By Prabhakar Chaturvedi
New Delhi [India], November 10 : Despite persistent inflation and sluggish demand, several leading FMCG and retail brands are doubling down on their premiumization strategies, reshaping their approach to appeal to discerning customers.
According to several industry players, with the current inflationary pressures and tempered demand in urban markets, they are planning to refine the premiumization approach, with more adaptive prices and refined packaging, among others.
As the purchasing capacity of Indians is increasing with time, the companies are trying to tap those consumers and sell their premium products. Premiumization is a growth strategy where some category volume is converted to a higher value by persuading consumers to pay more for it.
"Archies is strengthening its premium appeal through inventive product design, category development, and a customer-centric approach that appeals directly to premium shoppers," said Varun Moolchandani, Executive Director of Archies, an Indian multinational retailer of greeting cards and gifts.
Salloni Ghodawat, Director of Ghodawat Consumer Ltd., said that her company was enhancing its market presence through digital-first marketing strategies, utilising social media and e-commerce platforms to connect directly with premium customers.
"Through a focus on innovation, quality, and brand differentiation, we are well-positioned for continued growth in the premium segment," she said.
"Our growth is evenly split between premium and mass market segments. We see value in catering to both segments, with a focus on democratisation and premiumization where appropriate." stated Sudhir Sitapati, Managing Director and CEO, Godrej Consumer Products Limited, noting successes like Godrej Aer Matic and HIT Anti-Roach Gel, which have gained traction in e-commerce due to their convenience and perceived value.
Despite persistent inflation hurting consumers's purchasing power in urban and rural centres, the FMCG and retail companies say that the premiumization strategy has been the big growth driver amid the continued pressure on other segments.
The industry players say that the premium categories have witnessed a significant rise in average transaction value, volume and revenue.
As revealed in a recent Nielson IQ report, despite the demand challenges in the sector, there has been a rapid growth of premium and luxury FMCG products. The market intelligence firm stated that while the growth of FMCG as a whole struggles to reach double digits, the premium brands in the sector have touched the mark, outperforming their non-premium counterparts by nearly twice.
As per the Nielson IQ report, the premium+ segment now accounts for around 27 percent of total FMCG sales and contributes 42 percent of the sector's value growth.
"We've seen a steady rise in average transaction value and repeat business in our premium lines, which shows growth in both volume and revenue," said Moolchandani, adding that the premiumization strategy adopted by the company has seen a significant success.
Moolchandani further added that the inflation has undoubtedly influenced spending patterns, but our experience shows that the premium category remains resilient, particularly in metropolitan areas where aspirational buying endures.
"In rural markets, people spend more selectively, focusing on unusual or high-value things rather than making regular purchases. Urban consumers, on the other hand, are willing to invest in premium products as part of their lifestyle decisions, even if expenses rise," he added.
The premium segments of major FMCG giant Godrej Consumer have also seen a significant success, proving the success of premiumization strategy.
The Ministry of Finance, in its Monthly Economic Review of September, noted the moderation in demand and "softening consumer sentiments" in the urban centers. However, it recognised improvements in the rural demand, reflected in the increasing Fast Moving Consumer Goods (FMCG) volume sales.
Interestingly, the industry players recognise the dangers posed by inflation but they are confident that the demand for premium segments will continue to exhibit growth as the demand is driven by customers's desire for unique, expressive products.
"Price sensitivity among consumers has undoubtedly been impacted by inflation, but demand for premium products has remained strong, especially in categories that cater to lifestyle and health-conscious consumers," said Salloni Ghodawat, Director of Ghodawat Consumer Ltd.
"Today's discerning customers are willing to spend more on a product or brand when they feel part of a movement, community, or cause. The future of luxury lies in providing outstanding service and making each customer feel truly heard," said Disha Shah, Founder, DiAi Designs, recognising the response in the premium category.
Premium product sellers opines that although the inflation has impacted consumer behaviour, they don't see its effect on premium segments.
"Inflation has led to more discerning choices in urban areas where purchasing decisions are less influenced by short-term economic volatility. , but the aspirational demand in rural and non-metro regions has only strengthened, showing an evolving taste for luxury across India," said Gaurav Bhatia and Bharat Kapoor, Founders and Directors of Art Of Time.