2007 McKinsey Tapping Into Indian Consumers

McKinsey Global Institute
Tapping Into the Indian Consumer Market

The India-Europe Investment Forum
28 June 2007
HOW WILL INDIAS CONSUMER MARKET EVOLVE IN THE FUTURE?

Indias economy has been growing rapidly
What impact has growth had on Indian incomes

and how quickly will they grow in the future?
How is the distribution of income changing? When

will its middle class take off?
What does this mean for business and investment opportunities? How should companies compete for the new Indian consumer?
How is income growth effecting urban versus rural

areas?
How much of rising Indian incomes will be spent

versus saved?
What will Indian consumers spend their newfound

wealth on?
OUR PANEL
Prashant Desai Group Head, Investor Relations and

New Ventures (PE), Pantaloon Retail (India) Limited
Richard Fairgrieve Director of Global Emerging Markets,

WestLB Mellon Asset Management
Dippankar S. Haldar Chief Executive Officer, Wadhawan

Food Retail (P) Limited
A.P. Parigi Managing Director and Chief Executive

Officer, Entertainment Network (I) Limited
R. Subramanian Managing Director, Subhiksha Trading

Services
KEY FINDINGS FROM McKINSEY GLOBAL INSTITUTE RESEARCH
Indian incomes will triple over the next two decades,

significantly reducing poverty
India will emerge as the worlds fifth largest consumer

economy
A large urban middle class will develop, but rural areas will
benefit too
Patterns of consumption will shift rapidly towards

discretionary spending
Income and consumption growth will create opportunities

and challenges for business and government
HOUSEHOLD INCOME GROWTH WILL ACCELERATE ACROSS INDIA

Compound annual growth rates 19852005
Average household disposable income thousand, Indian rupees, 2000 Actual Forecast Urban
20052025
500
400
5.8% All India
300
200
4.6%
5.3%
Rural
100
2.8%
3.6%
3.6%
0 1985
1990
1995
2000
2005
2010
2015
2020
2025
Source: McKinsey Global Institute
INDIA WILL SEE CONTINUED REDUCTION IN POVERTY AND GROWTH OF ITS MIDDLE CLASS
Share of population in each income bracket %, millions of people 755 1 6 Household income brackets thousand, Indian rupees, 2000 1,429 2 9
100%
0 0
928 0 2
1,107 4 1
1,278 1 1 19
18 41
Globals (>1,000) Strivers (5001,000) Middle class
32
Seekers (200500)
43 93 80 54 35 22
1985 1995 2005E 2015F 2025F Deprived (<90)
36
Aspirers (90200)
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: McKinsey Global Institute
INDIA'S AGGREGATE CONSUMPTION WILL QUADRUPLE OVER THE NEXT 20 YEARS

Aggregate consumption across income brackets trillion, Indian rupees, 2000 4.1x 70 14 Globals (>1,000) Household income brackets thousand, Indian rupees, 2000
16 34 4 3 17 7 0 5 1 10 12 1
Strivers (5001,000) Middle class
25
Seekers (200500)
1 12 3
2015F
0 0
3 5
0 0
9 4
2005E
12
2 2025F
Aspirers (90200) Deprived (<90)
1985
1995
Note: Figures are rounded to the nearest integer and may not add up exactly to column totals. Source: McKinsey Global Institute
INDIA WILL BECOME THE FIFTH LARGEST CONSUMER MARKET IN THE WORLD BY 2025
Aggregate private consumption, 20052025 billion, $, 2000 2005 2015 2025 1,521 1,511
746
783
370
388
India Per capita $, 2000 Rank 334 12
Brazil 2,082 11
India 584 8
Italy 13,540 7
India 1,064 5
Germany 18,429 6
Source: Global Insight; UN Population Division; McKinsey Global Institute
INDIA'S SHARE-OF-WALLET IS SHIFTING AS INCOMES RISE

Necessities Discretionary spending
Share of average household consumption %, thousand, Indian rupees, 2000 100% 3 60 4 82 7 2 140 248
1 11 4 14
5
9 5 6 3 19
13 9 6 20
Health care Education and recreation Communication Transportation
17 8 3 12
6
9 3 12
5
11
3 10 5
Personal products and services Household products Housing and utilities Apparel
56 42 34
25
Food, beverages, and tobacco
1995
2005E
2015F
2025F
8
McKinsey Global Institute
Tapping Into the Indian Consumer Market

