Consumption remains essential in India’s growth story, and emerging trends like premiumization, digital payments, omnichannel shopping, etc., are fuelling its growth. As a result, India’s domestic consumption remains a significant opportunity propelled by expected growth in per capita incomes and increasing penetration of organized players. The accessibility provided by e-commerce platforms has been a significant advantage. In addition, the growing familiarity with online payments and e-commerce shopping is fueling discretionary consumption trends.

Per Redseer’s report, India had the most significant millennial and generation Z (aged 9-40 years) population in the world in 2021. At approximately 770 mn, i.e., ~55% of India’s population, significantly higher than that of other larger economies, further bolstering consumption opportunity. Moreover, rising incomes leading to a large middle-class population is also key driver of private consumption. As a result, middle-class and high-income households are projected to drive more than 90% of private consumption by 2026, resulting in expanded addressable markets for branded players.

Rising digital connectivity in cities and rural areas is driving the consumption demand. Moreover, businesses in this sector have overhauled business strategies scaling up their Omni channel, digitalizing business, reducing store sizes to improve store fundamentals, and increasing variability at the operational cost level to reduce direct expenditure and ensure their businesses become immune from pandemic-like uncertainties in the future.

5 key trends we will see in the consumer semi-discretionary sector

Growing appetite for India’s ORGANIZED FOOD INDUSTRY. The organized Food services market in India is expected to grow at 16% CAGR next 5 years (vs. 3% CAGR last 5 years), led by favorable demographics, frequency of eating out, convenience, digital penetration, urbanization, etc. Inflation across critical raw materials (cheese, chicken, coffee prices, etc.) has led to steep price hikes across large food chains, which the end consumer has significantly absorbed. However, most companies have hinted at a cautious stance on further price increases to ensure demand is not hampered.

 

FOOD DELIVERY user base opportunity is immense. India has a smartphone user base of ~650mn and an online shopping base of ~200mn. The online shopper base is expected to catch up with the smartphone user base. India’s Food delivery user base is much lower than the online shopping user base and has further headroom to increase.

VALUE FASHION temporary headwinds. Despite facing some pressure in demand in Tier 2-3 towns due to inflation, value fashion retailers have seen things get steadily better with the festive and winter seasons and expect a double-digit growth trajectory over the medium term.

HOTEL INDUSTRY confidence levels are at a high. The confidence level of the industry has improved, leading to an increase in Average Room Rates without impacting occupancy levels. The G20 summit (hosted in India) is expected to have over 200 meetings (Dec’22-Nov’23) and may be a strong lever for demand. The demand trajectory for the industry is expected to outpace supply for the next few years, and the upcycle is expected to continue.

Changing the way India SNOOZES. The rise of discretionary consumption has given a push to a new product segment, with the entry of several D2C players aiming to change the way the country snoozes. In India, the online mattress industry is $150-160mn (of Rs $2bn total mattress market, i.e., 7-8% online penetration. Moreover, the mattress industry is expected to grow at 10-12% CAGR, and online penetration is expected to reach 20-25% in the next 5-6 years. Hence the online mattress market will be a $600mn market in the next 5 years.