Premiumization — A Megatrend

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Remember the last time you bought an Allen Solly shirt instead of a normal shirt at the mall or bought your first sketchers/woodland shoes in recent years. Nonetheless, you must have been buying Tata salt for many years. Yes, salt packed in plastic wrap and sold with the brand name, as trustworthy as Tatas, you have seen ubiquitously all around but never observed it.

As the famous character Sherlock Holmes’ famous saying goes – “You see, but you don’t observe”.

Upgrading the product/service you use or the intent to have high-quality service is what I call Premiumization. As this will be based on markets, we can dive into the companies where the behavioural changes in humans cause this megatrend. Trust me, it will poke you in your skull, saying, “Yeah, I have experienced this”.

This trend has been playing out for so many years, and we can base this on the behavioural need to humans to possess and experience better in life and feel rich using materialistic possessions, which has been ingrained in every cell of the body for hundreds of years.

Again, as I write this for the Indian audience, this is played out all around the globe, but, as investors, we can benefit from using the premiumization trend. With my bad habit of diving into history, a bit, and not boring you, before the 1991 economic reforms, India looked like this –

  • Wait for the Bajaj scooter to reach your home after payment was 10 years.
  • Opening a business requires government permission.
  • Gold and global brands were smuggled into India – (remember the movie- Once Upon a time in Mumbai).

After the significant Dr. Manmohan Singh’s bold step in 1991, let’s check the past few out of the million instances in which companies have tapped into the pockets of consumers to increase their top line and significantly increase their bottom line by riding on the wave of human desire, greed, and jealousy, i.e., premiumization.

  • Asian paints- becoming the largest player, taking away the market share of localised paint manufacturers. I bet you currently have no more than five options to buy paint for your house.
  • Remember the fevi-quick add of getting fish on a wooden bar? Yeah, it’s the Pidilite Industries that premiumized glue.
  • I remember we used to buy tea in weights from the local shop, and then we bought Red Label.
  • The local milk delivery guy (carrying a big steel vessel) was replaced with the Amul milk delivery guy.
  • As Indians, we went from-
    • Sonata to Fastrack
    • Splender to Bullet
    • Rupa to Jockey
    • Fan to AC
    • Soap bar to liquid handwash
    • Nokia to iPhone
    • Bidi to cigarettes
    • Desi to Royal Stage to Johnie Walker
    • ……… and you can add whatever you experience.

Though many things will not make sense, but brands create a sense of deprivation and dopamine-kicking experiences when you purchase their products. For example, one of my friends will explain why the iPhone is not worth buying but will vouch for liquid handwash rather than soup. Whatever scientific evidence you provide, it does not make a difference; his mental abilities are biased on hygienic parameters, which he defines as good or bad. However, investors made a lot of money in Apple (iPhone), ITC (Cigarettes), Titan (Tanishq), Page Industries (Jockey), Eicher Motors (Bullet), LVMH (Louis Vuitton), etc.

So, let’s start the speculation of the future winner –

  • Pricol – premiumization of your speedometer in your vehicle
  • Titan – Jewelry from a brand
  • Vedant Fashions – Wedding clothes (Manyavar)
  • Tata Consumer – premiumization of millets, tea, rice and atta.
  • Ethos - world class luxury watch brands; adding more Swiss and German brands to their portfolio.
  • RACL Geartech – Premium auto component parts
  • Metro brands – Shoes for high-end individuals
  • Sula vineyards – Wine drinking population of India to Advance
  • Radico Khaitan, United Spirits – Alcohol and drinks
  • Zomato – Premium services of home delivery
  • Tata Motors – Love for Mini SUV in India, and that led Maruti to add more SUVs in their basket of products.
  • Nestle – Premium milk powder for children chosen by their mothers.
  • Mankind Pharma – Premium condoms
  • Aditya Birla Fashion and Retail Limited – Clothes
  • UNO Minda – Alloy wheels for your car and information systems
  • Mahindra Holiday, Wonderla – Outing with family and friends
  • Dr Lal Path Labs – Premium medical services – especially testing
  • Rainbow Children hospital – Premium hospitals desired by working parents if their earnings are high.
  • Polycab, Finolex Cables — High-end electrical products, Smart switches, smart lock, etc.
  • Nesco – Premium office spaces
  • Inflame Appliances - Kitchen chimney, Hobs & cooktops, etc. - A play on penetration with variety of product portfolio.
  • Phoenix Mills — Opening of malls in different cities, premiumization of shopping experiences.

Why the economies favor buying these companies –

  • The customer does care about the price and pays a premium to possess the item.
  • Hence, the profit margins are high.
  • India’s per capita is increasing, which leads to higher disposable income and higher spending on luxury items.
  • High influence of western culture in India.

Supporting evidence of the trend –

  • Increasing trend of organised retail in women shopping and continuous increase of the size of the pie simultaneously

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  • SUV car market share in India increasing from 43% in September 2022 to 52% in October 2023.

