The Great Indian Consumer

• Indian Economy – A change in Guard

• Indian consumer – Changing Demographics and Attitude

• Consumer Share of Wallet

• Indian Consumers of the Next Decade

• Conclusions

Contents

Indian Economy: A change in Guard

Economy is Set To Boom: GDP Projections

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• The Indian economy is expected to grow at more than 7% in 2003-04, a rate the economy has not clocked since the mid-1990s.

• In the long term, India’s GDP is expected to triple by 20013-14

• Expected GDP growth for 2004-05 around 7% backed by:

• Clear overall demand growth

• Order books of companies better than before

• Companies have a strong outlook

• Rising rural demand – The recent budget announcements to give further boost

• Upturn observed in investment cycle

Source: Indian Economy Review, Confederation of Indian Industry, August 7, 2004 & BusinesworldIndia , Deutsche Bank

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Demographic Trends

Source: Study from Deutsche Bank

Particulars 1996 2001 2006 2011

Total Population (Million) 934 1012 1094 1179

Urban Population (%) 27 29 30 32

Demographic Trends and Projection (1996 - 2011)

There has been a net addition of 41 Million to the urban population in India between 1996 – 2001 and between 2001 – 2011 it is expected that there will be a net addition of 84 Million people to the urban population.

India’s potential in 2007 is derived by applying the 2002 comparable benchmarks to the corresponding demographic segment as projected in 2007

Huge Potential Growth of 100% to 500%

Estimated Potential based on comparable benchmarks

Source: DSP Merrill Lynch Investor Conference, February 9, 2004, Goa, India

Current Base2007 Potential

Mobile Users Mn 170 28 510%

Internet users Mn 56 13 330%

Car sales Mn/annum 1.5 0.6 150%

TV Owners Mn 220 92 140%

Oil Consumption Mn tonnes/annum 263 113 140%

Power Consumption Mn MWH/annum 882 404 120%

Healthcare Exp. US $bn/annum 46 23 100%

Particulars Units India

Growth(%)

Growth in Telecom and Technology Increasing at a Wider Pace

Penetration of PC,TV and Internet 2000 2004 2008 CAGR

PC Households (in MN) 3.4 17.0 35.1 30%

TV Households (in MN) 61.4 73.9 85.1 4%

Pay TV Households (in MN) 29.7 49.0 68.0 10%

Internet Households (in MN) 2.2 12.3 33.4 35%

Narrowband Internet HH (in MN) 2.2 12.1 32.0 35%

Broadband Internet HH (in MN) NA 0.2 1.4 111%

Source: Pyramid Group, 2004

Penetration of Internet and Mobile Users 2000 2004 2008 CAGR

Internet Users (in MN) 6 28 81 38%

Mobile Subscriptions (in MN) 3 43 98 54%

Mobile Users (in MN) 3 43 96 54%

Mobile Data Services Users, incl.SMS (in MN) 227 6,397 15,719 70%

Mobile Internet Users (in MN) NA 5 21 115%

India’s Infocomm Opportunity by 2007

• Indian Infocomm market currently at US$14 bn - underserved in voice, data,

computing and applications for consumer and enterprise• A population of over 1 bn individuals – teledensity to grow from 7% to 25%• Infocomm revenues to grow to $40bn by 2007

Source: DSP Merrill Lynch Investor Conference , 2004

Indian Consumer

Changing Demographics and Attitude

India Is Young...

Lowest Median Age of 24 for its 1 Bn+ Population

Source: Population Division, DESA, United Nations

Largest “Young” Population

Source: Merrill Lynch : India Economics

Changing Demographics Driving Growth

• 44% of population less than 19 years• Estimated literacy rate for this segment is over 75%• Working population (19 – 60 years of age) will increase from 485 mn to 615 mn by 2010• Educational base of 21 mn professionals and 90mn graduates / post graduates by 2010

Source: U.S. Bureau of the Census, IPC, International Database, & GOI, BIU, Statistics as per Feb 2004

People Are Getting Richer…

GDP & Disposable Incomes Are on the Rise

• GDP Per head is expected to increase by 57% in 2008 over 2003

• Personal Disposable income is expected to almost double by 2008

2003 2004 2005 2006 2007 2008Growth Rate (2003 -2008)

Population (mn) 1,062 1,077 1,093 1,109 1,124 1,140 7%

GDP per head (US$ at market exchange rates) 538 584 627 679 733 787 46%

GDP (US$ bn at PPP) 3,005 3,252 3,574 3,917 4,304 4,704 57%

GDP per head (US$ at PPP) 2,831 3,019 3,270 3,533 3,829 4,126 46%

Personal disposable income (US$ bn) 475 544 617 701 797 902 90%

Household consumption (US$ bn) 372 403 432 463 497 527 41%

Household consumption per head (US$) 350 370 400 420 440 460 31%

Source: Executive Briefing: India, ECONOMIST INTELLIGENCE UNIT, 2004

A Demographic Transformation is Occurring

• Addition of 100mn to the Consuming Class during 1996-2002

• Reduction in Aspirants and Destitutes by about 225 mn in 10 years

Source: Indian Market Demographics Report 2002, NCAER

GDP Per Capita is Slated to Approximately Double by 2010

Source: Merrill Lynch : India Economics, I USD = Rs. 45

Consumer Sentiment and Confidence in the Economy is Highest in India

Source: AcNielsen Asia Pacific Consumer Confidence Survey, 1st Half 2004

The New Indian Consumer

Business Standard, 2004India leads Asia-Pacific in consumer confidence.