The India-Europe Investment Forum
28 June 2007
Back-up
10
THE MCKINSEY GLOBAL INSTITUTE (MGI) HAS SPENT THE PAST YEAR EXAMINING THE FUTURE OF THE INDIAN CONSUMER MARKET
400 300 200 100 0 1985 90 95 2000 05
Proprietary database 19852005
Exclusive access to NCAER 300,000

household MISH survey Government NAS, NSS, and RBI data Other sources, e.g., UN, World Bank, Oxford Economics
What makes our work unique?
Focuses on future
60% 50% 40% 30% 20% 10% 0% 2006
consumption Econometric forecasting model 20062025

2009 2012 2015 2018 2021 2024
Covers 100% of
demand
Includes detailed
income distributions
Integrates
macroeconomic scenarios On-the-ground insights from McKinsey experience
11
MGIs FORECAST ASSUMES 7.3 PERCENT COMPOUND ANNUAL GDP GROWTH

Real GDP billion, Indian rupees, 2000
120.000
History Forecast
100.000 80.000 60.000 40.000 20.000 0 1985

Overall compound annual growth Per capita compound annual growth
1990
1995
6.0%
2000
2005
2010
2015
7.3%
2020
2025
4.0%
5.9%
12
KEY FINDINGS


economy
benefit too


13
GROWTH HAS LIFTED 431 MILLION FROM POVERTY AND COULD LIFT 465 MILLION MORE
Population in households with annual disposable income less than 90,000 Indian rupees, 2000 millions of people
327 702
431 598 180 465 313
Deprived in 1985
Increase in poverty due to population growth*
Net reduction in poverty
Deprived in 2005
Increase in poverty due to population growth*
Net reduction in poverty
Deprived in 2025
* Number added to deprived if poverty remained at 1985 and 2005 rates respectively Source: McKinsey Global Institute
14
THE SHAPE OF INDIA'S INCOME PYRAMID WILL CHANGE DRAMATICALLY AS INCOMES GROW
Household income brackets thousand, Indian rupees, 2000 Globals (>1,000) 2005E Strivers (5001,000) Seekers (200500) Aspirers (90200) Deprived (<90) Globals (>1,000) 2015F Strivers (5001,000) Seekers (200500) Aspirers (90200) Deprived (<90) Globals (>1,000) 2025F Strivers (5001,000) Seekers (200500) Aspirers (90200) Deprived (<90)
Number of households million 1.2 2.4 10.9 91.3 101.1 3.3 5.5 55.1 106.0 74.1 9.5 33.1 94.9 93.1 49.9
Aggregate disposable income trillion, Indian rupees, 2000 2.0 1.6 3.1 11.4 5.4 6.3 3.8 15.2 14.6 3.8 21.7 20.9 30.6 13.7 2.6
Aggregate consumption trillion, Indian rupees, 2000 1.2 1.0 2.1 8.5 4.1 4.1 2.7 11.8 12.2 3.3 14.1 16.5 24.6 11.9 2.4
15
THE INCOME DISTRIBUTION IN THE COUNTRY WILL WIDEN AS POVERTY FALLS AND THE MIDDLE CLASS GROWS
Distribution of household income % of households 35
1985 1995 2005 2015 2025
30 25 20 15 10 5 0 0 -5 100 200 300 400 500 600 700 800 900 1000
Annual household disposable income thousand, Indian rupees, 2000

