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The Indian Consumer Services Industry: Drivers, Challenges & The Road Ahead

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The consumer services industry that has historically evolved from the needs of the end consumers, is today at the threshold of witnessing unprecedented growth. Rising average income levels, growing disposable incomes, unprecedented growth of the new middle class, ever changing technologies and changing lifestyles are contributing the addition of new and innovative consumer services.

India is expected to emerge as the world’s largest consumer market with aggregate spending of $13 trillion by 2030, surpassing the likes of China and the US, according to a Deloitte report. A big chunk of this spending will happen through the rapidly growing consumer services industry. Thus, within the Services sector, consumer services industry has begun to emerge as the sunrise industry for investors and entrepreneurs.

Middle Class Spending

Based on the investment attractiveness, the consumer services industry can be broadly divided into two segments viz. matured segments and emerging segments.

Matured Sectors

Based on the maturity level of the various consumer services sectors, the following sectors are far more matured in terms of investments, service delivery and innovations. At their current levels of maturity, these sectors are riddled with entry barriers like huge investments, higher risks and complex legal procedures. In spite of this, they offer good returns on investments. Thus entrepreneurs willing to venture into these segments must be prepared to invest huge money and take great risks.

Banking and financial services: Banking services that started in Europe in the 12th century evolved from the need of safeguarding the money of travelers who roam across the continent. Present day banking system is much more complex and requires huge investments and a plethora of legal compliances & permissions to start banking business. These services reflect the current changes in the demographics and they change with the changing demography.

For instance, banking industry witnessed a surge in growth as employment levels increased in the post-liberalization era leading to increased disposable incomes. Similarly, other financial services like insurance services, chit fund services, etc. also have tasted success.

Education: Education as a consumer service has evolved from the need to acquire knowledge, improve grades, get better jobs and stay abreast with changing times. Academicians too have evolved from simple knowledge providers to integrated facilities for overall development. Apart from regular academics, people also go for vocational or work-specific certifications/courses that can give them a boost in their careers.

To make things easy, many universities – both Indian and foreign – offer online certification courses for aspiring people. Education as an investment avenue is quite matured and requires big initial investments (while returns are commensurate with the investments).

Travel services: There is a steady rise in the consumer travel needs and this can also be linked to the increasing employment avenues and increasing income levels. Raising disposal incomes have also led to increased travel services catering to both regular travel as well as holiday travel. Many travel agencies like Club Mahindra Holidays, Cox &Kings Thomas Cook, Raj Travels and Travel Port among others have mushroomed in the recent past to address this growing need by helping consumers to plan their travel schedules and provide other allied services. Travel services also include ticketing services that in itself is a big business.

Ticketing services first started with the flight booking and eventually seeped into other modes of transport including train and bus. Today, ticketing agencies like IRCTC, MakeMyTrip.com, Cleartrip.com, iBibo.com, Yatra.com and Redbus.com are some of the vendors that are flourishing by rendering these consumer services.

Bill payments: Though it looks petty, this is a very useful service for consumers who cannot spend time going around the offices of utilities and government departments to pay their bills. Online bill payment service has evolved around this need to save time while getting things done. This need has been so drastically felt that government have entered the scene and opened e-portals to address this using the online channel. e-Seva from Government of Andhra Pradesh is a classic example.

Fast food restaurants: Today there are quite big names in quick service restaurants business that offer ready-to-eat fast foods in ambient atmosphere. The changing demographics have prompted the demand for eating outside and this was further fuelled by entry of organized multinationals like McDonalds, Subway and KFC. This is a multi-billion dollar industry today and is putting up impressive growth rates year after year. However, the operational risks are equally higher as that of the revenues.

Beauty & Wellness: Look good and feel good factors are key drivers of this industry. The modern lifestyle that people lead today is enabling this industry by providing unlimited supply of customers with desire to look good. Be it cosmetic enhancements or slimming regimen, this industry is catering to a growing customer base from both the genders. Almost all of the top players in this industry like VLCC have expanded their presence through franchising.

Emerging Sectors

Unlike the matured sectors, there are other sectors in consumer services that are still in the emerging phase. They are characterized by innovative business models, lower levels of initial investment, lower risks, minimal legal compliance and medium to good returns on investment. Trailblazers in these segments have often started off humbly and went on to make fortunes as they grew. These segments are the current hotbeds for investment and entrepreneurs looking to make it big in consumer services must focus in these areas. Here are a few such segments:

E-Commerce: E-commerce in India initially sounded at the turn of the millennium, but fizzled out due to lack of proper infrastructure and high speed Internet. However, it picked up steam in the late 2000s as the Internet speeds spiked and as home-grown brands Flipkart.com, Myntra.com and Jabong.com among others made their foray.

The biggest pull for e-commerce is the convenience of shopping from the comfort of your home. Consumers and netizens today are entangled in time-poverty and do not often find time to go around shopping for things they need. E-commerce comes as the savior in such times by saving time, providing the element of convenience, while enhancing the user experience.

Re-Commerce/Classifieds: As e-commerce caters to the primary market handling new products,
re-commerce addresses the secondary market that handles pre-owned and refurbished products. Re-commerce market is on the rise currently as more and more aspiring people seek their dream brands and products at affordable prices. While Quickr and OLX have garnered reputation as online re-commerce players, YNew is pioneering the brick-n-mortar store format through franchise route.