Indians also appear to display the highest degree of confidence in their economy than consumers in other Asia-Pacific countries.

Time Magazine, 2003“…a new breed of consumer in India - young, increasingly wealthy and willing to spend on everything from mobile phones to speakers to French fries.”

The New Indian Consumer

Confederation of Indian Industry, 2004

The internet revolution is making the Indian consumer more accessible to the growing

influences of domestic and foreign retail chains. Reach of satellite T.V. channels is

helping in creating awareness about global products for local markets.

About 47% of India’s population is under the age of 20; and this will increase to 55%

by 2015. This young population, which is technology-savvy, watch more than 50 TV

satellite channels, and display the highest propensity to spend, and are expected to

immensely contribute to the growth of the retail sector in India.

The New Indian Consumer

“…one of the most significant changes has been the transformation of

households into dual- and even triple-income ones. With young people in

new professions in the services and BPO industries, beginning to work at

an early age, spending habits have changed. There has also been the

influence of media and travel on consumer spending habits, not to mention

connectivity and communication. Demographics too will influence

consumer behavior. Half of the Indian population is below 20 years of age,

youth marketing is in essence "mass marketing"…”

Mr Arvind Singhal Chairman

KSA Technopak

Overall Metamorphosis in Mindset

Enabled by an Explosion of Lifestyle Spending Options

Availability of lifestyle spending options are increasing and inducing higher spends on “status acquisition”

Over 400 malls under construction across 60 cities; 70-80 million

square feet

Growth in multiplexes: Number of screens to grow

by over 1000 in 2004

Converging Aspirations

Converging aspirations: Differences in wants and desires of consumers in conventionally defined segments like metros vs. small towns, SEC’s diminishing.

Credit Friendly Indian

• Radical change in Indian consumer mindset: credit no more a feared entity

• Personal Credit off take has increased from about US$ 11 bn in 2000 to about US$ 36 bn in 2003, giving an unprecedented boom to high ticket item purchases e.g. housing and automobiles

• 12% people in urban SEC A/B are currently paying EMI’s for loans, of which40% have taken a home loan

• “…there are 0.9 mn cardholders in the country who swiped almost US$ 3 bn worth last year. Of this, US$ 2 bn was spent on retail and only US$ 240 mn of this spending was through malls…” - V. Vaidyanathan, Managing Director (Retail Asset Product group), ICICI Bank.

I USD = Rs. 45

Card Market in India Witnessing Robust Growth

Source : Business World – Oct 2004, Outlook Money Sept 2004

Growing affluence levels and consumer sophistication, which are the usual developments accompanying a booming economy, are the main factors contributing to the robust growth of financial cards in India.

The fact that the young generation is pro towards spending coupled with the perception that financial cards are a status symbol in India, serve as a contributing factor to the healthy performance of credit and debit card industry.

RETAIL: AN ENGINE FOR FUTURE ECONOMIC GROWTH

Retail Sector in India

Source : KSA Technopak Feb 2004

1999 2002 2005

Total Retail ( US $ Billion) 150 180 225

Organised Retail ( US $ Billion) 1.1 3.3 7

% Share of Organised Retailing 0.7 1.8 3.2

Retail Chains are Showing Impressive Growth

Source : BusinessWorld, 14 June 2004, Source : BusinessWorld, 25 Oct 2004, Rs. 1 crore = US$ 0.2 mn

Capital Expenditures Becoming Revenue Expenditure

Consumer Share of Wallet

The Steep Upward Curve of Indian Consumer Spending

*Figures represent consumer spending on discretionary items

Conspicuous expenditure rising; spends on durables, home textiles risen. Consumer seeking value for grocery, personal grooming items and eating out.

Indian Consumer Spending Basket Expanding

The New Indian Consumer is on a Spending Spree

1. Consumer spending by Indians is up 16 per cent over last year, the GDP per capita is

expected to double by 2010 and with the ever-increasing availability of lifestyle-spending

options, more and more people are spending on what is known as `status' acquisition.

2. Ninety per cent of the 539 Indian consumers polled in the bi-annual study of 7,230

consumers said they would spend their disposable incomes on non-essentials.

3. Overall, Indian consumers display a proclivity to spend that is greater than the

regional average.

4. A KSA Technopak study found that among the product categories that registered

significant growth last year, mobile phones topped the list since their sales almost

doubled, followed by consumer durables at 53 per cent. This was followed by books

and music (32 per cent), movies and theatres (38 per cent) and home textiles at 29 per

cent.