16
FIRST ASPIRERS AND THEN SEEKERS WILL BECOME THE LARGEST INCOME BRACKETS
Number of households in each income bracket millions of people Household income brackets thousand, Indian rupees, 2000
140 120
Actual
Forecast
Aspirers (90200)
100
Seekers (200500)
80 60
Deprived (<90)
40
Strivers (5001,000)
20
Globals (>1,000)
0 1985
1990
1995
2000
2005
2010
2015
2020
2025
17
KEY FINDINGS


economy
benefit too


18
RISING HOUSEHOLD INCOMES WILL BE THE KEY DRIVER OF CONSUMPTION GROWTH NOT CHANGES IN SAVINGS
Sources of growth in private consumption 20052025 billion, Indian rupees, 2000
69,503
1,922
8,360
42,326
16,896
Private consumption 2005 Contribution to overall consumption growth
Disposable income growth
Growth in number of households
Changes in savings
Private consumption 2025
80%
16%
4%
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: Oxford Economics; UN; McKinsey Global Institute
19
KEY FINDINGS


economy
A large urban middle class will develop, but rural areas

will benefit too


20
URBAN INDIA WILL ACCOUNT FOR MORE THAN TWO-THIRDS OF CONSUMPTION GROWTH OVER THE NEXT 20 YEARS
Aggregate annual consumption billion, Indian rupees, 2000 69,502
35,913
62%
16,695
16,896 Urban Rural 43% 57% All India consumption, 2005 Contribution to consumption growth
38%
Rural consumption growth
Urban consumption growth
All India consumption, 2025
32%
68%
21
MIDDLE CLASS HOUSEHOLDS WILL DOMINATE URBAN INDIA

Share of urban households by income class %, millions of households 100% = 1 33 0 46 62 1 83 1 10 4 3 114 6 26 Global (>1,000) Strivers (5001000) Middle class Household income brackets thousand, Indian rupees, 2000
18
50
53
66 81 32 21 9
1985 1995 2005E 2015F 51 Seekers (200500)
46
12 5
2025F
Aspirers (90200) Deprived (<90)
22
LARGE CITIES TEND TO HAVE HIGHEST INCOMES, BUT SMALL NICHE CITIES PROSPERING TOO
Average annual household disposable income, 2001 thousand, Indian rupees, 2000
Total disposable income billion, Indian rupees Tier 1 Tier 3 Tier 2 Niche cities
400 350 300 250 200 Goa 150 100 50 0 0 2 4 6 8 10 12 14 16 18 20 Estimated population, 2001 million
23 Surat Kanpur Lucknow Jaipur Bangalore Ahmedabad Jallandhar Chandigarh Ludhiana Faridabad Amritsar Coimbatore
Pune Nagpur
Delhi
Hyderabad Chennai Mumbai
Kolkata
Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
RURAL POVERTY WILL DECLINE SIGNIFICANTLY BY 2025

Share of rural population by income class %, millions 571 1 4 Household income brackets thousand, Indian rupees, 2000
100%
0 0
682 0 1 8
790 1 3
875 1 6
906 1 2
Global (>1,000) Strivers (5001,000) Seekers (200500)
20 32 47 48
96 90 65 46 29
Middle class
Aspirers (90200)
Deprived (<90)
1985
1995
2005E
2015F
2025F
24
PER-HOUSEHOLD CONSUMPTION IN RURAL INDIA WILL REACH TODAY'S URBAN LEVELS BY 2017
Average consumption per household thousand, Indian rupees, 2000
158
116 104
67 45 50
Urban India, 2005E
1985
1995
2005E Rural India
2015F
2025F
25
KEY FINDINGS


economy
benefit too


26
FALL IN SHARE OF SPENDING ON NECESSITIES IN INDIA IS COMPARABLE TO SOUTH KOREA'S DURING ITS HIGH-GROWTH PHASE
Share of average household spending % South Korea India
Necessities* Discretionary spend*
100
100
History Forecast
75
75
Discretionary
50
50
25
25
Apparel Food
0 1981
Per capita income 5,017 $, PPP, 2000
1986
1991
12,850
0 1985
1,173
1995
2005
2,500
2015
2025
7,364
* Necessities include food and apparel; discretionary spending includes all other household spend categories. Source: Euromonitor; India data from McKinsey Global Institute
27
NUMBER OF URBAN HOUSEHOLDS WITH DISCRETIONARY SPENDING POWER TO MULTIPLY TWELVE TIMES
Number of urban households with true discretionary spending power* million 12x 94 7 Household income brackets thousand, Indian rupees, 2000
Globals (>1,000)
29
Strivers (5001,000)
49 3 2
Middle class
58 44
8 1 2005E
Seekers (200500)
1
2015F 2025F
* Consumers with sufficient budget to have significant levels of choice-driven spending (beyond categories such as food, housing, health care, education, fuel and transport services) Source: McKinsey Global Institute 28
INDIAN SPENDING PATTERNS WILL BE UNIQUE

