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India gears up for the new normal as consumer behaviour shifts

On 24 March, the government effectuated one of the world’s strictest lockdowns to combat the spread of covid-19, which changed consumer behaviour and purchasing patterns.

According to a World Economic Forum (WEF) and Bain & Co. report, titled Future of Consumption in Fast-Growth Consumer Markets – India, released in January 2019, about 66% of India’s overall consumption is accounted for by households earning less than Rs. 5 lakh, out of which 32% is contributed by households earning less than Rs. 2.5 lakh, annually.

The lockdown and its ramifications on employment and earnings in these low-income households means that we might see a large contraction in our overall consumption over the next 12 to 18 months.

A more recent and weekly survey by Bain & Co. and People Research on India’s Consumer Economy (PRICE) since April ascertains that covid-19 has deeply impacted the consumption of consumer goods in India. Approximately 50% households surveyed across income and town classes have reported a reduction in their overall consumption.

Among these households, 33% were driven primarily by dwindling incomes and 26% due to future uncertainty.

Consumer spending has shifted towards essentials like grocery, staples and healthcare, with discretionary categories like alcoholic beverages and consumer electronics witnessing a steep decline, primarily driven by limited access due to the lockdown.

In anticipation of a protracted recession, consumers have started down-trading to cheaper alternatives across categories. Our survey has shown that 15% households have bought cheaper alternatives in essential categories like staples, grocery and household hygiene. Another fallout of the prolonged crisis and worsening consumer sentiment is the postponement of any major purchases like consumer durables or vehicles with about 40% households pushing out these purchases by at least 12 months.

Multiple fast-moving consumer goods (FMCG) companies saw their value chain break down during the crisis. Plants were shut down, supply chains were broken due to closed state borders and these resulted in the inability to serve consumer demand due to movement restrictions.

Companies rose to the challenge in innovative ways. ITC, for example, took the challenge head-on by leveraging multiple online delivery platforms like Swiggy and Domino’s and even set up a ‘Store on Wheels’ to reach consumers directly in large residential complexes.

The post-pandemic Indian consumer packaged goods (CPG) industry will be very different, driven by acceleration of some of the salient trends pre-crisis and a few new trends emerging out of the crisis. An example of this is the Suraksha Stores initiative, with the government on-boarding FMCG majors to design what a shopping experience would look like after the pandemic.

There will be a further polarization in spending power across income classes and this might cause a ‘hollowing-out-of-the-middle’. Brands, with either premium or value-for-money products will have a better chance of winning consumers, while ‘middle-of-the-road’ offerings might find it more difficult.

Other than the accelerated shift to online purchase, we have also seen three major shifts in the CPG route to market, during the crisis.

First, the kirana has proven to be the most resilient among formats, managing to serve demand when all other formats failed. The humble kirana is here to stay, enabled by digitization and the support of hyperlocal partnerships.

Second, the need for social distancing means modern shopping formats have taken a beating during the crisis and will need to reinvent themselves to thrive in the future. Omni-channel presence is the way forward for both online and offline operators.

Finally, a new retail ecosystem is emerging at speed with convergent solutions for shoppers and retailers. At least three different players and/or partnerships are in the process of setting up their own retail ecosystem in India.

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