India's festive demand is uneven as inflation, price hikes weigh on shoppers

MUMBAI: India's consumer economy is showing uneven signs of growth ahead of Diwali, with some segments reporting robust demand while others remain subdued amid high inflation, rising input costs and a shift in the festive season from the September to the December quarter.

Food and grocery recorded among the highest growth rates in July and August, at 12% year on year in the latest months for which data are available, according to consulting firm Deloitte's latest Consumer Signals report for India. Apparel growth picked up to 10% in August, while durables and electronics grew 7% during these months.

Jewellery sales growth moderated from more than 8% in August to just over 4% in September, according to data from the Retailers Association of India (RAI). The industry body said the shift in the timing of festivals from the second to the third quarter affected the numbers.

Rising oil and commodity prices are adding to the pressure on consumer goods companies, raising the prospect of further price increases that could weigh on demand. Brent crude above $110 a barrel remains a major headwind for India, which imports nearly 90% of its crude oil requirements. Higher interest rates may also challenge big-ticket purchases such as cars and homes.

“Rising interest rates may dampen festive-season demand for consumer durables by increasing EMI costs and making credit-dependent consumers more cautious,” said Shiv Sharma, principal at Gurugram-based Kanvic Consulting. “Buyers may defer upgrades, trade down to affordable models or rely more heavily on discounts, particularly for high-ticket products. The impact depends on how quickly higher policy rates translate into retail lending rates.”

Inflation bites

Inflation has prompted consumer goods companies across categories to raise prices over the past few quarters, largely as the cost of plastic packaging and other crude-linked inputs rose amid the West Asia war.

Yet, packaged food and everyday essentials companies are reporting resilient festive-season demand. Consumers continue to spend on premium, healthier and packaged products, suggesting that demand for festive essentials is relatively inelastic. Companies are also introducing premium festive products at entry-level price points to tap seasonal demand.

Hindustan Unilever Ltd, India's largest consumer goods company, said festive-season demand remained strong for both everyday essentials and premium products despite higher inflation.

Everyday essentials tend to be less (price) elastic, Priya Nair, chief executive and managing director of HUL, told reporters at a press briefing late last month. "The focus for us is to ensure that we are more competitive and that our brands become stronger in the context of the (inflationary) environment in which we are. We are focussing on developing the market with new formats, new products, and entry into new wide spaces.”

Rival consumer goods companies are also focusing on festive launches aimed at premium buyers seeking indulgent and healthier options. These include Cadbury's new chocolate mithais and PepsiCo's protein-based laddoos and chikki bites, priced at ₹10 a pack.

“Consumers are increasingly looking beyond conventional choices and exploring new flavours, formats, and combinations to make their gifts more distinctive,” Vinay Subramanyam, vice-president of marketing at confectionery maker Mondelez India, told Mint. “We are seeing a growing appetite for experimentation, where the experience of gifting is as important as the product itself.”

“This space - which is largely premium, urban pockets is largely unfamiliar to most Indians,” Saakshi Verma Menon, chief marketing officer - foods at PepsiCo India, told Mint. “When you look at smaller towns, that consumer knows they need to have protein but there is no access. We are democratizing the protein space with these laddoos and chikki bites.”

Uneven demand

“Parts of the old economy are firing like they have never before, primarily rural, tiered, mass consumption,” Anand Ramanathan, partner and consumer industry leader at Deloitte South Asia, told Mint. “This is why you have seen a revival of a lot of mass brands.”

Among relatively affluent urban households, however, festive spending has become more cautious.

“There is a lot of conscious spending happening on relatively affluent urban homes due to geopolitical uncertainty, services-industry based weakness,” Ramanathan added. They have "become cautious because their lives are not as great as they were two years ago.”

Mint previously reported that laptop sales were headed for their steepest decline in the festive season as higher memory-chip prices drove up retail prices. Executives at laptop manufacturers told Mint that many customers looking for festive discounts on smartphones and laptops were putting off purchases, as companies faced pressure on margins.

In contrast, sales of small home and kitchen appliances are growing strongly for some consumer durables companies. Room air-conditioner sales are also holding up despite price increases by nearly all leading brands from 1 October.

“Q2 is the first time where price increase has been largely passed down, and we see positive volume growth coming across all categories,” Kaleeswaran Arunachalam, chief financial officer of Crompton Greaves Consumer Electricals, told analysts on an earnings call in October.

Air-conditioner maker Blue Star reported 42% growth in room AC sales in the September quarter. Its managing director, B. Thiagarajan, told analysts last month that the company was confident of achieving 20-25% volume growth for the rest of FY27, supported by both price and volume growth.

Festive timing

Apparel sales have been affected by the shift in the festive period from the second to the third quarter, with Diwali falling later this year.

“Fashion is the category that is most affected in festive season,” Dinesh Taluja, group chief financial officer of Reliance Retail, said at a media briefing last week. “Our Q2 revenue grew despite no major festivals. But October has started quite well. We are confident of maintaining our lead.”

Vishal Mega Mart reported roughly 5% growth in same-store sales in the September quarter, attributing the performance to the shift in the festive season. However, its management told analysts last month that it had not seen any “moderation” in demand as the festive season began in October.

“Festive season buying is changing a bit,” Deloitte's Ramanathan said. “People used to wait for discounts, but now, people do not wait for small, discretionary items like durables and small discretionary items.”

Neethi Lisa Rojan contributed to the story.