The Indian Consumer Market Landscape

Published Date: 02 Nov 2017

Introduction

India’s rapidly consumer market is largely being driven by factors like favourable population composition, positive business environment, supportive government policies and increasing levels of disposable income. The large consumer markets in India includes numerous segments such as retail, fast moving consumer goods (FMCG),luxury segment and consumer durables. According to the survey conducted by Nielsen in 58 markets covering 29,000 consumers, India has emerged as one of the key markets in terms of consumer confidence.

Indian consumer markets have been the limelight for researchers and they have made numerous forecasts for this large consumer market. For instance, it is predicted that the size of Indian retail industry would grow by more than hundred per cent to become USD 1.3 trillion by 2020 [1] from the current size of USD 500 billion. Similarly, the direct selling industry in India is expected to touch US$ 1.29 billion by the end of 2012-13, according to a study by Ernst and Young.

Such estimates have forced the global corporations to view India as a strategic economy which will shape world’s future growth.

The Indian consumer market landscape

Due to rapid shift in India’s economic growth, it has caught the attention of rest of the world. Increasing incomes and rising aspiration for a better life has given rise to new consumer segments.

The result of this is a new Indian consumer who is ready to spend more and is eager to explore the organized retail market. Whether it is mobile phones, credit cards, housing or apparel, an increasing number of people are moving up from the economically weaker class to join the middle class.

Now there is much more homogeneity in the market than ever before; some patterns have started emerging in Indian consumers behaviour. One of the most widely identified pattern is a significant shift in demand from loose to branded products. So whether it is mobile phones, digital music players or iPod, this modern consumer wants his purchases to reflect his lifestyle and that has led to an increase in expectations as well as the desire for immediate satisfaction.

The factors behind purchasing decisions are merging in urban and rural areas. Today, the drivers in urban and rural areas are the same – aspiration, quality and price, differing only in order. The Indian consumer is also maturing fast and is upgrading within product segments at a pace that consumer companies are struggling to keep up with.

India has always been a diverse market, with different consumer segments exhibiting varied buying behaviour. Today, the consumer is more interested in spending credits rather than saving.

A report by NCAER [2] Centre for Macro Consumer Research [3] revealed that by 2015-2016, India will be a country of over 53 million middle class households, which will constitute 267 million individuals on a whole. As per the study, a family with an annual household income between INR 3.4 lakh to INR 17 lakh, at 2009-10 price levels, falls in the middle class category. Presently, India has 31.4 million middle class households which means, 160 million individuals.

More interestingly, the number of middle class households in India is expected to be more than twice from the 2015-16 levels, which means 113.8 million households or 547 million individuals, by 2025-26.

As per the NCAER findings, the middle class population currently owns 49% of total number of cars, 21% of televisions, 53.2% of computers, 52.9% of air conditioners, 37.8% of microwaves and 45.7% of credit cards in India. The interesting thing over here is that the middle class represents only 13.1% of India's total population.

The report said that a typical Indian middle class household spends around 50% of their total income on daily expenses with the remaining part going into savings, which means this class has developed a strong purchasing power.

Inflation – An overview and Indian scenario

Inflation is one of the most important economic concepts. Inflation is simply a rise in general price levels of good and services in an economy. Over a time, as the cost of goods and services increases, the value of currency (rupee) decreases down and as a result the consumers buying power will eventually go down. Inflation is also greatly feared by investors because it grinds away at the value of one’s investments i.e. inflation can erode the value of cash investments. Inflation hits one’s financial position. It affects the standard of living as an increasing rate of inflation reduces one’s investments and savings. Everything from eating out to shopping becomes more expensive.

The bigger problem with inflation is not just the immediate impact, but its effects over time. Rising prices means consumers have to pay more for the same goods and services. If your income increases at a slower rate than inflation, your standard of living declines as you are not able to meet your needs with the same means. Inflation's main consequence is that it distorts the financial system of the country.