Repair Services: This particular consumer service is fuelled by ever increasing number of consumer durables and electronic gadgets that enter the market every year. Products break down while in use and need to be serviced. Repair services, especially, for the electronic gadgets like smartphones and PCs are on the rise.

From street side vendors to organized players like e-Techies and YNew, everybody is working their way to increase their share of the pie. The service providers often use innovative ways to attract consumers to get their devices serviced.

Day Care: There is a pressing need for babysitting and day care services in cities and urban regions as both the parents go for work. This segment is lately receiving more attention from the investors as organized pre-school setups have succeeded in addressing these needs. Still in its nascent stage, the market is also getting filled with fragmented unorganized and small-time players sprouting around street corners. However, the impending policy sanctions due for next year may change the operational dynamics.

Laundry Services: The traditional dry cleaning segment that was filled with fragmented, unorganized single shop vendors is getting a facelift with the arrival of organized brands like Wardrobe, White Tiger, Pressto and Four Seasons Dry Cleaning. Along with them, they have brought the organized look for this segment. However, the organized players are required to augment their efforts in creating brand awareness among the larger public, as the current awareness is at miniscule levels.

Real Estate Services: When there are large scale migrations from hinterlands to urban metropolis, the need for real estate services also raise proportionally along with the migrations. People rent houses when they shift to a new places and purchase properties as they settle in life. Rental agencies and brokerage firms came in to existence as individuals cannot scout entire cities to find their dream house.

Magicbricks.com, CommonFloor.com, 99acres.com, makaan.com and Housing.co.in are some of the examples of online organized real estate platforms that operate online. By aggregating properties under one roof, they have made life easier for people search for properties.

Home Interiors & Improvement: Home interiors segment is an integral part of the construction industry and is closely linked to the development of real estate industry. The home interiors industry picks up whenever there is boom in construction industry. Moreover, there is a growing awareness among consumers to decorate their homes through professional interior designers. Consumers are not hesitating to pay more to get their dream homes decorated in beautiful ways.

Event Management services: It caters to organizing domestic/household events from small gathering birthday parties to large wedding gathering. While it is already familiar with weddings being organized by event management firms, more and more people are trying the event management services in smaller events as well.

Key Drivers of the Consumer Services Industry

The following drivers are considered to play crucial role in the changing needs of consumers that have ultimately led to new business models built around these changes.

1. Demographic Shift: As mentioned earlier, the demographic changes that happen over time are the biggest drivers for consumer services. Changes such as increasing younger population in the country and more number of females joining the workforce, large scale migration to cities are creating new needs and thus new business possibilities.

2. Disposable Income: The raising employment opportunities are leading to increasing disposable incomes – thus spurring the consumption cycle. Rise in disposable incomes along with a consciousness towards value for money has led to opening up of new, innovative services like for this target group re-commerce and travel services.

3. Changing Lifestyle: The above factors have led to major changes in the consumer lifestyle. For instance, when both the spouses are working, they naturally cannot look after their infants, thus giving way to the rise of day care centers. Similarly, increasing smartphone sales year-on-year leads rise in gadget repair vendors.

Challenges

Despite the growth witnessed by the industry, many challenges do plague the businesses and constrain them from growing further. Below mentioned are the major challenges faced by the industry:

1. People: Consumer services require people with the right mix of knowledge and skills. Availability of the trained manpower has always been the major challenge in consumer services. The fragmented nature of markets in many of the business sectors adds to this growing problem.

2. Inconsistency in delivery: Being in service industry, one has to ensure that business can be made scalable only when there is consistency in service delivery across markets and geographies. However, the same does not hold true in practice. Though ‘standardization of services’ addresses this challenge to an extent, people delivering to end consumers will always pose open the door for inconsistencies.

3. Dependency on external factors: Any service business is affected by several external factors like government regulations, changes in growth drivers, etc. The extent of their impact and influence on businesses varies based on the preparedness of individual businesses.

The Road Ahead

Changing consumer demographics and lifestyles are filled with innumerable opportunities for entrepreneurs to devise new and innovative business models around the consumer needs. Emerging segments within the consumer services industry like e-commerce, re-commerce and repair services prove to be investor-friendly with lower risk levels and lesser legal compliance. However, entrepreneurs need to develop their own strategies and innovative methods to scale up their businesses and succeed in these emerging markets. Here are a few strategies of successful consumer service businesses that have achieved leadership position in their respective markets.

1. Pioneering: Service providers who have made early entrance into their target markets have amassed expertise and knowhow to run their businesses successfully and have built scalable business operating systems. This first mover advantage paves way to become market leaders.

2. Innovation: As the consumer demand is led by demographic changes, supply side innovations further contributed to the growth of the industry. Business models were fine-tuned in accordance to the evolving needs and were adapted to the changing times. Some service providers developed innovative methods and approaches to address the needs over time.

3. Franchising: Many successful consumer service businesses have taken the franchise route to expand their reach to the local markets. Be it the courier services or day care or laundry services, franchising proves to be the choice model for expanding the reach. Entrepreneurs and investors feel that that this model helps in quickly scaling up the business across different territories and provides a win-win solution for both franchisor and the franchisee.

[box type=”shadow” ]About Author: Ram Nutakki is a first generation entrepreneur who also advises and mentors startup enthusiasts through online media platforms, idea validation camps and startup events.  Connect with him on LinkedIn.[/box]

 

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