The allure of the ‘bottom of the pyramid’ appears to be waning for major consumer goods manufacturers. Over the past two years, they’ve introduced a greater number of premium products compared to those aimed at the mass market across various categories, as indicated by data from companies and market researchers.
Experts have pointed out that inflation in the last financial year significantly impacted sales in the mass segment. As prices rose across various products, economic strain persisted among low to middle-income groups, showing little improvement since the onset of the pandemic.
Over the past two years, more than 70% of the new products introduced by India’s leading consumer goods manufacturer, Hindustan Unilever, were in the premium category. Similarly, ITC Ltd saw approximately 65% of its new personal care products launched in the premium segment, doubling the segment’s contribution to the division’s sales to 38% over the last four years. For Parle Products, the country’s largest biscuit maker, around 60-65% of new product launches were in the premium segment, up from 40% before the Covid pandemic.
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According to the electronics industry market researcher GfK, the number of new smartphone models priced below INR 12,000 introduced in 2019 was about 370, which decreased to 175 in the calendar year 2023.
Conversely, the introduction of new models priced above INR 20,000 increased from 120 in 2019 to 175 last year. It’s worth noting that many smartphone manufacturers had exited the sub-INR 10,000 market during the peak inflation of 2022 but returned to this price segment the following year.
In terms of sheer numbers, the introduction of new mass-segment televisions with screens of 43 inches and below is still increasing, but at a slower rate compared to more expensive models. The segment witnessed 70 more models launched in 2023 than in 2019. In contrast, the number of new premium televisions with 44 inches and larger screens increased by 110 models during the same period, according to GfK.
Due to the ongoing impact of the pandemic on mass-market product sales, companies like Dabur, Emami, Samsung, LG, Xiaomi, Vivo Mobiles, and Haier have also launched more premium versions than entry-level ones.
“Large FMCG companies are ramping up their focus on premiumisation due to higher profit margins, particularly since the costs of product placement in both modern and general trade, as well as selling fees in e-commerce, has increased,” stated Mayank Shah, Vice President of Parle Products. “Additionally, the competition in the mass-market segment has intensified, with smaller regional players re-entering the market aggressively following a decrease in input costs last year. In the premium segment, competition remains relatively low, prompting bigger companies to primarily launch premium products. Manufacturing packs priced at INR 5 in large quantities has become less profitable due to rising packaging costs, leading to a natural shift towards INR 10 packs.”
Driven by consumer willingness to pay more for convenience, quality, and advanced features, manufacturers are increasingly expanding their premium offerings, according to Anant Jain, Head of Customer Success, India, at GfK. “This trend is being propelled by promotions, discounts, consumer financing, and the PLI scheme,” he added.
Data from FMCG market researcher NielsenIQ reveals that in 2022, four out of 10 new biscuit launches were packs priced above INR 20, promoting premiumisation. This proportion increased to five out of 10 in 2023. In the skincare sector, premium pack launches were even more predominant, constituting half of the total offerings.
The trend seems to contradict the bottom-of-the-pyramid theory advocated by management guru CK Prahalad and others, which was previously popular among Indian companies.
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The growth of online platforms is also contributing to this trend.
“Premiumisation is also on the rise due to the convenience of reaching consumers through e-commerce. Value-added products are gaining more traction because of this,” noted social commentator and brand specialist Santosh Desai. “Although the bottom-of-the-pyramid and mass market segments do exist, they are widely scattered, making profitability a challenge for companies at the mass-market end.”
Premium skincare brands led the way in new launches, increasing their value contribution from 67% to 75% between 2022 and 2023, while also boosting volume contribution from 36% to 43% during the same period, according to Roosevelt Dsouza, Head of Customer Success, India, at NielsenIQ.
Industry executives noted that the emphasis on premium launches is a response to the evolving business landscape post-Covid and does not necessarily overlook consumers at the bottom of the pyramid.
Angshu Mallick, the Chief Executive of Adani Wilmar, stated that all companies aim to enhance margins, hence the push towards premiumisation.
“However, accomplishing top-line and volume growth will be challenging without mass-segment goods, as the contribution of premium products to sales in most categories continues to be in single digits,” he said.
Rajat Nanda, Business Head at CavinKare, mentioned that with evolving lifestyles and the growth of channels like e-commerce and modern trade, consumers are increasingly willing to pay more. CavinKare is recognized for pioneering the introduction of sachets.
“Consumers are shifting towards purchasing shampoo in bottles, so we are now focusing on bottles as well. We offer entry-level bottles of 80 ml at an average price of INR 55, which has been performing very well. While sachet sales have declined by a few percentage points over the past year, bottle sales for shampoos have seen faster growth,” Nanda explained. “There is a deliberate effort to upgrade consumers in e-commerce and modern trade channels. We are also targeting consumer upgrades and have introduced premium variants of Meera and Nyle shampoo.”
However, in the general trade sector, consumers are still opting for entry-level packs and even downgrading their purchases. “Sachets make up 70% of our shampoo sales, and this has remained consistent over the past two years,” he noted.
According to a report by ICICI Securities released on March 26, unlisted FMCG multinationals that focus on premium products and digital-first brands are gaining market share over their listed counterparts. This trend is particularly pronounced in the beauty and personal care sector, the report noted.
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