Coming to the India’s scenario, Reserve Bank of India tried to encourage saving rather than spending to control spiralling inflation; through interest rate hikes. [4] Inflation is probably the biggest bottleneck that India is facing. The high rate of inflation has remained untamed for quite a few months now and it has taken serious toll on Aam Aadmi. One of the biggest reasons for inflation currently is the higher fuel prices. In last 24 months alone, the fuel prices have gone up by as much as 32 per cent in Delhi. So the petrol prices have gone up by 157% in ten years while diesel has gone up by 148% in last ten years; which has impacted the day to day life in India to a greater extent.

According to findings of a survey by ASSOCHAM in 2011 [5] , upward spiralling inflation has led middle income families across the country to slash 65 per cent of spending on entertainment, shopping and eating out to manage their limited monthly budgets. It has pinched the Middle Income Group (MIG) and groups below it the most. As a result, the middle income group has curtailed its spending on these heads by nearly 65% in last 12 months due to higher inflation, interest rates and rising fuel costs.

History of Petrol & Diesel Price in Delhi

Source: http://apnaplan.com

The survey was conducted for a period of three months (January 2011 to March 2011) in major cities like Ahmedabad, Delhi, Mumbai, Kolkata, Hyderabad, Chennai etc. Over 500 employees were selected from each city on an average. According to the results, Delhi was ranked first in curtailing their expenses followed by Ahmedabad, Chandigarh, Mumbai and Chennai in the same order. Interestingly, High Income Group (HIG) in urban and other part of the country remained totally immune with rising cost of economy as their income levels hardly got severed with rising cost of inputs.

Inflation impacts Middle Class Consumer severely!

Source: http://www.trak.in

Consumers growing unease are reflected in their savings and spending habits. Nearly half (49.5 per cent) of middle income group either avoids shopping altogether or shops only for the things which are highly needed. Moreover, 34 per cent of them said that their spending has been restricted to only necessities and splurge in their spending is totally occasional. Many people indicated that they are finding various ways to cut back their spending now, or they will do so in the future.

The recession has brought about a shift in Consumer Behaviour and spending patterns. The impact of the above will continue and fundamental changes are expected in three key areas – increasing dominance of value retailing, structural shifts in supply chain and also the consolidation.

So at last it can be summarised by saying that Consumption is the scale to measure the total amount of goods bought for any economy. Various factors that affect it are primarily the prices, inflation and also tax structures in an economy. If prices are high then the consumption will fall because it will use up a higher percentage of a person's income. If inflation is higher, then people will postpone their buying. If taxes are very high on goods then people may not be able to afford goods.

http://economictimes.indiatimes.com/photo/13281891.cms

Source: http://articles.economictimes.indiatimes.com/2012-05-19/news/31778158_1_retail-inflation-core-inflation-food-inflation

Genesis of the Problem

The major reason for carrying out this research was to find or ascertain the prominence of Credit Rating Agencies on the investors’ decision making criteria. How much importance is given to the opinion provided by these agencies by the investors and how much these analysis are credible which affects the investors’ decision that has to be justified.

About the Study

The undertaken research here will try to identify what is the impact of inflation on consumer (primarily the middle income group) behaviour with particular reference to food retail industry. The detailed literature review was undertaken to understand the impact and severity of such impact and thereafter the primary data collection was carried out to collect responses from consumers in order to validate the hypothesis of the study.

Need for the Study

The need has come up to evaluate the impact of inflation on the consumer behaviour in past few years. Inflation has brought behavioural changes in a consumer and his/ her buying decisions globally. The food retail sector has been a topic of discussion since last few months due to foreign direct investment initiatives of Government of India.

This study is directed to understand how inflation has impacted consumers in their buying behaviour in the food retail industry specifically in past some time. How different set of consumers are affected by the inflation, has also been clearly identified in the study. The study has also identified the key changes in such behaviour and also what consumers feel about their likely future behaviour. It will be interesting to evaluate the results as food being an essential commodity and supermarkets and hypermarkets being the major markets where consumers are inclining.

Review of Literature

Review of literature is an essential ground for any new study or research to take place. The previous work done by the researchers acts as a base for new studies and helps to build studies and understand the problems in hand in a more focused and directed way. Similar objective was kept in mind while conducting this literature review.