Share of total consumption, %
U.S. Consumption category In line with benchmarks Germany Brazil South Korea China India (2005) India (2025)
Food beverages and

tobacco Apparel Personal products and services
15 4 14
21 5 10
19 6 8
23 4 13
35 11 4
42 6 8
25 5 11
Less than benchmarks
Housing and utilities Household products Education and recreation

More than benchmarks
19 5 12
27 7 8
22 9 13
18 4 16
9 6 15
12 3 5
10 3 9
Transportation Communication Health care
11 1 19
17 1 4
13 4 6
12 2 8
6 7 7
17 2 7
20 6 13
Note: Figures are rounded to the nearest integer and may not add up to 100% Source: Euromonitor, MGI China Consumer Demand Model v2.0, McKinsey Global Institute
29
FOOD WILL REMAIN THE LARGEST CONSUMPTION CATEGORY WHILE COMMUNICATIONS WILL GROW THE FASTEST Market size in 2025
20052025 compound annual growth rate of aggregate consumption %
trillion, Indian rupees, 2000
16
Communications (4.3)
14 12 10 8 6 4 2 0 0.0
Education and recreation (6.1) Health care (8.9)
Personal products (7.4)
Transport (13.8) Food, beverages, and tobacco (17.3)
Household products (1.8)
Apparel (3.3) Housing and utilities (6.6)
1.0
2.0
3.0
7.0 4.0
8.0 5.0
2005 market size trillion, Indian rupees, 2000

Source: McKinsey Global Institute 30
KEY FINDINGS


economy
benefit too

Income and consumption growth will create

opportunities and challenges for business and government
31
OPPORTUNITIES AND CHALLENGES FOR BUSINESSES
Opportunities Along with China the fastest growing of worlds large consumer markets over next two decades Major discontinuity, winners have yet to be determined $1.1 trillion of new market growth not yet owned by anyone Most accessible market upper income urbanities will grow twelve times Almost half of middle class will be new consumers at any point in time loyalties up for grabs Challenges Indian companies Retaining existing customers and market shares Adapting rapid pace of change Innovating to capture new growth opportunities Educating new consumers Multinationals Meeting middle class aspirations at Indian price Adapting products and services to meet Indian needs and task points Building brands Overcoming infrastructure, regulatory, and distribution hurdles
32
OPPORTUNITIES AND CHALLENGES FOR GOVERNMENT
Opportunities A chance to make further significant inroads in poverty reduction Domestic demand growth will spur further domestic production and employment particularly in higher value-added industries An opportunity to attract FDC to serve Indian consumers The potential to improve the material well-being of hundreds of millions of people Challenges Long-term growth must be maintained Infrastructure issues need to be addressed Regulatory constraints on business need further reform to enable businesses to meet growing demand and improve productivity Financial system needs reform to efficiently allocate investment, rebalance savings away from households and provide consumer credit Significant investments in human capital required (education, health care) in fiscally constrained environment
33
INCOME BRACKET CONVERSIONS

Household annual disposable income, real 2000
Bracket Globals Strivers Seekers Aspirers Deprived
Indian rupees 1,000,000 plus 500,0001,000,000 200,000500,000 90,000200,000 Less than 90,000
U.S. dollars non-adjusted 21,882 plus 10,94121,882 4,37610,941 1,9694,376 Less than 1,969
U.S. dollars PPP adjusted 117,647 plus 58,823117,647 23,52958,823 10,58823,529 Less than 10,588 Middle class
Source: NCAER The Great Indian Middle Class; McKinsey Global Institute
34
BACK-UP
Macroeconomic base case Urbanization, rural growth and education Additional results
35
MGI'S BASE-CASE GDP FORECAST IS MIDDLE OF THE RANGE

