How Is Premiumization Changing Indian Consumers?

Kotak Insights | Date 04/08/2023

Gone are the days when Indian consumers settled for mediocrity. Today, they crave nothing but the best, pushing for a premium experience in every aspect of their lives.

While the USA and China have long enjoyed the status of superpowers for luxury growth, India is rapidly catching up, transforming itself into a premium-product haven.

In fact, its race to become a premium-product market has begun, and India is making good progress.

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Here are some fascinating facts from the conference calls and investor presentations of a few companies:

Remember Shoppers Stop? In their latest analyst call, the company’s management said its products' average selling price (ASP) went up by 10% last quarter. Customers are now looking at premium and luxury products, and these segments have started to do well.

Bata India, one of the largest shoemakers in the world, said that sales of sneakers with an ASP of Rs 2,000, shoes sold under premium brands like Hush Puppies with an ASP of Rs 4,000 and Comfit of about Rs 2,100 were growing. Conversely, sales of products priced under Rs 1,000 have declined.

India’s largest FMCG company HUL recently said that their growth is coming from the premium end, which is about a third of the business and is growing fast.

And Nestle India is watching small towns in India move from single packs to multi-packs and from multi-packs to premium brands. The hype is such that even its chairman is surprised since some of the premium products are seeing a surge in demand from really small towns.

There’s a change in habit among Indians!

What this means is Indians are buying more premium products, and the ASP of several categories, including televisions, refrigerators, laptops, smartphones and shoes, have shot up in the past year.

So…

What’s Driving the Premiumization Wave?

As India’s economy grows and disposable incomes rise, more and more people are willing to go deep into their pockets and splurge money on luxury products.

This trend gained momentum after the pandemic.

One trend is the increasing number of high-net-worth individuals (HNIs) in India. According to a report by Knight Frank, the number of HNIs in India is expected to grow by over 50% between 2020 and 2025.

Another factor driving the growth of luxury products is the changing lifestyle preferences of Indians. In the past, luxury products were seen as a status symbol. However, more and more people are buying luxury products, be they properties or fine wine, for personal enjoyment. It’s simple economics. As the country's economy grows, so does the appetite for upscale goods and services.

Investing & Trading Opportunities

India’s shift to premiumisation presents a golden opportunity for investors to capitalise on the growing demand for premium products and services.

How, you ask?

By focusing on luxury stocks of established brands with a solid track record.

It is essential to distinguish between luxury stocks and regular stocks.

Luxury stocks represent companies with long-established brand value and a record of delivering premium products and experiences.

These companies have built a loyal customer base over the years, making them resilient to market fluctuations.

Shares of these companies are better placed as their products are distinct and add more value. They’re expensive compared to competing products as they manufacture products that are the opposite of necessities. These are items that consumers want but don't need.

So, as you can see, a number of trends favour luxury stocks.

When we say luxury stocks, think of strong brands and timeless products.

Take the example of the Indian jewellery maker Titan.

Ranked 25th in the Deloitte Global 2022 edition of Global Powers of Luxury Goods, Titan is India's largest branded jewellery maker and the fifth largest integrated own-brand watch manufacturer.

The company took over the premium jewellery segment by storm once it forayed into the business in 1990.

It then differentiated itself from the competition by new product offerings at regular intervals.

Also, back in the nineties, there were no regulations about jewellery hallmarking, and jewellers were often suspected of cheating people by selling low-quality gold. Titan was again early to recognise the opportunity and it launched the Karatmeter, which checks the purity of gold using X-rays.

Currently, the company plans to take its jewellery brand Tanishq to the U.S. and other West Asian markets to tap into demand.

Titan’s stability surprises many, primarily because affluent individuals tend to maintain their buying habits even during economic downturns. This aspect provides resilience to Titan’s luxurious products (and the company’s stock price!).

All in all, premiumization is one of the trends that has remained relatively unpopular. And there can be many untapped investing and trading opportunities to look out for.

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And for a detailed outlook for August 2023, deep dive with Shrikant Chouhan and the research team, on the Stocks and Strategies for August 2023 webinar.

We would love to hear from you - what trends are you paying attention to in 2023? And which luxury products or luxury stocks are you tracking?

Let us know in the comments section below.

Until then - Happy Investing!

Sources: Kotak Securities, Economic Time, Company presentations