IKEA, world’s largest furniture brand opened its first store in India in Hyderabad on August 9. Initially scheduled for July 19, IKEA pushed back its date because it “needed more time to live up to its quality commitments” or maybe they were just afraid of how the Indian customer responded.
After six years of planning and policy approval, they’ve finally gotten to the stage where their success 
In India, it’s almost like there is no such thing as an ‘average consumer’. With an extremely heterogeneous population in terms of socio-economics and culture, there is no one mold in which all Indian consumers can fit. Future Group CEO Kishore Biyani, while looking into Walmart’s entry into India talks about how challenging the grocery business in the country can be. In an interview with the Economic Times, he said that even after years of being in the consumer business, he was still decoding the Indian consumer.
This just goes to show that understanding India’s consumer sensibilities, especially for a foreign player, is a big challenge. Despite 100% FDI being allowed companies still prefer entering India through partnerships with local brands or franchising because local players understand the market better. And that’s why many brands have to alter and align themselves to Indians in order to succeed.
Here’s our guide on how this can be done.
Tip 1: Our Purchasing Is Low So Keep Things Affordable
The average income globally is around $2,920 a year. However, in India, it’s only $616 a year. This means that Indians have far less money to spend than most other people in the world. Our GDP, when adjusted by Purchasing Power Parity, is equivalent to 36% of the world’s average. Thanks to this low purchasing power, brands looking to enter the country must strategically price their products to suit the needs of the customer.
IKEA could trigger a price war in India’s $49.5 billion home furniture and furnishings market with its Hyderabad store, the first in the country, by offering about 500 products under Rs. 100 and another 1000 products at Rs. 200 or less. Walk into a Zara or H&M store in India and you can find products on sale for as little as Rs. 250 at H&M and at Rs. 390 in Zara. When they just entered the market, their lowest price points were around Rs. 1200-1400. However, they soon realized that in order to draw in more customers and build loyalty in India, both high-street clothing giants have reduced their prices by 25-30%.
This is true for McDonald too. In the United States, a McChicken burger along with medium fries and 6 piece nuggets costs around Rs. 454.86 whereas in India the same costs around or exactly Rs. 272.
Tip 2: When It Comes To Food, We Have Very Specific Demands
Indians as a collective can be very fussy eaters. Since the cow is considered to be holy by Hindus who make up nearly 80% of our population, only 7.69% of Indians eat beef. Cow meat is illegal to sell or consume in many states across the country. On the flip side, Muslims make up 14.23% of the Indian population, most of them don’t eat pork. This is very problematic because pork is the most widely consumed meat in the world and beef dominates the menus in western countries, which is where most international brands come from. This is especially challenging when keeping the prices low is a concern because pork and beef are also the cheapest meats. While creating a menu for their Indian customers, international food chains have to keep all these specifications in mind. Plus, since over a third of the population of India is vegetarian, companies also have to accommodate a range of vegetarian options.
Since 5% of IKEA’s income comes from their signature restaurant, they’ve had to customize their menu for the Indian market. Their traditionally beef meatballs will now be chicken, plus 50% of their menu will include Indian options like samosa, dal makhani, idli and biryani and in order to retain some of their ‘Swedish’ heritage without offending any Indians, IKEA’s signature salmon and shrimp dishes will make up the other 50%. Back when McDonald’s entered the Indian market in 1996, they had to make similar changes too. Since most of their burgers contain beef, they had to change 70% of their menu. The McAloo Tikki burger which is a first from the brand ended up being responsible for 25% of McDonald’s sales in India. Similarly, Dominoes, Burger King and KFC also altered their beef-dominated menus to make them more chicken-based, chicken being a somewhat neutral meat in India while also adding more vegetarian options.
Indians as a collective can be very fussy eaters. Since the cow is considered to be holy by Hindus who make up nearly 80% of our population, only 7.69% of Indians eat beef. Cow meat is illegal to sell or consume in many states across the country. On the flip side, Muslims make up 14.23% of the Indian population, most of them don’t eat pork. This is very problematic because pork is the most widely consumed meat in the world and beef dominates the menus in western countries, which is where most international brands come from. This is especially challenging when keeping the prices low is a concern because pork and beef are also the cheapest meats. While creating a menu for their Indian customers, international food chains have to keep all these specifications in mind. Plus, since over a third of the population of India is vegetarian, companies also have to accommodate a range of vegetarian options.