Biao, Feng & Jiafeng (2010) [6] , in their article "The Impact of the Financial Crisis on Consumer Behaviour and the Implications of Retail Revolution", discussed about the issues of Retail Revolution in China. Through the review of literature, the researchers tried to understand the impact of economic crisis on consumer behaviour. Also, it was found that the consumers’ confidence declined, consumers become more rational and price-sensitive, spending budget also reduced significantly. Compared to the change of Japan’s retail industry in the context of the financial crisis, the authors implied the method of comparative analysis to gain some implications about China's retail industry, including: adjust industry structure, establish brand awareness, improved service quality, measures to create a better shopping experience and also to rationally plan the network layout.

Topic: Impact of Recession on Buying Behaviour of Indian Consumers

Author: Kiran Sharma

Abstract

This paper focussed on the impact of recession on the buying behaviour of consumers in recessionary period. The study was conducted on a sample of 50 retailers in Navi Mumbai. The collected data was analysed and the results that came out were in accordance with what was expected by the researcher. The results indicated that hypermarkets and supermarkets are witnessing a greater change in shopping behaviour than the kirana (general) stores. They were also suggestive of the fact that the type of retail format would adversely affect the consumers for luxury items. The author also indicated that the customers who frequent shoppers are more likely to respond to discounts vis-a-vis others and spend a higher amount for shopping. It was also revealed that customers who shop more frequently witness higher fluctuations for luxury items than for regular items. It indicates, therefore that shopping for luxury items faces more fluctuations than regular shopping items, which indicates that customers shopping for luxury items may be postponed in times of recession but they continue to shop for regular items.

Conclusion

The research concluded that recession has affected the sale of luxury items whereas there has been no major effect on the sale of necessary items. The major reason is that the numbers of people who were visiting the malls have come down and there is a change in their shopping patter. People have not cut back their expenses on grocery items and personal care products. The luxury brands are the ones that have been the most affected.

In order to increase the footfall and boost the sales, various promotional events are carried out by the retailers. Retailers are cutting down prices also. Customers are switching from their regular brands to others brands that cost them less such as value brands.

Topic: Surging Prices Changing U.S. Consumer Behaviour

Author: Dennis Jacobe

Abstract

This research conducted found that perceptions of price inflation amongst consumers intensified in U.S. Also, inflation seems to be having a major impact on consumer buying behaviours. Consumers not only cut-back on their entertainment spending and deferring some purchases they previously intended to make, but they also shopped differently. While it was not surprising that they became more price conscious and looking for sales, it may be somewhat less well recognized that so many - about half - also admitted to buy lower-quality items and shopping more at discounters because of price.

Conclusion

It was found that rising consumer prices are creating problems in financial terms for many households. Americans are responding to such rise in prices by changing their behaviour as consumers. A poll asked Americans to react to eight possible ways in which families could in theory cope with rising prices. In response, huge 81 per cent respondents reported that they have made more of an effort to find the cheapest prices for the products they buy. Three in every four consumers said they have cut back on spending on entertainment, recreation, or eating out, while two-thirds are carefully keeping a track of their family spending, such as a monthly budget. Nearly half have bought cheaper and lower quality goods (49%) or have shopped more often at discount stores (46%).

http://media.gallup.com/poll/graphs/080717_Coping_with_Inflation2_rfghyts.gif

Source: http://www.gallup.com/

Topic: The Effect of Interest Rate on Household Consumption

Author: Mudit Kapoor and Shamika Ravi

Abstract

This paper estimated the response of consumption to higher interest rates. The paper exploited the change in Indian banking legislations which has encouraged banks to offer a higher interest rate on deposits to citizens above sixty years. They used national survey for monthly consumption expenditure and calculated regression discontinuity estimates, based on age cut-offs. It was found that a rise of 50 basis points in interest rate leads to a sudden fall in consumption expenditure by 10 per cent. This decline is primarily in non-food and non-essential items. They also calculated similar estimates for data prior to the banking legislation and found no significant difference in the monthly consumption expenditure.

