Fortune is at the middle of the pyramid in an evolving Indian market

The promise of a large middle class that drew brands from across the world after liberalisation is finally reaching fruition. (Image source: REUTERS/Adnan Abidi/Representative)

Lured by the fortune-at-the-bottom-of-the-pyramid theory, the world’s largest multinational companies made a beeline for the Indian market in the 2000s. But they were in for a rude shock. These companies were sold the notion that India was a large consumer market comprising a prospering middle class that was around 200-300 million big in size, or almost as big as the US, and bigger than many large European countries put together. Tickled by the idea, to exploit the growth potential of the newly liberalised market that was beginning its full-scale consumption journey, these companies hurriedly set up shop in the country only to discover that the number of consumers who could actually afford their products was way too small.

Eric Stamminger, President, Adidas, for example, had told this writer in 2006 that upon entering India, the sports shoemaker discovered that its real addressable market was only around 5-6 million. And even these consumers were not easy to tap. Stamminger and various other marketers found that the Indian middle-class consumer was conscious of brands but wouldn’t buy a product only for its logo; the price tag was a big determinant in her purchase decisions.

Hindustan Unilever Ltd (HUL), P&G, Coca-Cola, Pepsi, LG, Samsung, Adidas, Reebok, and many such consumer products companies would vouch for the challenges they faced in sustaining themselves through aggressive marketing campaigns, massive discounts and painful price wars that were fought to win over Indian consumers during the 2000s.

Shift In Consumption Landscape

Cut to 2023, top-notch luxury brands across sectors such as automobiles, apparel, footwear, food, beverages and accessories are rapidly expanding in India. Aditya Birla Fashion Retail, for instance, is all set to launch high-end shopping stores with French luxury retailer Galeries Lafayette that will sell more than 200 luxury brands including Armani, Balenciaga, Burberry, Bulgari and Christian Dior, among others. Reliance Brands Ltd, which has positioned itself as India’s largest luxury and premium retailer and is platforming many top-notch global luxury brands itself, is bringing in the UK-based fresh food and organic coffee chain Pret A Manger while Canadian coffee chain Tim Hortons is already selling its signature brews in India.

The mid-tier consumer brands, too, are now selling their top-end, hence, big-ticket products from their global portfolios. HUL, the country’s largest consumer products maker, for instance, says more than a third of its product portfolio in India is now premium reflecting the changed consumer preferences.

The auto industry has also undergone a similar makeover. India is no more the country of small cars as sports utility vehicles sped past hatchbacks in sales in 2022. So pronounced is consumers’ shift towards SUVs and large hatchbacks that the country’s largest small car maker Maruti Suzuki is planning to discontinue manufacturing small cars.

Middle-class Fattens

The promise of a large middle class that drew brands from across the world after liberalisation is finally reaching fruition. The addressable market of consumers that Adidas’ Stamminger lamented to be small in 2006 has now become large and sound enough to sustain the ambitions of the largest of global marketers.

According to a survey conducted in 2022 by People Research on India’s Consumer Economy (Price), a research think-tank focussed on India’s macro consumer economy, the Indian middle class grew to account for 31 percent of the country’s total population in 2020-21 against 14 percent in 2004-05. This suggests that the number of middle-class consumers has grown to more than 430 million in 2021. This also includes the super-rich Indians - estimated by Price survey to be around 9 million in 2020-21 against 5,00,000 in 1994-95 - who earn more than Rs 2 crore a year, and have similar consumption predilections as their global counterparts.

Indeed, the middle class and the super-rich have been the biggest beneficiaries of the fast economic growth in the past two decades. This set of consumers, today, is financially robust and assured about its future, and has evolved from being a hard-nosed bargainer into a quality-seeking buyer.

Top-Of-The-Pyramid

CK Prahlad had spoken of the opportunity at the bottom of the pyramid but it’s the top that’s delivering in India. And the top of India’s consumption pyramid is not a spiky, narrow band, but a chunky layer around which marketers can build a profitable business model. This is borne out by how this set kept consumer product makers from sinking after the blow dealt by the pandemic and the Russia-Ukraine war. The steep increase in oil prices followed by the jump in input costs that fired up inflation were the most exacting challenges that threw businesses and economies across the world into a tizzy. The pandemic also led to job and salary cuts, and the informal sector, comprising consumers at the bottom of the pyramid, was hit badly. This created a vicious cycle that suppressed demand and led to a sharp decline in sales.

Against this backdrop, companies resorted to price hikes. It was a move fraught with the risk of depressing demand further. But the middle-class consumer didn’t give way. She not only kept up with her regular purchases but also, continued to buy “premium” products. It was thanks to her that in 2022, fast-moving consumer goods companies recorded a 7.4 percent increase in sales that primarily was led by price hikes.

The Indian middle consumer is now firmly in the saddle. Marketers need to put their best product forward.

Archna Shukla is a senior journalist based in Delhi. Views are personal, and do not represent the stand of this publication.