Poverty? Indians spend most on expensive products

Despite high inflation and interest rates, number of Indians wanting to buy expensive products within the same category, called trading up in retail parlance, is among the highest in the world, says a new study.

Thirty four per cent of respondents, in a study conducted by global consulting firm Boston Consulting Group in March/April this year, said they trade up, which was a tad lower than China at 38 per cent.

The trading up tendency among consumers in BRIC (Brazil, Russia, India and China) was almost double (34 per cent) than those in the US and Europe at 17 and 15 per cent, respectively, the study says. Nearly 2,300 respondents took part in the survey.

Similarly, the trading down (buying cheaper products) tendency among Indian consumers is coming down.

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According to  the study, after seeing an increase (58 per cent consumers) in 2010, the percentage of Indians wanting to trade down have gone back to 2009 level of about 35 per cent.

"Indian consumers have much more positive outlook about the future. They think spending on expensive products is fine as income growth is possible in the future," says Amitabh Mall, partner and director at BCG.

Health and brand name are the two key drivers for trading up among Indian consumers, says the study. 65 per cent of consumers said they are trading up due to reasons surrounding health and equal number said they were trading up due to the brand name.

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"High end hospitals and diagnostic centers in India are seeing more traffic than ever, thanks to the growing awareness amongst the masses and increasing propensity to spend on," the study says.

On the importance of brand name in trading up, BCG says that several companies have captured this opportunity by introducing branded products at prices that are higher than unbranded products, but are still affordable.

Retailers agree that they are seeing trading up in certain categories. "Food and fashion are the areas where we are seeing trading up and we are setting up stores which cater to demand for good, better and best products," says Kishore Biyani, group chief executive officer, Future Group.

The Rs 12,000-crore (Rs 120-billion) group recently opened Foodhalls, a chain of stores which mainly stocks imported and premium food products among others.

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Adds Thomas Varghese, chairman, National Committee on retail: " There is more money in the hands of people and they are spending this on personal care, food and apparel products."

The study says spending related to categories like jewellery, athletic shoes, sporting equipment and eating out has been and continues to be vulnerable. These categories see trading down of more than 40 per cent.

On the other hand, categories related to health and kids saw a much lesser extent of trading down. Less than 30 per cent was traded down in dairy products, vitamin supplements, baby food and kids clothing.