Advertising and Commerce Revenues

Source: Pyramid Group, 2004

With consumer incomes and willingness to spend on the rise, more and more advertisers are spending on different types of media. Online (Internet) ad spends show the highest growth over the eight year period (2000 – 2008). Mobile revenues are expected to grow the fastest among both advertising and commerce revenues, highlighting that more and more consumers are expected to spend online or through the mobile.

Advertising and Commerce (US $Mn) 2000 2004 2008 CAGR

Total Advertising Revenues 1,222 2,191 4,661 16%

Print 702 1,084 1,492 9%

Radio Broadcasting 36 59 116 14%

TV broadcast 272 489 1,044 16%

Pay TV 70 138 322 19%

Online (Internet) 4 12 46 31%

Fixed 4 10 37 28%

Mobile NA 2 9 83%

Total Commerce Revenues (US $Mn ) 1,450 3,126 4,438 13%

International Trade 404 763 899 9%

B2B 619 1,370 1,969 14%

B2C 428 962 1,368 14%

Mobile NA 31 202 45%

Emergence of the Two Faced Customer

Emergence of the Two Faced Customer

A quick review of Indian urban consumer shopping basket reveals

Overall consumers spending power is increasing

Value is more

important

Emergence of the Two Faced Customer

Indian Consumers of the Next Decade

Indian Consumers of the Next Decade

20 to 25 years

“Impatient aspirers”

26 to 50 years

“Balance seekers”

8 to 19 years

“Technologies’

Babies”

32 million

Source: KSA estimates

16 million 41 million

Universe = Urban, SEC A/B/C

Technologies’ Babies

• India’s urban tweens and teens are growing up midst a growing economy surrounded by feel good factors.

• Born to be wired and tech savvy.

• Knowledge seekers.

• Growing up with the Indian value system but high degree of western influence as well.

• Desire to set themselves apart from the other age segments

What are They Spending On?

TEENS (15-19 YEARS)

Wired Generation

Influence on Household Purchases

• In India, there is a high degree of influence of the tweens and teens on household purchases and brand choices, as seen globally

• 48% of parents agree that their children play a major role in decisions about household purchases and what brands to buy.

• The guilt factor of urban upper and middle class “time pressed” parents leading to increasing ‘pester power’ influence of tweens and teens on household purchases

• Implications for marketers – cannot afford to exclude targeting kids in marketing plan.

Teen Attitude

% indicates people agreeing

Targeting the Young…

Targeting the Young…

Impatient Aspirers

New Economy; New Avenues of Income

What are they Spending On?

Young Adult Attitude

Balance Seekers

What are they Spending on ?

Mature Adult Attitude

Targeting Mature Adults

Indian consumers of the future…

It’s Not All About Money

ITEMS: The 5 Consumer Currencies

Back to Basics

Consumers Shall Look For Solutions

• Consumers shall look for solutions and not merely problems

• Solutions which can add value in terms of

– Saving Time– Enriching Quality of Life– Enhancing Productivity– Lifestyle Aspirations

Conclusion

Indian Economy – A change in Guard

• The Indian economy is expected to grow at more than 7% in 2003-04, a rate the economy has not clocked since the mid-1990s.

• In the long term, India’s GDP is expected to triple by 20013-14

Demographic Trends

• There has been a net addition of 41 Million to the urban population in India between 1996 – 2001 and between 2001 – 2011 it is expected that there will be a net addition of 84 Million people to the urban population.

Indian consumer – Changing demographics and attitude

• Lowest Median Age of 24 for its 1 Bn+ Population

• Largest “Young” Population of approximately 250 million people. 44% of population less than 19 years

Rising Incomes

• GDP Per head is expected to increase by 57% in 2008 over 2003

• Personal Disposable income is expected to almost double by 2008

• GDP Per Capita is Slated to Approximately Double by 2010

• Among Asia-Pacific countries Consumer Sentiment and Confidence in the Economy is Highest in India

• Personal Credit off take has increased from about US$ 11 bn in 2000 to about US$ 36 bn in 2003, giving an unprecedented boom to high ticket item purchases e.g. housing and automobiles

Conclusion

Consumer Share of wallet

• Conspicuous expenditure rising; spends on durables, home textiles risen. Consumer seeking value for

grocery, personal grooming items and eating out.

• Consumer spending by Indians is up 16 per cent over last year, the GDP per capita is expected to

double by 2010 and with the ever-increasing availability of lifestyle-spending options, more and more

people are spending on what is known as `status' acquisition.

• Overall, Indian consumers display a proclivity to spend that is greater than the regional average.

Indian Consumers of the Next Decade

Three Types

• 8 to 19 years: “Technologies’ Babies”

• 20 to 25 years: “Impatient aspirers”

• 26 to 50 years: “Balance seekers”

• Overall consumer spending of the above up on Mobile phones, Housing, Automobiles, Durables &

Education

• And spending less on Grocery, Personal care, Eating Out