Since 5% of IKEA’s income comes from their signature restaurant, they’ve had to customize their menu for the Indian market. Their traditionally beef meatballs will now be chicken, plus 50% of their menu will include Indian options like samosa, dal makhani, idli and biryani and in order to retain some of their ‘Swedish’ heritage without offending any Indians, IKEA’s signature salmon and shrimp dishes will make up the other 50%. Back when McDonald’s entered the Indian market in 1996, they had to make similar changes too. Since most of their burgers contain beef, they had to change 70% of their menu. The McAloo Tikki burger which is a first from the brand ended up being responsible for 25% of McDonald’s sales in India. Similarly, Dominoes, Burger King and KFC also altered their beef-dominated menus to make them more chicken-based, chicken being a somewhat neutral meat in India while also adding more vegetarian options.
Tip 3: We Only Buy Things That Fit Into Our Lifestyle
When it comes to culture and lifestyle, India is a dichotomy. This is because India’s biggest consumer market is it’s middle class, which is both aspirational yet traditional. They tend to be more brand conscious because they see brands as status symbols. They buy them not because they can afford them (often time they can’t), but because they represent success. This particularly poses a challenge for IKEA and their Do-It-Yourself format. While the Indian middle class may be inclined to buy IKEA’s affordable yet branded products, building the products themselves would take away the aspirational element of the purchase. It’s because of this that IKEA has hired its largest ‘assembly teams’ totaling 150 employees for its Indian market. This assembly service is unlike any other IKEA operations. They’ve also partnered with local customer services startup UrbanClap who has trained professionals for furniture assembly.
But the Indian middle class is also very traditional and conservative. Accordingly, international companies may have to carefully choose more conservative products to attract shoppers in India than they need to when selling elsewhere in the world. IKEA has done this by adding spice boxes, idli-makers, pressure cookers, and tawas to their collection and even though their bedsheets usually come in neutral creams, whites and greys, in India they will have more bright colors and patterns. Clothing brands like Marks & Spencer, GAP, and Massimo Dutti also tend to choose more conservative cuts and ethnic prints and embroidery for their Indian markets.
Having said that, India’s middle class is constantly evolving. As the country rapidly urbanizes, the average household consumption increases too. People become less traditional and more aspirational. 20 years ago, having home appliances like washing machines and microwaves was only for high-income households, but today with the expansion of the middle class, owning these appliances is commonplace. As 291 million people move from poverty to sustainable lifestyles, owning more of these international branded products will become commonplace. This presents a big opportunity for international brands.
As incomes triple over the next two decades to make India the world’s fifth–largest consumer market by 2025, brands will be able to expand their product range and increase their average price points.
Tip 4: ‘Made In India’ Gets You Tonnes Of Brownie Points
Before 2014, international retail brands hoping to enter the Indian market had to source 30% of their products (in terms of manufactured products or raw materials) locally. Even though this condition has since been relaxed by the Modi Government (by allowing 100% FDI for new single-brand retailers and giving existing brands 5 years to meet the 30% mark), international companies are looking to form sourcing partnerships in India. Patrik Antoni, Deputy Country Manager at IKEA India, says the firm is working hard to meet the 30% local sourcing norm before the 5-year mark. They are doing this mainly through our textile industry, making use of unique local handicraft and artisan techniques in their products for the India market as well as other markets abroad.
Most often seen with car manufacturing brands from overseas like BMW, Porsche and Fiat among many others. Mercedes in India just rolled out their 100,000th car out of their production line in India and this comes almost 25 years after the launch of the brand in 1994 when they completely imported all their units.
This manufacturing activity only got a boost after 2014, when the Indian Government launched the ‘Make in India’ initiative to encourage companies to invest and manufacture in India. Thanks to its low-cost labor and raw materials, India was already a good place for manufacturing, but under Make in India, manufacturing in India comes with many additional incentives. The bureaucratic and red-tape has been cut down, labor laws have been relaxed, land has been set aside for industrialization and tax reliefs have been put in place. No wonder, BMW has decided to increase its localization to 50% and Samsung just opened the world’s largest mobile phone manufacturing plant just outside of New Delhi.
All this brand tailoring sounds like a lot of work, but India’s market is lucrative enough to make it worth the effort. With a population of 1.3 billion and growing, India offers a large consumer base. Plus, it’s rapid urbanization and economic growth means that these custom solution may only be a short-term hurdle while the country assimilates to a global economy.