A Consumer Centric Analysis of Market Growth
The Economic Times - May 2001
The consumer goods slowdown has been a major topic of discussion, as corporate results have rolled out. It is now official. The waiting list on the Telco truck, once seen as a lead indicator of the state of the economy, has now been replaced by Hindustan Lever's top line growth. An expanding bottom with a svelte top is obviously not the kind of figure that analysts and economy watchers like to see. And of course the one thing in short supply in most of the analyses and theories about the consumer goods slowdown is consumer level data. Understanding the dynamics of the demand slowdown and taking a point of view on whether it is temporary or long term requires consumer centric analysis of "who is buying (and how many such are there)" and "who has bought and who (and how many) are left to buy". 'Grassroots' level insight will not come from "what is the trend of how much product has been sold in which pop strata" accounting analyses or from macro questions like "will a good monsoon revive consumer demand". I want to illustrate this with just one example of some very basic consumer centric data taken from ORG - MARG's huge, all India, IRS study, done in June 2000 (the 2001 data is expected to come out in the next few months). The box shows penetration in different income groups of consumers, in rural and urban India, for a few FMCG products and a few durables. Product penetration has been defined as 'percentage of households owning' for durables and 'percentage of households purchasing in the past six months' for FMCG. Can this data be believed? I would unhesitatingly say 'yes'. And also add that driving with less than perfect headlamps is better than driving without them at all!
Before jumping into the data, let us first look at the drivers of market growth. Total market growth for any category can come from three sources. One, new users coming into the buying or adoption fold. Two, increase in per capita consumption of existing adopters or users (the second television set, the more frequent brushing of teeth or washing hair with shampoo). Three, in the case of durables, replacement of existing products. In India, per capita consumption is always slow to increase, even at the higher income levels for a variety of cultural reasons. We are chronic under dosers, and 'economy in use' has always proved to be a compelling brand proposition. Being culturally new to consumption, we also do not change durables frequently unless there is a good price for it. The kind of high growths that we have seen till about two years ago have come more from new users coming into the category (i.e. increased category penetration) than from per capita growth. For durables, exchange schemes have driven replacement growth in high consumer confidence years (albeit at a cost to the marketer), but in low confidence years. So the growth driver to examine in the context of the sluggish demand is category penetration.
The data shows that at an "all consumers" level category penetration appears low and shows the mirage of lots of room for growth. The income wise consumer penetration tells a different story (to a different degree for different products). Better off income groups are now very well penetrated. Sources of future growth are the less affluent consumers who will, by virtue of their limited income and lots of demands on it, will be slower adopters and with even lower per cap consumption levels. Aggregate consumer market growth perforce has to slowdown unless price thresholds are discontinuously dropped or income levels discontinuously go up. Since there is no sign of either happening in a hurry, it is going to be 'slow burn' growth for aggregate consumer demand, with pockets of high growth rates, probably at the higher income end, driven more by company strategy rather than a general rise in consumer demand.
Different companies will grow at different paces depending on whether they are "mass" or "niche" in their offerings, and, ironically on whether they have done a great job of increasing penetration for their categories in the past or not. We need to change our parameter of evaluation for performance of consumer goods companies. Dizzy top line growth is not what we must look for as the single best health indicator, but the growth pockets that they have created / found / mined which provide profitable growth. And not growth in net sales value but growth in contribution from sales.