Source Planning CommissionHigh HSBCHigh Goldman SachsBase HSBCBase Deutsche BankHigh MGI/Oxford EconomicsBase Planning CommissionBase EIU Global Insight PWC Deutsche BankBase Deutsche BankLow Real per capita GDP growth Compound Annual Growth Rate, % Timeframe
7.2 7.2 7.1 6.2 6.2 5.9 5.7 4.7 4.7 4.3 4.2 2.7
20072012 20052015 20062020 20052015 20062020 20062025 20072012 20052025 20052025 20052050 20062020 20062020
Source: Oxford Economics; India: Pitfalls and Possibilities, HSBC, July 2006; India's rising growth potential, Goldman Sachs, Jan 2007; India Rising: A Medium-Term Perspective, DB Research, May 2005; Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, Planning Commission, Government of India, June 2006; The World in 2050: How Big will the Major Emerging Market Economies Get and How Can the OECD Compete?, PWC, 2006
36
SERVICES WILL CONTINUE TO BE THE MAIN DRIVER OF GDP GROWTH OVER THE NEXT TWO DECADES
Share of GDP %, trillion, Indian rupees, 2000 100% = 8.8 28.3 115.3 Growth by sector Compound annual growth rate, % 19852005 20052025
9 19
Agriculture
36 26 24
Agriculture
2.7
3.1
27
Industry
Industry
6.4
7.4
65 55 Services 40 Services 7.8 8.2
1985
2005E
2025F
37
INCOME GROWTH WILL ACCELERATE WITH ECONOMIC GROWTH

GDP versus household disposable income growth compound annual growth rate, %, Indian rupees, 2000 7.3 6.3 5.7 5.7 6.4 6.0 7.2 7.4
GDP Household disposable income
19851995
19952005E
2005E2015F
2015F2025F
38
INDIA'S CONSUMPTION SHARE OF GDP IS CLOSER TO JAPAN AND THE UNITED STATES THAN IT IS TO CHINA
%, billion, nominal $, 2005 12,456
100% =
2,216
4,553
801
Private consumption
39 57 62 70
Government consumption
14
18
Investment
12 16
44 23 28
-2 India
20 -6
United States
39
Net trade China
3 Japan
Source: Global Insight; McKinsey Global Institute
INDIA HAS A RELATIVELY HIGH NATIONAL SAVINGS RATE COMPARED WITH OTHER COUNTRIES
Gross national savings rates % of nominal GDP, 2005
50.4
Corporations
21,1
32.8
16,2
Households
32.4
8,1
26.4 21.2 18.0

21,3 10,4
22.0 6.4 22.3
7,8
12.9
11,3
Government
7,3
China*
10,2
7.9 2.0 6.4 -1.3

Japan
9.9 0.3
France
2.9
Mexico
2.1 -0,5
United States
South Korea
India
* MGI estimate based on 2005 GDP and estimates of flow-of-funds information. Source: Country National Accounts; IMF; McKinsey Global Institute 40
INDIAN HOUSEHOLD SAVINGS ACCOUNT FOR A DISPROPORTIONATE SHARE OF NATIONAL SAVINGS

Household savings as a share of gross national savings rates, 2005 %
69 55 44 37 24 20 16
India Gross national savings rates % of nominal GDP, 2005
France
China*
Mexico
Japan
South Korea 32.8
United States 12.9
32.4
18.0
50.4
21.2
26.4
* MGI estimate based on 2005 GDP and estimates of flow-of-funds information. Source: Country National Accounts; IMF; McKinsey Global Institute 41
INVESTMENT WILL GROW APPROXIMATELY IN LINE WITH GDP

Private consumption Investment Government consumption Net trade
Expenditure share of real GDP %
80
History Forecast
70 60 50 40 30 20 10 0 1985 -10
1990
1995
2000
2005
2010
2015
2020
2025
Source: National Accounts; McKinsey Global Institute
42
GOVERNMENT SPENDING AND DEFICIT WILL GRADUALLY DECLINE AS Expenditures (left scale) A PROPORTION OF GDP
% of GDP
Government expenditures and revenues*
Revenues (left scale) Deficit (right scale)
Government budget deficit

