Survey: Life After QRs

SURVEY
Life After QRs

A BT-Indica survey seeks to assess the 'real' impact of the removal of quantitative restrictions on imports from the consumer's point of view.

It's one abbreviation that can be safely used in headlines. Courtesy an over-zealous media that played up fears of a market flooded with imports-some financial newspapers went to the extent of publishing the entire list of 715 items on which Quantitative Restrictions on import were removed on April 1, 2001-and a commerce ministry that tried to kill apprehensions, but set the alarm bells ringing with its move to set up a 'war-room' to monitor imports, everyone knows what QRs are.

One reason for the pervasive hysteria could have been the nature of the products on the list: processed foods, two-wheelers, electrical appliances, consumer products, liquor, garments, toys, and 650-odd highly-visible others.

Loyal consumers would migrate en masse to imported offerings, predicted several soothsayers. ''We will be destroyed,'' cried Indian industrialists partial to the word protectionism. A month-and-a-half is enough time to find out how things eventually turned out.

In the third week of May, BT commissioned Indica Research to survey customers in two cities, Delhi, an obvious choice given the proclivity of its denizens to spend, and Chennai, which popular opinion suggested, would provide a contrasting perspective. The market research agency surveyed 624 people across the centres. All respondents belonged to either SEC A or B households (SEC stands for Socio Economic Classification, and the alphabets indicate above-average education, and a fairly respectable job for the head of the family). To avoid respondent fatigue, BT and Indica chose 30 categories from the 715. The results? Some expected, others not, and still others very very revealing. Read on.

PREDICTION
Electrical appliances is one category where imports will steam-roll brands that are already available

REALITY
Toys and garments are the categories most affected by the removal of QRs

The typical customer's (now, that's an oxymoron) preference for imported toys can be attributed to a fragmented and unorganised market-70 per cent of the Rs 1,000-crore toy market is dominated by companies from the unorganised sector. Most transnationals that entered the country, like Mattel, Hasbro, and Lego have been unable to make significant inroads in a market that is extremely price-conscious. ''People prefer foreign toys because they perceive them to be of a better quality than Indian toys,'' says the owner of a toy shop in New Delhi's Tony Khan Market.

Electrical apps: Value for money brands continue to call the shots

The companies themselves, however, are singing a different tune. ''Consumers are moving from the unorganised segment to the organised one; we are bullish on the market,'' says Parag Dani, the head of marketing at Mahindra Inter Trade, the company that markets the Lego brand of toys in India. Rajan Handa, the chief executive of OK Toys, a New Delhi-based Rs 12 crore company, that competes with the likes of Hasbro and Mattel in the organised segment, believes that there is still room in the market for companies like OK: ''Chinese imports are cheap, but their quality leaves much to be desired, and European toys are expensive. So, we expect customers to come back to Indian toys.'' The numbers show otherwise. A little more than a third of the people surveyed have bought imported toys, 63 per cent believe these are of a better quality than Indian toys, and a little less than a third indicate that they prefer buying these toys.

The surprise package is garments. From T-shirts to sarees, children's clothes to ready-to-wear trousers and shirts, and from dress-making fabric to undergarments a substantial proportion of people surveyed (varying from 20 per cent to 12 per cent) say they would prefer to buy imported brands. That's a blow for the Rs 30,000 crore ready-to-wear garments industry in India. ''Compared to these imported garments, some Indian kidswear brands are frightfully expensive,'' says Ritu Suneja, a housewife whose four-year old daughter's wardrobe is predominantly stacked with foreign brands bought at Delhi's Ghaffar Market.

The larger brands may be able to withstand the onslaught of imports, but several of their smaller brethren will perish. Says Mukesh Aggarwal, owner of Shahi Fashion, the company that owns the 'Rags' brand of ready-to-wear garments: ''There's no way we can compete with imports.'' Kailash Bhatia, the chief executive of Colorplus, whose eponymous brand has built a huge franchise for itself, is more confident. ''The people who were doing business under the protection of QRs will get hit, but our products can compete with the best of imports on colour, fabric, fashion, and washing technology.''

PREDICTION
Customers will increasingly buy imported fruits and vegetables, and also show a preference for imported processed foods

REALITY
Customers show the least preference to buy for products like imported vegetables, fruits, meats, and processed foods, but numbers could be deceptive

Every shop has them-Pascual Yoghurt (in four variants and several flavours), Batchelors soup, Berri juices, Del Monte pitted prunes, Granny Smith apples, and cold cuts from Australia and New Zealand. ''A bottle of Berri and Australian peaches look great in my refrigerator,'' says Anjali Batra, a Delhi-based executive. Unfortunately for importers and distributors-and an army of them has sprung up since April 1, 2001, but that's another story-customers like Batra are exceptions, not the norm. Customers may buy apples from California and Kiwi fruits from New Zealand, but once the novelty wears off, they return to their usual food habits-and in terms of fruits that could mean bananas, mangoes, and papayas from the neighbourhood fruit-vendor.

