In 1991, India began major economic reforms allowing more foreign and private investment. With the new regulations, the state became less involved in the allocation of goods, development, and industrialization. By 2000, Indian urbanization was in full force. The urban population grew by 49 percent between 2000 and 2016 compared to 15 percent rural growth. Still, a majority of India’s population resides in a rural setting.
Monthly per capita consumer expenditure (MPCE) is a general indicator of increasing wealth and disposable income. Prices, consumption value, and expenditure analysis were adjusted for inflation. Between the 1993-94 and 2004-05 reports on India’s Level and Pattern of Consumer Expenditure, urban MPCE increased by 17 percent, while rural MPCE rose by 9 percent. More recently, the rural community is reaping the benefit of this rapid development. Rural MPCE rose by 17 percent between the 2009-2010 and 2011-2012 reports.
Indian consumers now have the budgets to buy foods beyond staple necessities like cereals, such as rice and wheat. In the 2004-05 Level and Pattern of Consumer Expenditure Report, 13 out of the 17 major Indian states’ urban areas spent the highest percentage of their food budgets on cereals. That number shrank to just four states in the 2011-12 report. While rural India, on average, still spends most of its food budget on cereals, the figure fell from 32.96 to 20.21 percent between the 2004-05 and 2011-12 reports.
Urban Indians now spend most of their money on beverages, purchased prepared meals, restaurant meals, and luxury items including tea, coffee, and chocolates. Luxury items’ percent of the food budget rose from 14.7 to 21.1 percent from the 2004-05 survey to the 2011-12. Rural areas’ percent spending on this category also climbed from 8.3 to 14.9 percent. Urban India’s spending on prepared meals and snacks jumped from 27.87 rupees (Rs) to 94.48 Rs per person per month. The rural uptick is driven by tea consumption as spending increased by 54 percent between the 2004-05 and 2011-12 reports. Additionally, urban tea expenditure jumped by 68 percent.
Starbucks is capitalizing on this trend and announced earlier in 2017 a plan to bring their brand Teavana to India. Beyond tea products, Starbucks will offer a line of treats similar to those found at their US locations. These will include green tea infused cakes, matcha loaf, and other sweet treats to satisfy the increased demand in both the rural and urban populations.
The beef with meat
Developing countries with a growing middle class are often synonymous with increased protein and meat consumption, exemplified best by China. India fits this growth trend, but defies the convention. Hindus represent nearly 80 percent of the population and commonly practice a lacto-vegetarian or vegetarian lifestyle. About 29 percent of India reported being vegetarian in 2014 compared to about 13 percent of the US. Beef consumption remains a sensitive topic in India. When McDonald’s and other fast food companies entered India, they nixed beef from the menu. Ikea will swap their famed beef meatballs for chicken ones when they make their 2018 brick-and-mortar debut in India.
There is no reasonable, successful path to introduce beef or most red meat to India for food companies. However, meat consumption does exist in India. The key is identifying regions where non-vegetarian diets are common and what their protein of choice is in that region. The southern and eastern states of Andhra Pradesh, Jharkhand, Kerala, Odisha, Tamil Nadu, Telangana, and West Bengal all report less than 5 percent of their population as vegetarian. The northwestern states of Gujarat, Haryana, Madhya Pradesh, Punjab, and Rajasthan report a majority of their population as vegetarian. Rural areas tend to have slightly higher percentages of non-vegetarians.
In the 2011-12 Household Consumption of Various Goods and Services report for rural India, Punjab and Haryana reported less than 2 percent of their food consumption value attributed to eggs, fish, and meat. This contrasts with Kerala’s 19 percent. Northeastern state Nagaland, on average, attributes a quarter of their monthly food value to eggs, fish, and meat. The highest monthly consumption value for an individual good in Kerala is fish and prawns at 138.23 Rs per capita. Pork and fish/prawns are the second highest in Nagaland (135.62 Rs) and Tripura (132.17 Rs).