Forecast
40 35 30 25 20 15 10 5 0 1985
History
3,0 2,0 1,0 0,0 -1,0 -2,0 -3,0 -4,0 -5,0 -6,0 -7,0 -8,0 -9,0 -10,0 -11,0 2025
1990
1995
2000
2005
2010
2015
2020
* Government expenditure figures are available through 2005. Source: McKinsey Global Institute 43
BACK-UP
44
INDIA REMAINS LESS URBAN THAN ITS COUNTERPARTS IN ASIA, BUT DEFINITIONS VARY
Urban share of total population, 2005 %
81 65 66 69
48 40 27 29
Vietnam India Urban population, 2005 million
China
Indonesia
Malaysia Japan
United States
Korea, Rep.
23
318
530
108
17
84
210
39
Source: United Nations World Urbanization Prospects 2005; McKinsey Global Institute
45
BIRTHS AND MIGRATION WILL DRIVE URBAN POPULATION GROWTH

Urban population, 20052025* million
523 100
1.6 x
318
105
Urban population, 2005E Share of total population or urbanization rate 29%
Net births
Net migration
Urban population, 2025F 37%
* Estimate of birth versus migration split assumes urban birth rate = 19 per 1,000 and death rate = 6 per 1,000 Source: McKinsey Global Institute
46
CLASSIFICATION OF CITIES AND TOWNS
Mumbai Kolkata, Delhi, Chennai Bangalore Hyderabad Ahemdabad, Pune Surat, Kanpur, Nagpur, Lucknow, Jaipur, Kochi, Vadodara, Indore, Ludhiana, Madurai, Bhopal, Patna, Nasik, Agra, Varanasi, Rajkot, Meerut, Jabalpur, Dhanbad, Kozhikode . . . . Tiruchirapalli, Amritsar, Faridabad, Aurangabad, Allahabad Gwalior, Jodhpur, Raipur, Bhubaneshwar, Goa, Pondicherry Aligarh, Moradabad, Mangalore, Gorakhpur, Bhavnagar
Tier 1: Major cities

8 cities Population > 4 million Total income >100 billion Indian rupees
Tier 2: Mainstream cities

26 cities Population >1 million
Tier 3: Climbers
33 cities Population >500,000
Rohtak, Rourkela, Udaipur, Anand, Faizabad, Hassan, Shimla, Roorkee, Gurgaon, Shillong
Tier 4: Small towns

5,094 towns
* Population for each city estimated using the average urban household size (from MGI model) and the estimated number of households in each city from NCAER (in the year 2001). Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
47
HIGHER INCOME HOUSEHOLDS CONCENTRATED IN LARGE CITIES, POOR IN SMALL TOWNS

Proportion of households in each income class across city tiers, 2001 %, thousand, households 100% = 16,809 Tier 1: Major cities Tier 2: Mainstream cities Tier 3: Climbers 15 33 13 50 16 55 34,139 3,750 806 470
60
9
Tier 4: Small towns
13
12
63 43
10
8 25
8 22
27
Deprived
Aspirers
Seekers
Strivers
Globals
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
48
RURAL EMPLOYMENT HAS BEEN GRADUALLY SHIFTING AWAY FROM AGRICULTURE

Distribution of rural male workers by economic activity % Manufacturing Construction Trade, hotels and restaurants Transport, storage and communication Others* 7 5 7 4 2 8 7 8 4 7
Agriculture
75
67
1987
2004
* Sectors with minimal shift in this period (6% in other services, 1% in mining, quarrying, electricity and water).
Note: Figures are rounded to the nearest integer and may not add up to 100%. Source: Employment and unemployment situation in India (200405), NSSO; McKinsey Global Institute 49
AGRICULTURAL GROWTH IS FORECAST TO ACCELERATE FROM ITS Compound annual RECENT HISTORICAL RATE
growth rate
Agricultural value added in GDP billion, Indian rupees, 2000
9,974
3.1%
7,529
2.4%
5,462
4,299
1995
2005E
2015F
2025F
50
ACHIEVEMENT IN HIGHER AND SECONDARY EDUCATION WILL CONTINUE TO BECOME MORE WIDESPREAD
% of relevant population groups*
Rate of secondary-school and higher-education enrollment 40 35 30 25 20 15 10 5 0 1985
History Forecast
Secondary Higher
Rate of secondary-school and higher-education attainment
40 35 30 25 20 15 10 5 0 1985
History Forecast
1995
2005
2015
2025
1995
2005
2015
2025
* Enrollment is measured as a percentage of 15 to 24 year old population; attainment is measured relative to 15 and above population. Source: McKinsey Global Institute
51
BACK-UP
52
INDIAN CONSUMPTION WILL BE DOMINATED BY THE MIDDLE CLASS