Topic: Inflation in India and its Impact on the People

Author: Peeyush Trikha

Abstract

In this study, he raised his concern over rise in prices of essential commodities due to rising inflation rates. He indicated various charges which have been increased in Delhi, such as electricity and water charges. The immediate timing of such increase has put a huge burden on people. Also, the rising food prices are a matter of concern. High prices reduce common men’s saving; many of such people are living on rent, or are paying installments for their homes. All this makes it difficult for poor people to improve their conditions and lead a life where they are not deprived of basic amenities like food, water, shelter and sanitation. The already existing vast gap between the poor and the rich also widens. It also leads to rise in crime rates. There seems to be a lack of planning and lack of will to act against hoarders and middle-market man who inflate prices many a times to make big profits and cheat others. The researcher concluded with some positive expectations from Indian and expected that central and state governments take strong steps to tackle the rising inflation and keep it within permissible limits.

Topic: How the Recession has Impacted Consumer Shopping Habits

Author: International Council of Shopping Centers

Abstract

The data in this study aimed at providing some insight into the changes in consumer behaviour and attitudes over the past years, as well as providing a benchmark for tracking behaviour and attitudes going forward. The various objectives of this study were, to ascertain consumers’ perception regarding their current financial situation and future expectations, determine their shopping habits, measure areas of change during the past 12 months and expectations for the future, understand consumer interest in and use of retail loyalty programs and determine consumer interest in and use of mall events and activities. The study concludes that the consumers are optimistic for the future prospects.

Topic: Evaluating Core Inflation Measures for India

Author: Motilal Bicchal, Naresh Kumar Sharma and Bandi Kamaiah

Abstract

This paper discussed in detail various approaches of measuring core inflation, evaluating their potential advantages and disadvantages. A variety of measures of core inflation for India based on three methods are constructed. Among these measures, three are based on conventional ex-food and energy principle and one measure that exclude fifteen of most volatile components are constructed. While constructing exclusion based indices of core inflation, measures are constructed such that only a small weight remains excluded from the index of the core inflation. The other two core measures are variations of ‘Neo-Edgeworthian Index’ are constructed by reweighting 69 disaggregated components series of WPI. Then another class of core measures is computed based on weighted exponential smoothing which was primarily developed by Cogley (2002). Estimates of core inflation based on their indices are then calculated for 1995 to 2007 on monthly basis.

Conclusion

One of the objectives of this paper was to review existing theoretical approaches of measuring core inflation. Researchers constructed several measures of core inflation for India. Among these measures, three are based on popular ad hoc exclusion principle and one measure that exclude fifteen of most volatile components. While constructing exclusion based core indices, they determined that it should be done such that small amount of weight is excluded in constructing the core index. The other two core measures, which are variations of ‘Neo-Edgeworthian Index’, were constructed by reweighting 69 disaggregated components series of WPI. Further, another class of core measures was constructed based on weighted exponential smoothing which was primarily developed by Cogley (2002).

Topic: Inflation theory: A critical Literature review and a new Research agenda [7] 

Author: Alfredo Saad-Filho

Abstract

This article analysed the three best known Marxian theories of inflation. They argue in different ways that inflation is a historically phenomenon, but its form can be determined from the broad features of modem capitalism. However, beyond a certain point concrete studies become necessary in order to validate the analysis. Different alternatives are proposed in order to overcome the difficult dilemmas to explain inflation in inconvertible money systems, while preserving the endogeneity and non-neutrality of money.

Topic: Cautious Consumers and worried Retailers’ life in Recession

Author: J S Bablu

Abstract

The article discussed about the change in shopping pattern and how such change points to the impact of recession in the retail sector in Kerala. The recession may not have affected those retailers dealing with essential commodities but the sectors hit are the home appliance, footwear and textiles. Retailers in the food sector are also not affected because the consumers have cut down on food products very widely.

However, there have been no job cuts in the retail sector to a great extent because of various favourable announcements (packages) by the Central government. As per the packages, banks should give Rs.5 lakh loan to shop owners without any collateral security. This step is expected to rejuvenate the sector. But it was found in the research that banks have not disbursed any loan any traders. This loan is important for merchants in order to be protected from borrowing from moneylenders.

