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Goodbye to premium brands?

When was the last time you bought a refrigerator? Or a washing machine? Or perhaps a cellular phone? The last time I did so was when I had some cash to spare. That was three years ago or thereabouts. I would like to buy a cellphone now, because I need it. But I cannot afford it. There just isn't that much spare cash floating around in my bank account -- or even under my mattress.

This seems to be the lament of most of India's middle class -- no spare cash. And the companies that manufacture the products that the middle class buys are also realising this fact -- no spare cash. All the money is locked into the stock market with bits of worthless paper to show for it. And the levels of income in India just cannot support the lifestyles that all these products promise.

So if the buying power of the middle class is so terribly curtailed, what is going to happen to all the companies making the products for the middle class? Simple, they will either shut down, sell out, or, if they are smart, tighten their own belts until there is cash again to spare. To buy.

The signs are pretty clear -- automobile sales dipped in 1996-97; the adspend of most companies was reduced; all white goods makers began offering buyback schemes that would purchase your old fridge, television, washing machine, whatever in exchange for the new one you bought from them; finance on consumer goods became the cheapest ever.

All of which goes to show that there is not enough money in the hands of the consumer chasing "the good things of life".

Unfortunately, this is also the time that most multinational companies in the automobiles and consumer goods segments have chosen to enter India -- enticed, no doubt, by the hype that is doing the rounds. This hype contains figures that could -- like most statistics -- be read to mean different things, depending on the spin put on them.

One of these figures is 200 million. That is the estimated size of the Indian middle class. That is actually the number of cars that should be sold per year, given that a country's middle class is inherently upwardly mobile, and has the capacity to buy more than one car per family. So what went wrong?

India's middle class cannot be compared to the same class in any Western or even southeast Asian Tiger country. Because while there are 200 million people earning enough to place them in the middle class of India, the level of their income is too low for them to be in the same class in other developed or developing countries.

It is ironical -- perhaps even suicidal -- that the same companies that locate their manufacturing plants in India for the specific reason of low-cost skilled labour and management, want that same class to buy their products on the low salaries they pay them!

Take the examples of Daewoo and Mercedes. Did they really think they could sell 200 million cars to Indians, even in say the next three years? Priced at Rs 700,000 and Rs 2,500,000 respectively? Didn't they realise that the same reason they began manufacturing operations in India -- low-cost skilled workers and managers -- would be the reason they could not have peddled such high-priced products here?

The same logic applies to the high-priced Akai and Samsung and other such 'premium' brands of television sets, washing machines, refrigerators, and music systems. They are now feeling the pinch of the post honeymoon blues. So are the cellular phone operators and manufacturers.

Yes there was a honeymoon. Initially, all such premium brands sold in India like lukewarm biscuits, leading the manufacturers to believe that they would keep doing so in the years to come. But the smoulder just disappeared. Simply because the 'creamy layer' of Indian society is just not thick enough to support continued buying of such products.

Companies like Hindustan Lever and Reliance Industries realised this ages ago. They manufacture products that are for the common person, the person on the street -- and they are priced accordingly. After all, everybody uses soaps and detergents. Everybody wears clothes. Both companies also have their premium ranges, but the bulk of their income comes from the 'poor man's' buying power. That is, to an extent, also the reason behind the success story of the Maruti 800 car -- more people can afford it. That is why Maruti Udyog can make a premium brand like the Esteem and still continue to show phenomenal profits.

In the case of consumer goods, Videocon and BPL have shown that they can continue to be profitable. Because, after all, the middle class is upwardly mobile and will buy a new television or refrigerator when the need is perceived (it doesn't matter whether the need perception is created by clever advertising or comes from within). But the product has to be, finally, affordable. There is a very thin line that separates the affordable from the out-of-reach, and the Indian middle class will not -- like its American counterpart, perhaps -- lose sight of this line.

That is conspicuous consumption, the Indian way -- the less conspicuous the better.

And if you do not have a product that can be bought without fiscal discomfort by the bulk of the 200 million that constitute our middle class, forget it. India is not for you. That is the lesson learned by the big names drawn to India by the hype.

What can they do now that they are in, and leaving would mean an ignominious defeat? Let's leave that for the next week. Until then, do your good deed for the day and be charitable -- buy a Mercedes!

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