the festive shopping season progresses, the trend of premiumisation―customers going in for pricier models of anything from cars and consumer durables to jewellery and houses―seems to be only getting stronger. A recent nationwide survey said about half of India would spend an average of Rs10,000 on festive purchases this season. This is two-and-a-half times higher than last year.
This change is leading to tectonic shifts in the manner in which retail businesses operate. “Evolving demographics and favourable economic conditions are leading to growth,” said Balbir Singh Dhillon, head of Audi India. “The ongoing festive season is expected to spur further demand.”
It is the most important time for all consumer-facing sectors, “be it fast-moving consumer goods or alco-bev or consumer services,” said Nita Kapoor, CEO of the International Spirits and Wines Association of India. “Post the pandemic, we have experienced a noticeable shift. Consumers now prefer good quality products and are willing to pay a higher price.”
The trend has been distinctly visible in aspirational consumer segments like electronics, consumer durables, real estate and jewellery. Real estate prices, especially of premium properties, have been on an upward swing. India Sotheby’s International Realty, which deals in luxury homes and villas, clocked 50 per cent more sales last financial year.
Similar is the trajectory of India’s gold and jewellery businesses―they are now going designer and social media savvy with a vengeance. “Evolving sensibilities among a segment of consumers as well as an intent to break away from the conventional design narrative are driving the premiumisation wave in jewellery retail,” said M.P. Ahammed, chairman of Malabar Gold & Diamonds.
In automobiles, sports-utility-vehicles now rule the asphalt, comprising about half of all passenger vehicle sales in India. And big bike brands like Royal Enfield are laughing all the way to the bank with steadily increasing sales.
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“Three or four years ago, when a customer walked into a car showroom, he would have asked, ‘What is the base model price?’ or ‘What is the mileage?’ Not any longer. Today, they ask about the top trim, or the second from the top. And they ask about features, tech, power or torque, not mileage. In fact, the No.2 variant accounts for as much as 40 per cent of the sales in most models,” said Rajeev Singh, partner, Deloitte India. “Mind you, I am not talking about luxury brands, but cars that are sold in large numbers. To see that as a shift is very clearly an indication of the customer’s psyche. Customers are looking beyond price.”
This premiumisation trend has spread across categories one does not usually associate with going upwardly mobile. Take rice, for instance. “There is a noticeable transition from loose to packaged rice in tier-two cities. Consumers are increasingly inclined to branded rice products,” said Atul Garg, managing director of GRM Overseas, a basmati rice exporter. “During these festive times, there is a shift in cooking and eating habits, leading to increased consumption and, consequently, a 20 per cent rise in orders over regular sales.”
Or paints, even. While traditionally the period between the end of the monsoons and Diwali is the time many in north India paint their houses, the trends have been changing in recent years. “Customers are not just paying 20 per cent to 30 per cent more for paints, but now have better know-how of which products to use,” said Kuldip Raina, director (sales & marketing) of Shalimar Paints. “Post-Covid they have become more conscious. Any paint just won’t do anymore―they want protective coating, paints that are easily washable and that last long.”
Many believe all these changes are due to the pandemic, but it is only partly true. “Purchases in the top-end segment are primarily driven by sentiment,” said Dhillon. “Post-Covid, the ‘You Only Live Once’ attitude and the pent-up demand were the factors that were aiding growth. This growth has now been sustained in India, in a positive manner.”
While the pandemic reminded people about the ephemerality of life and nudged them to take a fresh look at their priorities, what changed their attitude could be economic reasons. “Though spending was curtailed during the Covid years, it allowed for more spending to happen as savings went up,” said Singh of Deloitte. “And after Covid, it is not that money in hand has increased considerably―money earning has gone up at the same average rate of 7 per cent to 8 per cent, but saving rate is going down, as discretionary spending has gone up. As the pent-up demand for goods like cars and consumer durables begin to soften at some places, we are now seeing the demand for experiential going up―airlines, hotels, foreign travel, even luxury cruises. When did we ever see Indians spending this kind of money? Today, people want such experiences and are ready to pay.”
The digital first lifestyle also has had a role to play. With access to latest technology and trends through social media, whether you are in Bengaluru or Begusarai, aspirations are now geographically levelled. Ahammed of Malabar Gold & Diamonds, in fact, credits social media as one of the main reasons for the premiumisation trend in the jewellery business. “Thanks to the social media boom, more and more people want their accessories to reflect their personal choices and are ready to pay a premium for design excellence,” he said. “Because of this growing awareness of design innovation, the concept of premiumisation in jewellery is gradually taking shape and spreading beyond metro cities.”
The biggest factor, perhaps, could well be a generational shift that has happened. Gen Z, or those born after the turn of the millennium, are now entering the workforce, and their way of thinking about their financials is different.
“When I got my first job, my parents told me the first thing I should do with my first salary was to take an LIC policy,” said Singh of Deloitte. “Go and convince a post-liberalisation youngster to get insurance―he will never do it! Maybe later, but that’s not what they will do with their first salary, which they will splurge! This generation believes in living life, in spending and enjoying, not saving for a rainy day. I think that is also because of the overall confidence factor that as a country we are getting into.”
That confidence, however, is not universal. Experts warn that premiumisation is largely an urban trend, and many rural areas are struggling with a range of problems. “The K-shaped economic revival we talked about after Covid is still playing out, and two years down, it just seems to be widening in some manner,” warned Singh.
While SUV and big bike sales are going through the roof, sales of commuter bikes―largely brought in villages and small towns―have been lagging behind for two years now. Many FMCG companies that had launched smaller size packs to make them more affordable during Covid, are still selling them because there is demand. With monsoon being erratic and inflation a worry point, it is clear that many rural areas do not share the gung-ho mood that urban shoppers feel. “We need to see both these trends perspectively,” said Singh. “We should be careful not to get carried away.”
While there is a divergence in spending, an analysis of income tax data showed that there is scope for hope. The number of Indians earning above 05 lakh a year was just 38 lakh a decade ago; it is now 1.8 crore, almost a five-fold increase. Income rise, the easy availability of loans and some dramatic changes in spending habits are together scripting the transformation towards premiumisation in India.