The low proportion of respondents (a maximum of 1 per cent) interested in buying imported foods can be explained by three factors. One, customers are unwilling to move away from brands they are used to, especially in categories like butter, coffee, and tea. Two, they are not willing to pay a premium for fruits like Kiwis, muskmelons, and prunes that anyway do not form a part of their traditional diet. And three, the penetration of some products, like fruit juices, is so low, that even if all consumers currently buying Tropicana and Real switch to Berri and the like, the results are unlikely to show up in a survey with a sample size of 600-odd.

The companies themselves aren't taking any chances. They fear that if the last remaining vestige of protectionism-a steep import duty (35 per cent in the case of fruit juices)-goes, they will be more vulnerable to competition from imports. ''It is consumers from the SEC A segment who buy processed foods,'' says Amit Burman, the chief executive of Dabur Foods. ''There will definitely be an impact in the long-term; the first casualty, shelf space, is already onto us.''

PREDICTION
Customers will be willing to pay a premium for imported offerings, since their perceived quality is higher

REALITY
Most customers will buy imported products only if they cost as much, or are cheaper than comparable Indian products

This was easy. To make things easy for the people being surveyed, apples, from California, no less, were taken to be representative of fruits, vegetables, and processed foods. And electrical appliances (specifically, toasters and irons) were assumed to represent household appliances. Actually, the experience with the apples didn't turn out to be easy: 11 per cent of the respondents said they had no idea what California apples were; of the rest, 67 per cent said they would buy these apples only if they were less expensive, or cost the same as Indian apples. The question on appliances went smoothly, but here too, 76 per cent of the people surveyed said they would buy the products only if they cost less than, or the same as Indian products.

This behaviour is significant, especially in light of the fact that most people believe (and this came through in the survey) that imported products are of better quality than Indian ones. Says Harminder Sahni, Associate Director, KSA-Technopak: ''Indian consumers believe firmly in the value-for-money proposition. If they are happy with existing Indian products, there is no reason for them to shift to more expensive imported alternatives.''

PREDICTION
Consumers in cities like Delhi and Mumbai are more likely to be open to imported offerings than those elsewhere

REALITY
Consumers in cities like Chennai, which are further down the organised retail curve are more open to buying imported products

''I am not surprised,'' says Francis Xavier, the chief executive of the Chennai-based Francis Kanoi Associates. But we are. With 13 per cent of the respondents expressing a preference to buy the imported variety, toys top the list of 'will-buy' foreign products in Delhi. The corresponding figure for Chennai is a whopping 49 per cent, and the category is, again, toys. Run down the list of the top 10 and the difference between the two metros is staggering. At number three in Delhi are T-shirts at 8 per cent; T-shirts are at number three in Chennai too, but the proportion is much higher, 31 per cent. And at number seven in Delhi are blankets at 5 per cent; at the same position in Chennai are coffee makers at 19 per cent.

Retailers corroborate the trend. ''There is a tremendous demand for imported products,'' says K. Radhakrishnan, Vice-President in-charge of merchandising and marketing at Foodworld Supermarkets, a RPG-group company that runs 60 supermarkets across five cities. That means consumers aren't just interested in foreign brands, they are willing to buy them. Indeed, 33 per cent of the people surveyed in Chennai, as compared with 9 per cent in Delhi, said they would be willing to pay more for apples from California. The corresponding figures for electrical appliances are 33 per cent in Chennai and 14 per cent in Delhi.

The surprising behaviour of the Chennai consumer could be a function of the strides the city has made on the organised-retail front. Or it could be a result of the archetypal Chennai-denizen's weakness for anything with an imported tag. Xavier recalls that even in the 1970s, imported sarees were very popular with customers in the middle-and lower-middle classes.

-Reported by Nitya Varadarajan, Vinod Mahanta,
and Aparna Ramalingam

METHODOLOGY

The objective of this survey was to assess the impact of the removal of quantitative restrictions on imports. While QRs on 715 categories were removed on April 1, 2001, BT and Indica decided to focus on thirty. The final list of thirty was chosen on the basis of interviews with economists and marketers on categories that were likely to be impacted the most. The thirty categories chosen were (in no particular order): toys, motorcycles, casual wear (T-shirts and the like), children's garments, undergarments for both men and women, scooters, blankets, ovens, cooking ranges, ready-to-wear shirts and trousers, dress-making fabric, electric irons, coffee makers, bicycles, sarees, upholstery fabric, porcelain products, portable lamps, toasters, fans, utensils, pressure cookers, fruit juices, tea, vegetables and fruits, briefcases, dairy spreads, butter, coffee, and cuts of all kinds of meat including lamb and ham.

Apart from gauging the acceptance of imported products, the survey also sought to find out how willing customers were to pay a premium for them. The sample of 624 was split almost evenly across the two centres where the survey was conducted (Delhi and Chennai, for the reasons laid out at the beginning of the article)-315 in Delhi, and 309 in Chennai. Of the respondents, 459 belonged to SEC A and the rest to SEC B, and 407 were male, and the rest, female.

The sample included 82 people who had travelled abroad, but since their responses were not significantly different from those of people who hadn't, they haven't been presented independently. Once Indica presented its findings, BT's correspondents spoke to customers and marketers across the country. For Indica, the project was co-ordinated by B. Narayanaswamy and Soumya Mohanty.

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