For the next 3-5 years, which categories will grow faster than India’s nominal GDP? Arvind Singhal answers

There is a view in the market that the worst in value retail is over. The encouraging guidance from V-Mart, the store expansion of DMart, the fact that the rate cuts would kick in –all are adding up to perhaps a comeback year for value retail. Is that sasta, sundar, tikau (cheap, beautiful and durable) trade or consumer back?
Arvind Singhal: Firstly, let us look into a trend line as opposed to the short-term spikes. I am more interested to see what is the trajectory for value retail across categories. This is where I have been very surprised over the last almost three decades as to why many of the very intelligent, very smart marketeers have been talking about premiumization stories over the opportunity in the value-end of the market.

Now what is giving even more momentum to the value end including value fashion, value FMCG, value consumer appliances and durables as well as some factors regarding how the consumer’s disposable incomes have gone up fairly significantly, but which is not necessarily reflected in the gross per capita indicators. There are two-three factors.

Firstly, we should look into household incomes and the government is now finally starting a household income survey. It is the right way to look at it because if a typical household in India has 4.4 members, the household income now has got multiple income earners rather than only dual income earners. There are still joint families, one house rent to pay, one kitchen to run. When you look into the indirect impact of 800 million individuals getting free food for the last four years, all of that money which has been saved would have gone on basic needs like food, is available in some way to spend on something else.

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I am also in a very strong proponent of direct money transfers – ladli behna, laddli this, ladli that, whatever else, it does not matter. If a couple of hundred thousand crores rupees have also gone directly in the hands of beneficiaries, that money is also coming back to market in terms of spending. Net- net, the purchasing power even at the so-called bottom of the pyramid, let us say, the bottom 250 million households is fairly significant and they are very well spread out. No surprises that is now beginning to show up in a steady growth both in terms of volume and value for the value oriented, value focused brands and retailers.
What will be the comeback category? Could it be apparel? Could it be consumer durables or could it be pure vanilla staples, FMCG, soap, shampoo?
Arvind Singhal: For a country with our demographics and the absolute number of size, apparel will always remain a very, very significant category. It may not be so good a news for Trent, but the good news for the consumer at large is that Zudio is now the aspirational model for almost everybody into the fashion retail business there. It is difficult to copy, but a lot of people are trying to emulate that.
The next category which I personally find very exciting, if somebody can crack it, is the value footwear. Now again, Trent sold 27 million pairs of footwear with an average selling price of Rs 400. Footwear is another category which can go from unorganised to organised, but they are the value-end of the market there. I still think that the value-end of personal care products is the next area– skincare, beauty, fragrances. There are some players in that market. I think that market is ripe for disruption there as well.
If Arvind Singhal has to buy a stock for his retirement in the retail space, which one would he buy? And if he has to gift a stock to his grandchildren where they can create wealth like Trent has created for you, like some other retail stocks have done for you, what would it be?
Arvind Singhal: Let me just talk about themes, not a specific company because companies come and go, competition comes in there. A theme which is oriented towards mass consumption and value. I am not even using the word value, just the mass of the market, the belly of the market. All those terms but a model which is scalable to pan-India rather than only top 15-20 cities. I would be very excited about such companies irrespective of what space they are in.By the way, if I had to gift my grandchildren stocks, I am very bullish on the medical category, not the services side, but on the product side, medical care, consumables in medicals, homecare – categories which are going to become phenomenal for India. Technology is going to aid them there. So, for grandchildren, medical theme, but products and appliances and consumables. For myself, anything in the value end of the market.

Earlier, there was a trend that the bottom of the pyramid did not have a lot of discretionary income to spend even if it was on value purchases. Now, with the tax cut, there’s more spendable income in the hands of the bottom of the pyramid. How does this translate for value retail going ahead? What kind of demand are we seeing from tier III, IV cities?
Arvind Singhal: Firstly, my view is that the bottom of the pyramid is not benefited by tax cuts. They are not in the tax bracket, that would be the middle-income strata which in any case has already played out in some way. I still believe that the overall dispersal of economic activity across the country, whether through government spending on infrastructure, or religious tourism, is creating new areas of consumption. Ayodhya is one example or Varanasi which also creates its own ecosystem as such there.

So, net-net what has changed over the last 10-15 years? We always wanted to address the bottom of the pyramid. On the income side, if you just take the spending on food out; because of Ayushman Bharat, you also reduce spending on healthcare. Then you start to look into some of the direct beneficiaries across women and select other such recipients. All of that put together is giving, a typical bottom of the pyramid household an extra Rs 5,000 a month to spend on discretionary.

But if you are looking at 150 to 200 million such households, it translates to in aggregation a very large amount of money. For us sitting in Delhi and Bombay, Rs 5,000 extra per month in the hands of our bottom of the pyramid household may not look big, but it adds up to a significant amount of spending. So, I would give more credit to this, but not so much to the tax cuts which were announced in the Budget. I think that benefit has already played out. It is a very small base of the taxpayers who have benefited from this in the larger scheme of things.

At one point in time, packaged food was a high growth category before it hit a matured curve. Deodorants were a high growth category before it hit a matures curve. Female hygiene products were a high growth category. Now they are growing in line with India’s GDP. Toothpaste was a great growth category 20 years ago. For the next three to five years, which are the high growth categories in India that will grow at a significant premium, a significant rate higher than India’s nominal GDP?
Arvind Singhal: I have a small disagreement when you are saying that some of these categories have hit some degree of a steady, but not exciting growth. I still think that there is disruption. I just talked about it a short while ago. In personal care, skincare, health and beauty, there is a need for a Zudio equivalent to come and disrupt the market. Retailer, not the brand I am talking about. It is possible to source many of these products at the value price within India, but you need a retail business to disrupt.

The same thing goes for even packaged foods. Why is it that the Haldiram growth is not necessarily slowing down? The perception is that they are value price compared to say, some of the products from Tata Consumer. I have nothing against Tata Consumer, please do not misunderstand, I am just trying to give examples of a Tata Consumer or ITC packaged foods there. They might be showing some degree of plateauing of a growth and therefore, they have no choice but to look into inorganic growth through acquisitions of very premium products.

The opportunities in the categories you talked about still remain. The new categories I just mentioned like footwear, in any case, is an exciting category to be in because it goes very well with the fashion and the clothing end of the market and later on and there are some challenges there which have to be overcome.

I still think that home furnishings and, let us say, furniture is a category which unfortunately has not yet been cracked in India in an organised way and the value under the market, there are supply chain challenges there, that would also take place in the next five years. So, yes, these would be some of the new categories, home textiles, home furnishings, and furniture and hard goods for home.