Premiumization Takes Center Stage: 7 Key Factors Behind India’s Upward Consumption Trend

The first half of 2024 witnessed a remarkable trend in the Indian consumer market—a continued surge in demand for premium goods and services. This consumption phenomenon, called premiumization, indicates a shift in consumer preferences towards higher-quality, brand-conscious products, even amidst a global economic slowdown. 

Understanding this trend is crucial for businesses and investors alike, as it sheds light on the evolving dynamics of the Indian consumer landscape. Let’s begin by understanding premiumization and how it affects the Indian market.

Understanding Premiumization

At its core, premiumization signifies a rising consumer inclination towards higher-quality, branded products and experiences. This translates to a willingness to pay a premium price for features like superior performance, innovative design, enhanced functionality, or exclusive brand association. It’s not just about the product itself; premiumization encompasses the entire customer journey, including personalized service, convenient access, and a sense of exclusivity.

Examples of Premiumisation Across Sectors

The trend of premiumization is evident across a diverse range of sectors in India:

• Fast-Moving Consumer Goods (FMCG): Consumers increasingly opt for premium personal care products, organic food items, and premium beverages, indicating a shift towards health consciousness and indulgence.
• Consumer Durables: Large-screen televisions, high-end smartphones, and feature-rich appliances are witnessing strong sales, showcasing a desire for enhanced functionality and user experience.
• Automobile Industry: Despite an overall slowdown in car sales, the demand for premium SUVs and luxury cars remains robust. This reflects a growing preference for comfort, safety features, and brand prestige.
• Fashion: Consumers favor branded apparel and accessories, emphasizing quality materials, unique designs, and a focus on brand identity.
• Travel and Leisure: Luxury travel experiences, including premium hotels, cruises, and personalized tours, are gaining traction, driven by a desire for unique experiences and an escape from the ordinary.

Premiumization has several positive impacts across different sectors. Let’s start with the FMCG sector, where it drives innovation, improves product quality, and increases brand loyalty. This trend also boosts revenue growth by encouraging consumers to purchase higher-value products.

The FMCG Sector

The total revenue of the FMCG market is projected to grow at a CAGR of 27.9% from 2021 to 2027, reaching approximately US$ 615.87 billion. In 2022, the urban segment accounted for 65% of the total annual FMCG sales, while rural India contributed over 35%.

Trends in FMCG Sector Over the Years in US$ Billion with Estimated Projection till 2027

The Automobile Sector

For the first time, vehicles priced over Rs 10 lakh made up nearly half (about 48%) of all vehicles sold in the country between January and June, compared to 44% during the same period last year, according to leading manufacturers. Sales of these vehicles increased by 13% to nearly a million units, growing at more than twice the overall industry rate. In the same period, overall passenger vehicle sales rose by 5.5%.

Data from the Society of Indian Automobile Manufacturers reveals that larger utility vehicles, such as sports utility vehicles (SUVs) and multi-purpose vehicles (MPVs), accounted for 63% of all passenger vehicles sold in the Indian market during the April-June quarter, up from 55% in the same period last year.

In 2021, the Indian passenger car market was valued at US$32.70 billion and is expected to reach US$54.84 billion by 2027, registering a CAGR of over 9% between 2022 and 2027. Meanwhile, the global EV market, estimated at approximately US$250 billion in 2021, is projected to grow fivefold to US$1318 billion by 2028.

The Consumer Durables Sector

The Indian Appliance and Consumer Electronics Industry’s market size is anticipated to nearly double within the next three years, reaching approximately Rs. 1.48 lakh crore (US$17.93 billion) by 2025.

Counterpoint Research shows premium smartphones (priced above Rs 30,000) and large TVs (50 inches and above) saw significant consumption growth, driven by brands such as Xiaomi, Motorola, and Google. Amazon India reported that 81% of its sales were 5G smartphones, boosted by no-cost EMI offers. Additionally, premium FMCG categories experienced growth, driven by younger consumers, with washing liquids seeing a 50% increase in volume.

7 Key Drivers of Premiumization in India

Several factors are fueling the rise of premiumization of consumption in India:

• Growing Affluence: India’s middle class is expanding rapidly, with rising disposable incomes. This newfound purchasing power empowers consumers to explore premium offerings beyond basic needs.
• Aspirational Shift: Urbanization and exposure to global brands have fostered a desire for a better lifestyle. Consumers increasingly associate premium products with status, success, and accomplishment.
• Digital Influence: The proliferation of social media and online platforms has created a world of constant comparison. Consumers are bombarded with images and endorsements of premium products, shaping perceptions and influencing purchase decisions.
• Evolving Retail Landscape: The Indian retail sector is undergoing a significant transformation. Modern retail formats, both online and offline, offer a curated selection of premium products, making them readily accessible to a wider audience.
• Focus on Quality: Indian consumers are becoming more demanding. They are no longer solely price-driven; they value quality, durability, and after-sales service. Premium brands often cater to these expectations.
• Urbanization and Changing Demographics: Rapid urbanization has led to a growing population with a modern outlook. These urban consumers are often more brand-conscious and willing to experiment with premium offerings.
• Evolving Retail Landscape: The rise of online marketplaces and organized retail has made premium products more accessible to a wider audience. Convenience, wider variety, and attractive pricing strategies further fuel the trend.

Implications of Premiumisation of Consumption for the Indian Economy

Premiumization carries significant implications for the Indian economy

• Economic Growth: The increased demand for premium products stimulates economic growth by boosting production and generating additional business revenue.
• Job Creation: The premiumization trend necessitates a skilled workforce to design, manufacture, and service these products and experiences. This trend can lead to new job opportunities across various sectors.
• Brand Building: Indian companies can leverage the premiumization trend to build strong brands that resonate with consumers and compete effectively in the global marketplace.
• Shift in Consumer Behavior: Focusing on premiumization encourages a long-term perspective among consumers. They prioritize quality over fleeting trends, potentially leading to more mindful spending habits.

Challenges and Considerations

While premiumization presents a promising opportunity for the Indian economy, it’s important to acknowledge some challenges:

• Accessibility and Affordability: Premium products may not be readily accessible to all income segments. This could widen the income gap and social inequalities.
• Sustainability Concerns: The production of premium goods may have a larger environmental footprint. Sustainable practices need to be integrated to ensure responsible growth.
• Aspirational Debt: Easy access to credit facilities can lead some consumers to overspend on premium products, potentially creating financial burdens.

The Road Ahead

The future of premiumization in India appears bright. As consumer incomes rise and aspirations evolve, the demand for premium products and experiences will persist. Businesses must understand consumers’ changing needs and offer innovative premium products that cater to their aspirations while remaining mindful of affordability and sustainability concerns. The government can play a role by promoting responsible consumption practices and fostering a business environment that encourages the domestic production of high-quality goods.

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