MUMBAI: Consumers appear to be cutting back on discretionary spending, allocating more budgets to necessities and value purchases, as a combination of war-induced uncertainty and layoffs prompts people to tighten their wallets and save more.
Even as the United States and Iran agreed to a two-week ceasefire last week, the prospects of reaching a peace agreement faded as talks between the two countries held in Pakistan failed to achieve the desired results. Analysts said that caution will prevail until there is clarity about the complete calm. “After mid-March, discretionary sourcing slowed down,” said Satyaki Ghosh, CEO, Raymond Lifestyle, pinning hopes on the upcoming wedding season to support future demand.
“We are running some value-based offers but no direct discounts yet,” Ghosh said. Consumers are not only limiting overall spending in stores, but are also gravitating toward more affordable and value-based options, prioritizing necessities over conveniences, said Tarun Arora, CEO and whole-time director at Zydus Wellness, maker of brands like Complan and Glucon-D.
Shankar Prasad, CEO of D2C beauty brand Plum, said people are not necessarily trading low although there has been some tightening in spending through simpler procedures and fewer add-ons. “What we are seeing is a gradual shift in consumer preference towards essential categories, with relatively higher spending on need-based, everyday products, while discretionary and indulgent purchases have declined slightly, which usually happens during periods of uncertainty,” said Mayank Shah, Chief Marketing Officer, Parle Products. Shah said the company is currently focusing on pushing value packs of premium products so that indulgent purchases remain affordable. The rise in crude oil prices due to the war has led to higher corporate costs as companies indicate inflationary pressures and look to implement price increases. Many companies in areas such as edible oils, bottled water, beverages and consumer durables have already taken some price increases, straining middle-class families.
Analysts at Nuvama expect a slight rise in inflation after elections across the country. “Footwear players are likely to face margin pressure as approximately 30% of their raw material inputs are tied to crude oil. Footwear players may also face cost headwinds due to increased capacity, packaging and secondary input expenses,” they said in a recent note. Along with rising prices, the labor market is also likely to see a slowdown as some companies freeze hiring amid uncertainty, while AI-led technology layoffs continue to hurt the working class. For example, Unilever froze global hiring for three months due to the war.
