Rising Incomes, New Categories & Premiumization | The Big GST Takeoff with Sanjiv Mehta - video Dailymotion

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00:00joining us on the show right now. Mr. Mehta, hi, good morning and so good having you on the channel

00:05today. This whole big GST reset that has been announced helped us understand how big this

00:11could mean for the FMCG space right now because a lot's been getting cheaper and how big your

00:18welcome move is this for the industry? Oh, thank you. Thank you so much. Thank you for inviting me.

00:24I think it's a fabulous day. It's the start of Navaratri and it's the first day of the new GST

00:32regime and I believe it couldn't have been better. Yeah, as a country, as businesses, we operate under

00:41certain context and if we look at it post the COVID period, there was a huge inflation and this was not

00:51the homegrown inflation. It came in from outside because of supply chain constraints, because the

00:57oil prices going up and during the two years around 22 and 23, there was unprecedented inflation

01:05and the wages, the incomes, of course, did not keep pace with the inflation and that is the reason we

01:14saw that the consumption growth had become a bit tepid. And thanks to the government, I think they've

01:22taken a big step, a fabulous step of rationalizing the GST rates and this should enable every section of

01:32the people to be able to spend more, but more so I would say people at the bottom of pyramid, the lower

01:39middle class, who will have more money to spend on essentials, on needs and wants. And I think this should

01:50augur very well for the industry at large and for the economy as well.

01:55Mr. Mehta, two things that our industry wants an answer on. One is the essentials. Are they going to get a

02:04bigger jump versus what we have seen of late because it's been a kind of a muted growth? And on the other

02:11hand, it's the premiumization theme that has done very well in India because yes, of course, some of

02:16these majors have done very well, but some of the new entrants have been taking it forward and even

02:22people are expanding their product portfolio in terms of using these products. With respect to the

02:29essentials and the premiumization theme, what's your outlook, which can do better?

02:34Thank you, Shristi. Let me take a step back and give you a bit more insight into SMCG. Yeah, if you look

02:41at it from a consumer lens and you look at it from a living standard measure, which goes a bit beyond the

02:48social economic indicators, we have about three, four percent of the households who have the purchasing

02:56power of the West. Yeah, you may call them the Louis Vuitton consumers. Then you have about 11% of the

03:03households who are upper middle class. Yeah, they are striving for a better house, a bigger car. Then you have

03:15about 30% of the population who are archetype middle class. Yeah, they are strivers increasingly. Both husband

03:25and wife are working and they want a better life for their children. And then you have 55% of the

03:32households who I would call as the lower middle class bottom of pyramid kind of stuff. Today, they don't go

03:41hungry. Yeah, but they have their needs and they want to fulfill them. And when you have more disposable

03:49income, you would certainly see them having a higher propensity to consume. Now, we must understand,

03:57there are no categories in India which are anywhere close to maturity. You can get growth by increasing

04:06penetration or getting more consumers. You can get growth by increasing consumption. And as you rightly

04:13said, you can get growth by premiumization. Now, premiumization has been a secular trend. We must

04:20remember that India for the last 30 years has been growing at a color of 6, 6.5%. And if you look at the

04:28nominal growth, it has been growing at about 10, 11%. So you have more income and certainly more income at

04:34the top of pyramid and everyone wants higher order benefits. So premiumization as a trend will continue

04:41for years to come. Yeah. But increasingly, when you have more income in the hands of people,

04:48the consumer's behavior also changes. To give you some insights, you know, when times are tough,

04:55in households at the bottom of pyramid, they would have one toothpaste or one bar of soap in the bathroom

05:01for all the family members. When things become better, when things become more affordable, when the incomes

05:06go up, they would be having a bar of soap for every member of the family as per their choice. Similarly,

05:13it goes with the toothpaste. So it does lead to more consumption. And I think the government has done a

05:20fabulous job of bringing down the rate of most of the items to five percent, which should give a

05:27Philip to consumption. There is no doubt about that.

05:30Right. Okay. So sounding positive over there, Mr. Metta, but also give us a sense of what this could mean in

05:39terms of the shift of preferences that we've seen. I mean, you just spoke about how the premiumization trend

05:45could be playing out. So also then give us a sense of if this could bridge the gap between mass production

05:51items, mass consumption items and the premium items. And could that gap could largely narrow on the back

05:58of this? You know, India is a country of 1.5 billion people. Yeah. So if I were to talk to you about

06:06premiumization, let me take it from the lens of pricing. When you have products which are priced less

06:14than 80 percent to the average of the market, you call them as mass products. If you have products

06:21which are priced between 80 to 120, you can call them as popular products. And if you're priced above 120,

06:30those are the premium products. Yeah. Now this is relative. These are not absolute pricing. And here

06:38again, I'm not talking of the prestige. Prestige is still a very small part. Now, over the last 10,

06:4512 years, we have seen very clearly, there is a shift happening. And people are, as they have more

06:53income, everyone aims for getting brands, getting products, which gives you higher order benefits.

07:01It could be functional benefits. It could be emotional benefits. That's what they strive for. Yeah.

07:08But at the same time, we must remember that there's a large section of India's consumers who are still

07:15trying to get into many categories. That's where the penetration, that's what we call as the penetration,

07:22bringing in more consumers. And when you have reduction in GST, that certainly helps those consumers to get

07:31into categories. Now in India, we must remember, it is not just about growing by taking market shares.

07:40A lot of growth will happen, not by share taking, but by market making, which means you're going to

07:47increase the pie. And that happens when the companies take conscious steps to develop the market through what

07:56we call as market development. And if you do that, the size of the pie goes up and you bring in more

08:02consumers to the fold. So certainly GST is going to help. Certainly it will help bring penetration.

08:11And those consumers say, who are in the middle income brackets, who were striving for brands at a

08:18premium pricing, but they were held back because of affordability. Now we'll have more money to go

08:25after premium products. So it is also going to help premiumization. And I believe India is

08:34on a path where it will sustain a high rate of growth for years to come. So premiumization

08:40as a trend will remain secular. Okay, so that's the take on premiumization. But Mr. Mehta,

08:46sir, before we let you go, just give us a sense on what you think the outcome could be on the rural

08:52economy. Given that that is largely a need-based economy, do you think this GST cut could be significant

08:58enough to move the needle for the rural economy? You know, if you look at rural economy, there was

09:04a time when two years back, we had a GDP, we had the agriculture growth rate, which was less than two

09:10percent. That took a toll on the rural consumption. Now we must remember that 60 percent of Indians still

09:19live in rural and 45 percent of working population in the country is engaged in agriculture and related

09:27activities. So if your agri growth goes down, then yes, it will impact your consumption. Now,

09:36thankfully, the rains have been good. Yeah. And we see both the crops, Rabi and Kharif, hopefully

09:42being much better this year. Last year was decent as compared to the previous year. And that is the

09:47reason you saw rural consumption going up. And for many quarters, the growth rate has been higher than

09:55the urban. Remember, growth rate, not the absolute growth, not the absolute consumption. So if that

10:01continues, then yes, it will give more money in the hands of consumers in rural area. And thanks to

10:10GST reduction, it will make the brands products more affordable. So yes, it will definitely impact

10:17rural consumption also. All right. We'll definitely watch out for that. But Mr. Mehta, so good having

10:23you on the channel today. Thank you so much for taking the time out. And all the best to you and all

10:29the best to ET now. Thank you. Thank you so much. But thank you so much for helping us understand

10:34what's really panning out when it comes to the FMCG sector in India.

Rising Incomes, New Categories & Premiumization | The Big GST Takeoff with Sanjiv Mehta

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