Topic: Inflation Hits Middle Class

Author: Anushree Singh (2008)

Abstract

In this study, the author stated that the prices of basic commodities like fuel, food, education and interest rates on loans for durables have gone up and impacted the Indian middle income class. The average Indian is paying more on their loans as the interest rates on home loans have gone up by 300 basis points in the past few months. The middle class cannot afford those goods that they had previously been able to and it has adversely affected their life style.

Topic: Inflation Jeopardizes Middle Class Education Requirements

Author: Christopher Butel (2008).

Abstract

In this study, he stated that in long term, high inflation could weaken the private education sector that has been playing a critical role in raising the quality of India’s workforce. It has been a route for Indian people to achieve middle class status, more significantly. Inflation will push upwards the expenses on private education for which fees is already taking up large proportion of any household’s income because of the inability of supply to keep with demand in the private sector. The research concluded that a lot of middle class people may not be able to afford to send their children to private schools anymore if the trend continues.

Topic: The chain of effects from brand trust and brand affect to brand performance

Author: Arjun Chaudhuri; Morris B Holbrook

Abstract

Chaudhuri and Holbrook (2001) provide a perspective that brand affect resulting from a wanted pleasure value can increase loyalty to the brand and thus allow for more room for price to rise. Consumers tend to believe that a price is fair when they agree with it for a costly purchase. To some extent, price can be subordinated to product’s worthiness in the consumer’s buying decision.

Rana, MP (2011), in his study "Inflation Affecting Middle Class Spending Patterns", discussed that the middle class has been hit hard by the rising inflation. He quoted facts from a survey titled "Impact of Inflation among the middle class" conducted by Assocham and said that the middle class group have curtailed its spending on entertainment, shopping and eating out by a significant 65% in order to manage their monthly budgets.

Miller, Ogden, and Latshaw (1998) [8] showed how price can be used to trigger consumer behaviour. In their analysis, they manipulate price and product features to influence consumers‟ preferences for an assortment of products. They find a negative connection between price level and willingness to buy. However, when a product features key values that fit with consumer’s needs, firms can raise the price while keeping a preference for the product stable.

Shah, Jaksha (2009), in the study titled "Indian Middle Class Expenses", stated that middle class is concerned mainly about children’s educations and health of family. High fees do not guarantee good education. In the same way, when someone in the family is ill, doctors, pathologists and chemists are there to make sure the budget of the family gets disturbed.

Hoch and colleagues (1995) indicated that consumer demographic variables such as age, education, family size, and income, show a much stronger impact on price sensitivity than competitive variables. To be non-sensitive to price suggests that the consumers tend to give more weight to other product values such as quality or hedonic attributes, thereby weakening the connection between price and product quality.

Priya Raghubir & Kim Corfman (1999) reported the role of industrial conditions and the use of experience in conditioning the use of price as a quality cue in consumption. They thought that the discount promotion significance is typically, in decides in quantity to reduce the price or quantity which increases in the same price may obtain. In short, the consumer may use the few cost disbursement to buy many commodities. Therefore, the price promotion is often used to encourage the product and the service on non-user tests and may attract consumer's purchase and increase the product sales volume.

Topic: Metamorphosis of Indian Consumers and Retail: An Odyssey

Author:  Siddharthan Sundaram & Shrikant Kulkarni

Abstract

The article outlined changes in consumer behaviour and attitude and the impact of those changes on the retail space. The authors looked at some of the factors such as income growth, affordability growth, transformation in rural India beyond agriculture, the rise of the women, increase in literacy rate, increasing aspiration of Indian consumers, and explosion in the media. All these factors influenced the change in attitude and behaviour of the consumers and led to a change in the retail landscape, though 'mom-and-pop' shops are still dominating the Indian market. It said that the environment and the economy have stimulated upward growth. The acceptance of Indian consumers with the supermarket and hypermarket channel has kept pace with the expansion of retail stores. Consumers shop more frequently at supermarkets and the average basket size in terms of buying per trip is also increasing.

