Mumbai: India, once the most optimistic nation in terms of consumer confidence, has slipped to third position behind Indonesia and the Philippines, reflecting worries over the sluggish economy, rising prices and the weakening of the local currency.
Indonesia displaced India to become the most optimistic nation for the first time in the June 2012 quarter and this is the first time that the Philippines has gone ahead, according to the Nielsen Global Consumer Confidence Index released on Tuesday.
“The dip in confidence over the last six months reflects the concerns of the devaluation of the rupee and the continuing inflation for urban Indians,” said Piyush Mathur, president, Nielsen India Region.
Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively. A high measure bodes well for retailers and manufacturers as it shows the propensity of consumers to spend.
“Indians are known to be value conscious and they will think twice before spending. The weak consumer sentiment is impacting sales across segments from auto to consumer durables and premium apparel and lifestyle brands,” said Rachna Nath, leader, retail and consumer, PricewaterhouseCoopers Pvt. Ltd.
Across sectors, retailers and manufacturers are already feeling the heat. The automobile and consumer sectors have seen sales plummet to eight-month lows.
According to the Nielsen survey, investing of spare cash in savings and the purchase of new clothes and gadgets has dropped. Consumer spending on new technology, for example, fell to 33% in the June quarter from 38% a year ago.
When it comes to saving on dining out and entertainment, the June quarter saw an eight percentage point increase to 38% in the number of consumers looking to save, from 30% in the March quarter. The shift is towards entertainment at home, with 18% of the consumers surveyed indicating they will do so, versus 21% in the preceding quarter, said Nielsen.
To be sure, quick-service restaurant chains that serve meals starting at Rs.25 such as McDonald’s and consumer packaged goods companies like Hindustan Unilever Ltd (HUL), the maker of Lux and Dove soaps and Wheel and Surf detergents, are feeling the impact.
For instance, the south and west franchise of McDonald’s has seen its same-store sales growth slow to 6% compared with an average 17-18% in the past eight-nine years, said Amit Jatia, vice-chairman, Westlife Development Ltd. Westlife is the parent of Hardcastle Restaurants Pvt. Ltd, the master franchise for McDonald’s in western and southern India.
Likewise, the India unit of Yum! Brands Inc., which owns restaurant chains KFC, Pizza Hut and Taco Bell, saw same-store sales growth slow to a meagre 2% in the June quarter, the parent said in a recent statement.
For HUL, the Indian unit of Unilever Plc., volume growth in the quarter to March was 6%, lower than the 7% growth for the fiscal year 2012-13, which, in turn, was less than the 9% of the year before.
“The thinking among consumers is let me save. They are being cautious,” Jatia said.
Consumers are making changes in their lifestyles to increase savings as the macro-economic environment continues to put pressure on them.
“The second quarter is also the post-incentives, post-bonuses period, so the euphoria has settled, and planning for financial stability has been set into place by families,” said Mathur. Consumers are looking to stabilize their budgets and this is being reflected in the shifts in discretionary categories, he said.
Nearly two in five respondents have changed their spending habits to increase savings, said the Nielsen survey and pointed to changes such as savings on gas and electricity (50%), spending less on new clothes (50%) and cutting down on telephone expenses (36%).
“Consumer spends are not going to improve for the next 12-18 months,” said Deep Mukherjee, director, corporate ratings, India Ratings and Research Pvt. Ltd, an arm of the international rating company Fitch.
Some of the biggest concerns for the respondents include the state of the economy and job security, said Nielsen.
Consumer outlook on job prospects is also on the decline, falling one percentage point below the preceding quarter at 72%. This is also much lower than the same period last year with job prospects at 77%, said Nielsen survey.
The survey was conducted during 13–31 May, and polled more than 29,000 online consumers in 58 countries across the Asia-Pacific, Europe, Latin America, West Asia, Africa, and North America. In India, the sample size for the survey was 500 consumers.