BackIndia’s big asset its young population: Deloitte’s De Riedmatten
Deloitte’s consumer business head says he expects foreign investment to flow into retail of luxury goods and apparel
Premium(Priyanka Parashar/Mint)
New Delhi: On his first visit to India, Antoine De Riedmatten, who oversees the consumer business practice at consulting company Deloitte Touche Tohmatsu Ltd, talks about the young population in emerging economies, especially India, and how this segment will drive growth for consumer companies. He expects foreign investment to flow into retail of luxury goods and apparel. Despite the clearance to foreign direct investment in multi-brand retail by the Rajya Sabha two weeks back, India on 17 December lowered its official growth forecast according to a new report by Reuters, to between 5.7% and 5.9% for this fiscal year, which could be a continuing concern for foreign investors. Edited excerpts:
Is the India growth story still attractive for investors?
I would say more than it was last year, not so much because of India per se, but because there have been problems in other parts of the world. So for companies looking at growth, India is an attractive destination...to go to. Secondly, with this new take on foreign direct investment, most retailers are looking at India, they are looking at big expansion plans in India. So, for those two reasons, India is more attractive than ever.
But some still argue that the India growth story has lost its sheen?
Maybe it’s linked with the Indian character; you do hear a lot more of the Chinese, they talk much more about their success than the Indians. But when I look at the two economies, one of the big assets of India is the youth and the growth of its young population, which makes a big difference as compared with China’s one-child policy. A lot of economists think that the future of India looks brighter because of the fact that by having this new generation come in, the next consumers are already there, which is not the case in China. There is always a lot of tension about Indian politics. But I think the basic demography is more important than politics, remember that demographics take one generation to change.
Is this demography, the young population, a big draw for investors or your clients?
Yes, for our clients India is attractive both in terms of future consumers and also in terms of future workers in their plants and their stores. Because of increasing modern retail in India, we all see a very big potential on that front since it is still very limited. To do modern trade, you need skilled sales force and workers, and with the higher education in India you have the potential to hire the skilled workers, which is an important factor.
Which consumer categories will see growth in India?
Luxury retail is one, because for the moment luxury retailers know the rich Indian consumers when they are travelling outside of India, they know these clients. But now they also want to attract these clients inside India, so they are all looking at the right strategy to come to India. In terms of apparel as well, we have different brands looking at India. On the grocery part, it is more difficult because it is a business of volume and it requires very big investment to come to India; you have to have a certain size from the beginning. With the uncertainty going on in the world of today, making a huge investment is more complex.
What consumption habits define the middle and upper classes in Asian countries?
Usually, when we speak about Asia and growth, we are speaking about the growing middle class and the young generation of this middle class looking for more.
Luxury is a very specific market because it doesn’t address the whole population. This upper class in the last years has seen its growth increasing much more than others, so they have a lot of money to spend. They are more concerned about what (are) the brands I need to buy and wear.
On the other hand, the middle class is moving from unbranded to branded, that is the most important step. So in some countries they start by where and what they eat, so out-of-home consumption of food, specially meat, is on a rise and that’s a good indicator of growth since the meat-eating habits also reflect middle class consumption habits. For instance, in countries like China we measure the growth of middle class by the growth in consumption of beef.
Globally, inflationary pressures are affecting profitability, how is that changing the way consumer companies are functioning?
In fact, the inflation of raw material (prices) is normal because we are in a world where more and more people want the same thing and you have more demand and supply and pressure on price. Therefore, either you can increase price or reduce margins. And because there is such a tough competition, companies have problems in increasing price (since they are all fighting for the same share). Therefore, they have big pressure on their margins, which is why companies are reacting differently. Some of them are changing the packaging, you have smaller package with same price, i.e. reduction of volume, that’s a reaction we are seeing across packaged foods category. Some try to reduce their cost and have programmes of cost reduction. Also, companies are moving from their traditional business to their other business. For instance, Amazon started from books, now they sell a lot of products, they are good at supply chain and inventory management, so they have done it with apparel, electronics.
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