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Business News/ Opinion / Views/  The value segment consumer reels under high inflation

The value segment consumer reels under high inflation

The middle class is trading discretionary items to meet the rising prices of essentials

GST will be levied on pre-packaged and labelled (non-registered brand names) goods and will be applicable on single packages of food items like cereals, pulses etc., weighing up to 25 kg. Premium
GST will be levied on pre-packaged and labelled (non-registered brand names) goods and will be applicable on single packages of food items like cereals, pulses etc., weighing up to 25 kg. 

It’s a bit of a Catch-22 for Vineet Rao, CEO of Jaipur-based e-commerce startup DealShare, which sells groceries, essentials and home care products. He’s not sure whether to hail or slam the recently imposed 5% GST on certain unbranded, packaged food items such as rice, wheat, flour and pulses notified by the government this month. GST will be levied on pre-packaged and labelled (non-registered brand names) goods and will be applicable on single packages of food items like cereals, pulses etc., weighing up to 25 kg.

“Overall, it’s a step in the right direction as you can trace the complete supply chain with GST and ensure standardization and quality products for the consumer. However, the timing of the move is completely off as consumer wallets, especially among those who purchase unbranded products, are already stretched owing to high prices of essentials. This will be an additional financial burden," he said.

Rao should know. His target consumer comes from Bharat’s low- and middle-income households, as DealShare sells in tier-II,-III and -IV towns through a community group buying model. Not just that, his platform aggregates local brands and products sourced directly from the factories to keep them affordable to his less affluent customers.

The middle class and the lower income groups are already trading discretionary products to meet the rising prices of essential items, Rao said. In this consumer cohort, he has seen the higher purchase of lower-priced products and increased spending on staples. Although the shift in consumption has benefited DealShare as consumers take to downtrading, that is, buying cheaper products or smaller packs, Rao said there is an unmistakable slowdown.

Another online platform that admits to softening demand in the value segment is Snapdeal. The company pivoted in 2018 to address the value segment focusing on home, fashion (apparel, footwear and accessories) and beauty and personal care. The company counts among its primary customers the middle-income, price-conscious buyers living predominantly in smaller cities. It receives more than 86% of its orders from outside the metro cities.

Himanshu Chakrawarti, president of Snapdeal Ltd, said the latest survey by the Retailers Association of India reflects a 14% jump in sales in the apparel and footwear category in June 2022 over June 2019, but the numbers need to be broken up to get the picture. “The premium to super-premium end of the market where brands like Calvin Klein or Tommy Hilfiger operate has remained unaffected and continues to do well. However, the mass-premium or mass-prestige segment is somewhat affected," he said, adding that overall, demand has softened in the mass segment. “But we are confident we will be able to achieve our planned growth," he said.

Chakrawarti’s confidence stems from consumers in the mass segment finding more choices online, keeping Snapdeal’s business strong. “A segment of value-savvy buyers is also downtrading from mass-premium brands as they find better choices in the value range," he added. Additionally, he expects growth as “the number of online shoppers is going to double over the next four or five years, and most of it is going to be from the value segment," he said.

Amit Adarkar, CEO of researcher Ipsos, agreed that as the economy recovers in the aftermath of covid, one sees uneven growth patterns. “The relatively well-to-do consumers, especially those whose lives were largely unaffected due to restrictions on offline world, have continued to do well, despite inflationary pressure in the last few months. Whereas consumers whose incomes and livelihood were severely affected during the pandemic were hit harder due to inflationary challenges," he said.

To that extent, the current recovery resembles a K-pattern. So it is not surprising that the premium and prestige segments are less affected across categories. “The value segments are under pressure for sure. Q1 of the current fiscal, many marketers did not pass on the inflationary impact directly to consumers through SKU (stock keeping units) downsizing in value segments. But volume growth could be restricted in Q2," he added.

The stress on household incomes is visible both in holding back on discretionary spending as well as the drop in FMCG volumes reported by companies like Hindustan Unilever Ltd. “So, the trend in consumption decline is quite secular across categories," said Chakrawarti, adding that the next 12 months seem unpredictable.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

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Published: 27 Jul 2022, 10:00 PM IST
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