Share of total consumption by income bracket %, billion, Indian rupees, 2000 6,679 2 6 10,098 1 5 8 16,896 34,089 69,503 Globals (>1,000) 20 8 Household income brackets thousand, Indian rupees, 2000
100%
7 6
12
12
15 32
24 35
Strivers (5001,000) Middle class
51 77 54 24 10
1985 1995 2005E 2015F 35 Seekers (200500)
36 17
3 2025F Aspirers (90200) Deprived (<90)
53
HALF OF URBAN CONSUMPTION WILL COME FROM UPPER INCOME STRIVERS AND GLOBALS
Share of urban consumption by income class %, trillion, Indian rupees, 2000 2.2 100% 6 2 4.0 7.2 2 12 10 8 10 17 33 53 Strivers (5001000) Middle class 18 26 Global (>1,000) 17.4 43.1 Household income brackets thousand, Indian rupees, 2000
0
6
28
56
64
55
37 Seekers (200500) Aspirers (90200) Deprived (<90)
26 7
1985 1995 2005E
17
2 2015F 4 1 2025F
54
ASPIRERS WILL DRIVE RURAL SPENDING OVER THE NEXT TWO DECADES
Share of rural consumption by income class %, trillion, Indian rupees, 2000 4.5 100% 0 6 9 2 4 6.1 0 9.7 4 3 16.7 26.4 Household income brackets thousand, Indian rupees, 2000
7
17
6 6 15
12 8
Global (>1,000) Strivers (5001,000)
47 55
33
Seekers (200500)
84 72
39
Aspirers (90200)
37 18 8
1985 1995 2005E 2015F 2025F Deprived (<90)
55
CONSUMPTION BY NEW-TO-BRACKET CONSUMERS WILL BE SIGNIFICANT, ESPECIALLY IN THE MIDDLE CLASS

New-to-bracket share of cumulative consumption 20052025* %, trillion, Indian rupees, 2000 100% = Globals 22
New-to-bracket consumers Existing consumers
78
111.5
Strivers
43
57
93.4 Middle class
Seekers
41
59
262.6
Aspirers
11
89
245.8
Deprived
70.9
* Calculated by determining the number of households that have shifted income class, assume they consume at new bracket levels in the first year, and then consider them new to that bracket for three years. Source: McKinsey Global Institute 56
FROM ASPIRER TO STRIVER THE EVOLUTION OF SPENDING FOR A TYPICAL HOUSEHOLD

Average household consumption thousand, Indian rupees, 2000 497
69 46 47
Health care Education and recreation Communication
119
214
Transportation
22 7 48
94 16 11 40 Aspirer 2005E
13 18 24
7 7 5
3 1 2
6 12
49 13 42 23 90
Striver 2025F
Personal products and services Household products Housing and utilities Apparel Food, beverages, and tobacco
63
Seeker 2015F
57
SHARE-OF-WALLET ON FOOD IS ALREADY LOW IN MIDDLE- AND UPPER-INCOME BRACKETS

%
Share-of-wallet of urban households in 2005E 100% Food, beverages and tobacco Other spending categories All India average share-of-wallet evolution 100% 39 28 21 25
61 72 79
Food, beverages and tobacco
34 42
Aspirers
Seekers
Strivers
Share-of-wallet of rural households in 2005E 100% Food, beverages and tobacco 58 47 35

