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High food prices forcing Indians to cut other spending, says Nielsen

THE boom in demand for apparel and mobile phones may soon be over as Indians plan to spend less on fun and entertainment to deal with rising food prices, a Nielsen study says.

Indian consumers are extremely cautious about rising food prices and a sizeable section may defer purchases by 6-12 months, says the latest Nielsen global consumer confidence index released on Monday.

Some companies, including LG Electronics and Future Group, agreed to slowing demand, while others such as Reliance Retail and Marico expect consumers to keep up with their spending spree. Seven out of 10 Indians have changed their spending habits to save on household expenses in the last one year. “As a significant amount of disposable income goes into food consumption, consumers are becoming cautious,” said The Nielsen Company India managing director—consumer-—Justin Sargent.

The segments expected to impact most are apparel, out-of-home-entertainment and gadgets like computer and mobile phone.

India has been experiencing high inflation for some time now. Although the government and the central bank have taken several steps including increasing interest rates, allowing duty free imports of sugar and onions and banning exports of edible oil and wheat products, so far there is not much success in checking food inflation.

On an average, prices of fruit and vegetables in the country have gone up by around 50% in the last one year.

The country’s top consumer durable firm is already facing the heat. “There are signs that the durable sector may see a slowdown, especially in highticket items,” said LG Electronics India’s sales head, Amitabh Tiwari.

“In January, there has not been as many consumers as we had anticipated,” he said. “In fact, the market for LCD, Plasma and LED TV was quite bad.” Future Group CEO Kishore Biyani too said there has been postponement of purchase in some segments.

“But it is difficult to predict since Indian consumers’ behaviour is very differently and erratic,” he said. “Only those consumers who spend around 40-50% of their income on food items will cut down discretionary spend,” Biyani added.

Some economists ET spoke to expect middle-class consumers to postpone purchase of lifestyle and discretionary products as well as premium consumer goods. NCAER Centre for Macro Consumer Research director Rajesh Shukla said some product segments will take a hit as consumers plan to postpone purchase of several non-food items that account for about one-third of their total expenditure.

Food price is a major concern across the world. “Globally, after economic growth, it is food prices which is of prime concern,” Nielsen’s Sargent said. “India ranks fourth globally, while China tops the list,” he added.

The study said that while there has been a resurgence in consumer spends in the second and third quarters of calendar 2010, the last quarter showed a decline in spending intentions in India.