Topic: Inflation and Growth: In search of a Stable Relationship

Author: Michael Bruno and William Easterly

Abstract

This study tried to identify whether inflation and growth are inversely associated, directly associated, or not associated at all? Researchers rightly pointed that Inflation and growth just cannot seem to decide what their relationship should be. The early empirical literature on inflation and growth could contribute very less in the way of a relationship between the two. The growth literature detected a relationship between inflation and growth, only after countries provided some discrete high inflation crises in the 1980s. Even then it was unclear whether there was a long-run or a short-run relationship because the empirical relationships were weak with long-period averages and strong with short-period averages. Despite extensive drilling by the new growth literature, the indecisive variables of inflation and growth cannot decide whether they belong together in the short run or in the long run.

Topic: Does high inflation affect growth in the long and short run?

Author: Joao Ricardo Faria and Francisco Galrao Carneiro

Abstract

This paper investigates the relationship between inflation and output in the context of an economy facing persistently high inflation and inflation shocks. The authors highlighted various existing theories, stating three possible results of the impact of inflation on growth; negative, positive or none. The authors also cited a number of studies completed by various other authors in the literature. From their own analysis, authors found that inflation does not impact growth in the long-run, but in the short-run there exists a significant negative effect from inflation on output. The authors imposed minimal structure and made use of the idea that inflation shocks can be broken down into permanent and temporary components.

Conclusions

The results concluded in the paper found a zero long-run response of output to a permanent inflation shock in the context of a high inflation country. The results could be considered as evidence against the view that inflation and output are reliably well related in the long-run.

Topic: Consumers and Food Price Inflation

Author: Randy Schnepf

Abstract:

In general, consumers will use less of any good if its price increases relative to other goods (referred to as the pure substitution effect by economists). However, a consumer’s price responsiveness is a matter of degree and is subject to the potential influence of disposable income as well as other non-price factors such as those listed in the preceding paragraph.

Under most circumstances, the availability of many close substitutes is likely to make consumers more sensitive or responsive to price changes, because they have the opportunity to switch to similar alternatives. In contrast, a lack of substitutes may give the consumer little choice but to continue to purchase the available good, even as its price rises, especially if it is deemed a necessity. Strong ethnic or cultural tastes and preferences may endear a person to a particular food type such that he or she will continue to purchase that food as its price rises even in the presence of abundant substitutes (for example, ethnic groups that are accustomed to eating rice at every meal may be reluctant to switch to bread or potatoes even if the price of rice rises relative to those other foods).

Topic: The Global Economic Crisis: The Impact on Consumer Attitudes and Behaviours in the United States

Author: Matthew Jones

Abstract:

Datamonitor has been tracking consumer attitudes behaviour across the globe to gauge the extent that ‘recessionary mindsets’ are actually impacting consumer both attitudinally and behaviourally. This report looked explicitly at the situation in the US. The key findings of the report were:

About 56 per cent of consumers feel that their lifestyle has been impacted by the recession. Incidentally, they have been forced to re-evaluate their spending, including where they do their grocery shopping as well as their in-store choices.

About 44 per cent of shoppers are ‘frequent buyers’ of private label products. Many of them likely to consider private label products to be on a par.

For 72 per cent of US shoppers, lower prices have a high amount of influence over where they do their shopping. This symbolises the intensifying value-consciousness among consumers across FMCG product sectors.

Topic: The Impact of Global Financial Crisis on Consumer behaviour

Author: Helen E Perriman, Dr Rooma Roshnee Ramsaran-Fowdar and Dr Priya Baguant

Abstract

Consumer behaviour is influenced by both internal characteristics and external factors of an environment. The recent Global Financial Crisis is one such environmental influence that had a strong impact on the behaviour of consumers.

The crisis had a psychological influence on consumers to a great extent. It has forced consumers to modify their beliefs and attitudes towards purchasing.

Conclusion:

This research found that consumers’ fear of the future strongly impacts their behaviour and that this fear is difficult to overcome. The downturn has increased people’s inclination towards simplicity and has forced consumer’s to change their buying behaviour. Future research may have a role to play in helping consumers to seek new ways and reality after the global financial crisis.