75
Other spending categories
66 58
Other spending categories
42
53
65
Deprived
Aspirers
Seekers
2005E
2015F
2025F
58
FOOD CONSUMPTION WILL ACCELERATE SIGNIFICANTLY EVEN AS ITS RELATIVE SHARE DECLINES
Total consumption of food, beverages, and tobacco* billion, Indian rupees, 2000 17,296 4.5% 11,547 1.1% 3.0% 7,147 5,622 3,931 3.2% Per-capita consumption of food, beverages, and tobacco* Indian rupees, 2000
Compound annual growth rate
12.102
9.035
6.058 5.207
6.454
1985 Share of total consumption % 59
1995 56
2005E 2015F 2025F 42 34 25
1985 59
1995 56
2005E 2015F 2025F 42 34 25
* Approximately 90% of spend on the broad category food, beverages, and tobacco is on food. Source: McKinsey Global Institute
59
FIVE CATEGORIES WILL ACCOUNT FOR MORE THAN 80 PERCENT OF CUMULATIVE CONSUMPTION OVER THE NEXT 20 YEARS
Breakdown of total cumulative consumption across categories (20052025) trillion, Indian rupees, 2000
784
248
148 87 79 74 148
54 41 32 22
Education and recreation Apparel Communication Household products
Total growth
Food, Transport beverages, and tobacco
Housing and utilities
Health care
Personal products and services
Other
60

2007 McKinsey Tapping Into Indian Consumers

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2007 McKinsey Tapping Into Indian Consumers

Uploaded by

Copyright:

Available Formats

McKinsey Global Institute

Tapping Into the Indian Consumer Market

HOW WILL INDIAS CONSUMER MARKET EVOLVE IN THE FUTURE?

What impact has growth had on Indian incomes

How is the distribution of income changing? When

How is income growth effecting urban versus rural

How much of rising Indian incomes will be spent

What will Indian consumers spend their newfound

Prashant Desai Group Head, Investor Relations and

Richard Fairgrieve Director of Global Emerging Markets,

Dippankar S. Haldar Chief Executive Officer, Wadhawan

A.P. Parigi Managing Director and Chief Executive

R. Subramanian Managing Director, Subhiksha Trading

KEY FINDINGS FROM McKINSEY GLOBAL INSTITUTE RESEARCH

Indian incomes will triple over the next two decades,

India will emerge as the worlds fifth largest consumer

Patterns of consumption will shift rapidly towards

Income and consumption growth will create opportunities

HOUSEHOLD INCOME GROWTH WILL ACCELERATE ACROSS INDIA

Source: McKinsey Global Institute

Globals (>1,000) Strivers (5001,000) Middle class

INDIA'S AGGREGATE CONSUMPTION WILL QUADRUPLE OVER THE NEXT 20 YEARS

Strivers (5001,000) Middle class

Aspirers (90200) Deprived (<90)

India Per capita $, 2000 Rank 334 12

Source: Global Insight; UN Population Division; McKinsey Global Institute

INDIA'S SHARE-OF-WALLET IS SHIFTING AS INCOMES RISE

Health care Education and recreation Communication Transportation

Food, beverages, and tobacco

McKinsey Global Institute

Tapping Into the Indian Consumer Market

Proprietary database 19852005

Exclusive access to NCAER 300,000

What makes our work unique?

consumption Econometric forecasting model 20062025

MGIs FORECAST ASSUMES 7.3 PERCENT COMPOUND ANNUAL GDP GROWTH

100.000 80.000 60.000 40.000 20.000 0 1985

Indian incomes will triple over the next two decades,

India will emerge as the worlds fifth largest consumer

Patterns of consumption will shift rapidly towards

Income and consumption growth will create opportunities

431 598 180 465 313

Increase in poverty due to population growth*

Net reduction in poverty

Increase in poverty due to population growth*

Net reduction in poverty

1985 1995 2005 2015 2025

Annual household disposable income thousand, Indian rupees, 2000

Source: McKinsey Global Institute

Source: McKinsey Global Institute

Indian incomes will triple over the next two decades,

India will emerge as the worlds fifth largest consumer

Patterns of consumption will shift rapidly towards

Income and consumption growth will create opportunities

Private consumption 2005 Contribution to overall consumption growth

Disposable income growth

Growth in number of households

Private consumption 2025

Indian incomes will triple over the next two decades,

India will emerge as the worlds fifth largest consumer

A large urban middle class will develop, but rural areas

Patterns of consumption will shift rapidly towards

Income and consumption growth will create opportunities

Rural consumption growth