Over 60% of consumers in urban India have become “newly constrained” with lower household income or a worsening financial situation due to the pandemic, leading them to keep a close watch on spending, NielsenIQ said in a report.
The study, conducted in December, found that urban consumers were less confident about income prospects improving in the first half of this year.
The caution expressed by Indian consumers was higher than the global average, according to the report, and factors influencing consumption were lowest prices, private labels and promotions.
“Even with positive news of vaccine deployment, urban consumers are likely to stay cautious and continue to control their spending. Brands and retailers need to understand how their consumers’ situations have changed so they can meet their new needs,” NielsenIQ Intelligence Unit global head Scott McKenzie said.
In urban India, 63% of the consumers fell within the “newly constrained” group compared with the global average of 46%, the report said, adding that consumer circumstances and intentions relative to spending changed from the middle of last year.
“While India’s FMCG industry has seen an uptick in consumption towards the end of last year, the consumers that brands and retailers knew last year are not the same today,” McKenzie said.
Industry executives said job losses and reduced salaries have impacted consumption in India’s cities, while demand has remained resilient in villages, aided by reverse migration, direct fund transfers, a good monsoon, higher produce prices for farmers and increased funds for rural employment.
“The next six months will be wait and watch, but we are optimistic that demand will pick up after that,” said Varun Berry, managing director at biscuits and dairy giant Britannia Industries.
Nielsen identified four consumer categories and spending trends in urban India – 10% “existing constrained consumers” who were already watching what they spent before the Covid-19 outbreak; 63% “newly constrained consumers,” 25% “cautious insulated consumers” with limited income who are watching what they spend, and “unrestricted insulated consumers” who said their financial situation was either the same or has improved and don’t have to check their expenses.
“Even though normalcy is returning, the workforce has been reduced in cities either out of necessity or because offices and plants have become leaner in terms of manpower,” said Mayank Shah, senior category head at cookie and confectionery maker Parle Products. “Further, rationalisation of salaries and non-essential small business have been impacted, too, as a result of which we are seeing reduced spending in households in cities.”
While rural demand growth had trailed urban India till 2019, it is now expanding at twice the rate of cities. The Centre for Monitoring Indian Economy said almost 15 million fewer people were employed in December compared to March last year and job losses were mainly concentrated in urban regions.