By identifying these specific regions, food retailers could begin to offer meat in line with regional preferences. Walmart is in the process of adding an additional 50 stores to their current 23 locations over the next few years. Walmart recently fought to be able to sell food products in India. With successful ventures into chicken patties from fast food chains, food retailers could offer chicken sausage and other transformed meat goods to differentiate from the typical chicken and fish vendors.
Milk is king
All regions are in agreement on milk. The Hindu religion worships the cow and anything it produces is considered sacred. And milk is no exception. Across India, rural monthly milk consumption increased from 3.866 to 4.333 liters per capita between the 2004-05 and 2011-12 Household Consumption of Various Goods and Services reports, while urban consumption grew from 5.107 to 5.422 liters per capita. At the extreme, Haryana’s average monthly milk consumption was 14.790 litres per capita in 2011-12.
The general increase in consumer expenditures and incomes across the country has led to increased milk consumption, revealing its power as a luxury good. Odisha, one of India’s poorest states, spends 28 percent more on food in 2011-12 survey than it did in 2004-05. In response to greater spending on food, monthly milk consumption has increased from 0.779 to 1.198 liters per capita. Yet, in the same timespan, rice consumption on average decreased from 12.799 to 12.139 kg per capita. Of the 28 Indian states at the time of 2011-12 report (Telangana received statehood in 2014), just five of them reported decreases in rural, monthly milk consumption since 2004-05. The rural sections of Haryana increased their spending on milk and milk products by 161.53 Rs (2011-12 Rs), nearly three times greater than the next biggest change (vegetables at 58.19 Rs). Indian milk consumption is undoubtedly subject to the income effect, and presents an opportunity for food and beverage companies to slurp up this liquid surplus.
While one could solely seek to quench the thirst of northwest India, the rest of the nation also demands milk products. Yogurt Lab and Dippin’ Dots are looking to expand beyond milk, and are planning to open India locations with their dairy products. Even Nestle, who historically holds a presence in India with their ready-to-eat noodles, is now turning towards stocking the shelves with chocolate and milk-based drinks. Prior to a huge 2015 recall of their noodle product Maggi, Indians consumed 400,000 tons of the product. This accounted for a quarter of Nestle’s $1.6 billion revenue in India. With consumption turning away from basic cereals, food companies should tailor their product portfolios towards dairy products to cater to India’s milk obsession.
India’s culture varies immensely due to geography and religion, and this diversity is reflected in the appetites of people across the country. Companies should be wary of simply introducing styles and meals popular in the US, but there is at least one American concept that could have traction.
Fast casual restaurants—with models similar to Moe’s and Chipotle—are ideal for India, but the key is understanding where they may be the most successful. In this case, one should look to northeast India. Their diet tends towards a grain bowl format. In 2011-12, rice was the highest monthly consumption value for an individual good in most of the region. Most northeast states’ highest monthly consumption value for a vegetable is a creamed spinach good called palak. Mizoram’s monthly consumption value for palak is 71.44 Rs per capita. Locations can offer fish in Tripura and pork in Nagaland, easily adjusting the menu options based on state preferences.
For companies trying to penetrate the beverage market with dairy-based drinks and fruit beverages, it is important to note regional fruit preferences. While they may still jump at the national favorites of banana and coconut, Indians’ highest monthly consumption value for a fruit is mango for the neighboring states of Bihar, Jharkhand, and West Bengal. And in general, southern states prefer coconut to banana.
Indian consumers’ have strong preferences, and ignoring local attributes will make a firm’s venture into new territory difficult. Once they establish themselves in states using familiar, regional goods, companies can begin to introduce different flavors and foods in hopes of expanding choices and preferences. With MPCE quickly on the rise, food, beverage, and restaurant companies are racing to serve the new demand. The winners will establish brand loyalty in one of the world’s largest markets. Managers who over-generalize Indian consumers will occupy the list of also-rans, at great cost to them and their parent organizations.