Topic: The Crisis and Customer Behaviour: Eight Quick Solutions

Author: Hermann Simon

Abstract:

This article outlines how customer behaviour has changed in the global crisis and how companies can respond appropriately. The current crisis is having a severe impact on consumer behaviour. Aspects such as, perceived risk, fear about buying, or hard tangible advantages become more important, while image and good to have attributes move into the background. In this crisis, the customers’ fear of the future strongly impacts their behaviour and is very difficult to overcome. Of the four P’s in the marketing mix - product, price, promotion and place, none emerges as an effective means of overcoming customers’ reluctance to buy a good or a service.

Proposed value and cost benefits delivered by a product are of greater importance during a crisis. When times are tough, non-essential items start to feel the fall. Companies that can offer value or cost benefits may be able to boost their sales, revenue and market share. Willingness to invest or buy falls dramatically during a crisis, but savings for future become a priority for consumers.

US consumers have curtailed their expenditures as a response to global crisis, paying debt, and saving more – a very logical response to a recession. Most of the consumers have acted by choice, not necessity. The return to traditional spending patterns will cause companies to adjust to a fundamentally altered playing field.

In a McKinsey survey [9] conducted in March 2009, 90 per cent of the US respondents said that their households had reduced spending as a result of the recession – 33 per cent of them "significantly" so. The survey, which included 600 households in three consumer segments comprising around 40 per cent of all US homes, found that 45 per cent of those who reduced spending did so by necessity and 55 per cent by choice.

New McKinsey research, undertaken to understand the behaviour of numerous US consumers following the economic downturn, founds that in any given category, an average of 18 per cent of packaged-goods consumers bought were lower priced brands in the past two years (Bohen, Carlotti and Mihas, 2010). Consumers are now inclining towards budget products and avoiding any expensive products. Companies that are anticipating a rapid rebound in consumer behaviour are likely to be disappointed by such consumer behaviour in post-recession period.

As consumers shop across supermarket chains in search of the best value, specialty retailers have been feeling the pressure to compete. Nielsen’s 2008 Shopper Trends Report describes a decline in shopper penetration and patronage for specialty food outlets (fish shops, butchers, bakers and green grocers), due to financial concerns as the primary reason for this. There has been a fairly surprising consumer shift away from quality being the top priority. The private-label products have become an attractive alternative to the price-sensitive shoppers during periods of economic downturn.

According to the findings of Nelsen online survey (2009), 56 per cent of consumers said they are switching to cheaper grocery brands during the economic crisis and around one-third of them said that they would continue to purchase cheaper grocery items even when the economic downturn improves. Also, a growing number of consumers are shopping around for a bargain and this was evident in the findings of the Nielsen’s Homescan Research (2010). Loyal customers may become more prominent elements in deciding the marketing mix by the companies.

Mark Choeuke (2009), in the ‘Marketing Week Journal’, predicted that when the economy exits out of the gloom times, consumers may consciously decide not to drop all of their new habits and revert back.

Andres & Hernando (1997) found a significant negative effect of inflation on economic growth. They also found that there exists a nonlinear relationship. Their main policy message stated that reducing inflation by 1 per cent could raise output by 0.5 per cent to 2.5 per cent.

A study by the Co-operative Bank revealed that more than a third of people surveyed are making cuts in their weekly shopping spend. A consumer noted a fact that she is typically spending £68.33 per adult on the weekly supermarket shop, compared with an average of £89.88 earlier. The report said that people are being more conservative in their spending and are finding that cutting back on luxury items can help make a big difference. Developing a household budget is essential to keep spending in check and to identify ways costs can be trimmed. The report stated that sales at budget-supermarkets have grown by 6.2% in the studied year.

The Financial Times poll (FT/Harris poll) was conducted online among over 6,000 adults in France, Germany, UK, Spain, Italy and US and it showed that the consumer inflation fears were prevalent across Europe and the US. The following chart explains it all.

