From phones to cars, premium segment rakes in the numbers

Those analysing trends in the market and economists suggest that this may be an indicator of the widening inequality that has marked the post-pandemic recovery process.

For small-carmaker Maruti Suzuki, its relatively new Nexa premium sales channel is positioning itself to end the current financial year, 2023-24, as the country’s second largest carmaker on a standalone basis, with targeted sales of 6 lakh units, up 62 per cent compared with the previous year. The sales at its entry-level car business, a traditional volume spinner for the carmaker, is, however, projected to stay flat this year.

Hindustan Unilever Ltd, India’s largest household goods maker, reported an overall 10 per cent increase in March quarter profit, even as it admitted to surging inflation affecting consumer demand as rural areas, where volumes fell over 7 per cent during 2022-23, alongside a pronounced slide in demand from low-income groups. Volume growth in the coming months, according to the company, is contingent on commodity prices softening and consumption habits adapting to higher costs.

Mobile phone shipments also reflect this trend, with the ‘ultra premium’ category (comprising handsets costing Rs 45,000 and above) seeing a 66 per cent growth in the January-March period and the ‘premium’ segment (Rs 30,000-45,000) a 60 per cent growth, while sales in the Rs 20,000-30,000 bracket saw a 33 per cent dip in volumes, a 34 per cent dip in the Rs 10,000-20,000 bracket and a 9 per cent dip in the under Rs 10,000 category, according to market research firm Counterpoint.

There is another sign of distress in the handset market: a growing consumer preference for refurbished phones. The sub-Rs 10,000 price band, Counterpoint noted, continued to witness declining demand due to reasons including an elongated replacement period and a declining feature phone-to-smartphone migration.

“(The) premiumization trend is becoming stronger with each passing quarter. The premium segment’s share almost doubled in the first quarter of 2023 compared to the first quarter of 2022,” Counterpoint senior research analyst Prachir Singh said. The premium segment’s growth is reducing the mid-tier share, as consumers are upgrading to higher-priced smartphones, she noted.

Carsales trends

The car market has seen a fundamental change with the momentum shifting towards the upper end of the price bracket: first-time buying, for instance, has seen an increase – from 45 per cent earlier to about 48 per cent for Maruti Suzuki. But there is a clear shift upwards towards the mid-segment hatches and sedans, and entry-level SUVs (sports utility vehicles). More importantly, replacement buying has drastically dropped from about 26 per cent to about 18 per cent, even as additional car buying (a sign of affluence with consumers buying a second or a third car) has jumped from about 30 per cent pre-Covid to about 36 per cent, Maruti Suzuki India’s Senior Executive Officer (Marketing & Sales), Shashank Srivastava said.

The premium segment is expected to be a volume spinner, helped by some new launches to be sold through its premium division, Srivastava said. “Nexa (channel) is doing very well. In fact, last year, Nexa was the fourth largest player in the country. And next year, we expect it (Nexa) will be the number two brand in the country after Maruti Suzuki,” he told The Indian Express.

At a briefing on April 26, Maruti Suzuki Chairman R C Bhargava said the demand for small cars was flat and that he did not see any growth in this segment this year. “The country has to become a little bit more wealthy for people to be able to afford (small) cars,” he was quoted as saying. A representative of a leading carmaker said the rate of increase in people’s income levels at the lower end of the income spectrum and outside of the cities has simply not kept pace with the rise in sticker prices of cars, a trend that has worsened after a sustained bout of high inflation and elevated commodity prices over the last 12-15 months.

Inflation impact

In the FMCG market too, the trend is visible, though companies are hopeful of an improvement. Sanjiv Mehta, MD and CEO of HUL said markets are showing signs of improvement that could be indicative that “the depth of negative volume has reduced”, he said while announcing the company’s March quarter results.

Overall growth in the FMCG sector slowed in the last three months of 2022 as rural consumers spent less on consumer goods, according to market intelligence firm NielsenIQ. FMCG companies, especially those making personal care products, have clearly struggled to generate sales from rural areas. “Over the last year, consumer spending was impacted primarily because of inflation, echoed by consumers in the shift to smaller packs, and by manufacturers via grammage reduction,” Satish Pillai, Managing Director of NielsenIQ in India, said in a statement. Consumption of non-food items including washing powder, detergent bars and toilet soaps, declined across consumer groups, with manufacturers offering lower discounts, according to NielsenIQ. Discretionary items typically take a hit during periods of uncertainty and high inflation. Also, the rural-urban comparisons throw up more discrepancies. Consumers in urban areas, according to NielsenIQ, bought more, with big-format supermarkets and hypermarkets growing in double digits for the second straight quarter, while rural sales continued to be sluggish, even though easing inflation and a pickup in farm incomes are expected to lead to a gradual recovery in the rural markets.

According to economists, the category that has been badly impacted in rural areas is the people dependent on non-farm income, even as farm income has been reasonably buoyant. Plus the inflation impact generally is more pronounced in lower income households, as their spending on food rises proportionally, leaving lower spending for discretionary items.

Upwards shift

In line with the new market realities, carmakers are adjusting to the shift in the market dynamics and are decidedly moving up the value chain. Data from the country’s top three passenger vehicle manufacturers, Maruti Suzuki, Hyundai Motors and Tata Motors — which accounted for over 70 per cent of all car sales in FY 2021 — showed that all of them have made a decisive shift up the price bracket. For Maruti Suzuki, cars costing Rs 10 lakh and above (the premium segment), as a percentage of its total portfolio of models, have grown from just 2.5 per cent in FY20 to nearly 15 per cent during 2022-23. For Hyundai, that jump is from around 20 per cent to 40 per cent; and for Tata Motors, from 20 per cent to 28 per cent.

Numbers from industry lobby group Society of Indian Automobile Manufacturers (SIAM) show that the sales growth is led by sports utility vehicles, which constitute a big chunk of passenger vehicles costing over Rs 10 lakh and above. The mini and compact-car segments have, however, clocked lower growth than the peak year of 2018-19.

Also, mopeds are down over 50 per cent from the 2018-19 peak, motorcycles (up 110 cc engine) were down over 30 per cent – underlining the continuing distress in the lower-end of the auto segment, which has a cascading impact on the entry-level car market as a bulk of consumers graduating to this segment are those who move up from two-wheelers.