C:\Users\sony\Desktop\inflation impact.jpeg [10] 

Research Gap

From the review of literature and various research articles, it was found that there is a scope to study the consumer behaviour in the Indian scenario on different consumer groups. Not much research has happened which can cross-tabulate the impact of inflation on different consumer groups. So this study will help to understand how the inflation impacts different consumer groups with respect to their buying behaviour in the food retail industry.

Problem Statement

The study titled "Impact of Inflation on Spending Behavior of different Consumer Groups in the Food Retail Industry" behavior in the food retail industry" aims to analyze the effect that the inflation have on the consumers and their buying behavior in the grocery shopping. Does the inflation seriously impact their behavior and buying decisions of or it doesn’t have much impact on such a behavior, are the major questions for which answers are sought through this study.

The study focussed on the impact of inflation on consumers as a whole and also tries to cross-tabulate the results in order to identify how different sets of consumers are affected by inflation.

Scope of the Study

The study will try to find out whether the inflation has any impact on different consumer groups and is there any relation between them or not. The study conducted can be a good base for future research as it will help to understand consumer groups and how they respond to rising inflation in form of their buying behavior.

Objectives of the Study

To find out consumers’ views regarding inflation and its impact on community as a whole

To find out the impact of inflation on the consumers buying behaviour in the supermarkets and hypermarkets

To find and study the effect of inflation on different consumer groups (employed, students, housewives, etc.)

To find out factors which have attracted consumers towards supermarkets during inflation

To find out people’s view regarding shifts in buying power (if any) during last one year and likely future action.

Hypothesis of the Study

A hypothesis is a statement that explains or makes generalizations about a set of facts or principles, usually forming a basis for possible experiments to confirm its viability and validate the results from the data in hand.

Ho: There is no impact of inflation on consumer behaviour in the food retail industry

H1: There is a significant impact of inflation on consumer behaviour in the food retail industry

Ho: There is no relation in consumer behaviour among different consumer groups

H2: There is a significant relation in consumer behaviour among different consumer groups

Variables in the Study

The variables of study in order to understand the consumer behavior in food retail industry and the impact of inflation on them are:

Price

Quality

Buying power

Deals a consumer looks for

Value for money the product provides

Data Collection

For a systematic and planned research, information is collected from different sources of data which can be classified as primary data and secondary data

Primary Data:

Primary data may be described as those data that have been recorded or observed by the researcher for the very first time and is first hand to their knowledge. For this particular study, the primary data has been collected through a close ended questionnaire filled by the consumers such as students, housewives, business people, etc. Also, casual interactions with other formed an important part of the data.

Secondary Data:

Secondary data refers to the data which is readily available from different sources such as published articles, research papers, websites, journals, various government reports, etc. I have taken help of secondary data to go in depth of the problem in hand and understand how previous studies have taken place. The secondary data have thrown light on various facts and figures which helped me to understand the issue in much more detail.

The methodology adopted in this study for primary data is given below:

For gathering primary data, the survey approach has been used, which is a most widely used method for primary or first-hand data collection and best suited for studies that aims to know target people’s views and opinions.

The questionnaire has been used as a research instrument here. It is considered to be the most prevailing instrument to collect the primary data. A questionnaire contains a set of questions for which answers are sought from the respondents.

Questionnaire Design

The main objective of making questionnaire was to find the impact of the inflation on the consumer’s behaviour, how inflation has affected their lives, and implications of the same on their buying decisions in the food retail sector. In order to fulfil my objective, I made questionnaire design on the basis of the following methods of measuring spending behavior:

Likert semantic scale

Dichotomous Questions

Rank Order Scaling

Population of the Study

The target population of the study was the consumers who go to supermarkets and hypermarkets to buy grocery for personal use or the household use. The data was collected through questionnaires (online as well as offline).

Sampling Technique

Sampling frame: It includes the individuals who visit supermarkets for grocery shopping

Sampling method: The sample was taken based on "random sampling" technique since it is relevant to everyone and the objective is to see its impact on different consumer groups.

Sample size: The sample size for the study is 150 and it is assumed that it is the representative of the population.