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A tweet to sink in and think about :

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This will be updated personally; however, I published this as I will not have time recently. Also, thanks to SOIC, Raj Shamani, Nikhil Kamath and many more people I follow for getting this idea

Disclaimer: I am not SEBI registered. Nothing discussed above is a buy or sell recommendation*.*

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Great List. Hopefully the wonderful folks at VP will chime in with more names.

Let me throw in “LANDMARK CARS” to the mix.

Gillette India too . (h/t @Darshan_Gala )

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While I do agree with the concept broadly, or agree with some names, I have a different view in general, as not all the companies’ fortunes are linked to premium products alone, the element of premiumization may exist in many businesses, but it alone cannot make a business grow, something like a Ferrari.

I don’t know about any trends or mega trends, but the existence of unorganized sector and local strong players in businesses cannot be overlooked, as these are mentioned by managements of many companies. Some shift happens due to GST or other government policies, and some for other reasons. Jewellery for example also concerns with trust, and trust is lost, business is lost. And for other businesses like Nestle, there could be science involved. Businesses which have a definitive moat will charge more, and not all businesses have such moat.

And if such premium products are available from multiple brands, where the buyer has no clear idea what to choose, as all brands are big and household names, there is no monopoly, and not to mention the possibility of many bigger names entering into other businesses with funds of their own and foreign.

India for the most part, still is a cost cautious country, discounts are attractive, so if something does the job with less amount, for something where options exist, I guess majority of the people would choose the low price product.

And if the sales of certain categories and products pertaining to physiological or psychological experiences, then perhaps this will continue. And I guess for others products, things, for some businesses, target buyers play a bigger role here, and as we have tens of crores of younger population, products targeted towards them may bring in a lot of sales, even if there is no distinguishable change between the products of companies.

And trends have to emerge, accepted and welcomed and participated by many, and not restricted to few, and India seems to be on this path for the most part, and these mega trends even if are indeed true, I guess they will emerge over a period of time, sometimes a couple of decades, and to be able to identify, buy, and hold for the entire duration of such a trend is not easy, as there could be long periods of consolidations or corrections, and who does may get a 100 bagger or even more for themselves.

Just some thoughts, and a participant of all businesses to the extent possible.

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Thank you for starting this thread. I will add few points to it.
The list below are just names of business and not any recommendation of buy or sell.

  • Trent - A play on fast fashion. It includes Samoh (soon can be a competition to Manyavar).

  • Lumax Industries - A play on LED lightening in Automative Industries.

  • Focus Lighting & Fixtures Ltd - A play on LED lightening across industries (Retail, Home, Infrastructures, Railways).

  • Redtape - A brand play across industries (Fashion, footwear, luggage bags, etc).

  • Mrs Bectors Food Specialities Ltd - A play on premiumization on breads (breakfast), biscuits, bakery products.

  • CCL products - Pure play on growing coffee culture.

  • L T Foods - Premiumization to basmati rice.

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I went through same dilemma, but my thesis is that currently top 5-7% are doing the heavy lifting of consumption. Even if grows to 10% (+inflation + social media impact + expansion of middle class) will create many number of winner and will take care of the theme itself. Finding moat is difficult but finding the winners is through observations is a bit easy and trend will create many winners. My contrarian view is that Big bazaar was a big winner in its space, it’s only the aggressive expansion led to its downfall. So yeah, tracking+holding is what we can do as of now.

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The theme is broad, with different businesses, each business with its own advantages, limitations and obstacles, so they should be looked at individually, which members of this forum do.

While there exists the argument of increase of disposable income, middle class aspirations, the opposite reality is also has some weight, owning to a plethora of domestic problems or foreign issues, as we are part of global markets now. Of course, if the products and services are indeed premium, there exist takers irrespective of the state of the country, and as such, this part of revenue may continue to witness growth at all times, just like in US.

Along with the sustainability of a trend, and the participation not being restricted, the managements of companies should be focused, agile, even going against the tide if need be, which may benefit them in the future, thus making an impact, becoming the 1st brand that comes to mind, taking the majority of market share.

Very long story, although sometimes there could be visible signs in the form of valuations staying at elevated levels for extended periods of time, giving an impression that there indeed is something correct with the company.

I haven’t looked at any businesses from a trend point of view.

Have a position in Titan.

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Excellent analysis,

Another company benefitting from this trend is Ethos Ltd.
It’s probably in the range of super-premiumisation given it is a luxury industry for the super rich.

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Great list. While considering Ethos, do check KDDL. It owns 51% in Ethos plus they manufacture Watch Dials, Watch Hands, and Indexes for global watch brands. There ia already a link on the same on VP

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Another one is Piccadily Agro which makes Indri Single Malt whiskey and Camikara Rum which are premium Indian whiskeys and well accepted in market.

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Which one is a better buy at current levels, KDDL or Ethos?

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Thanks everyone for the warm replies. I have no recommendation on the buy or sell. However, improving the knowledge base and discussing the any company with variables will help us to take any position.
Whenever I check the valuations of these companies, it always seems to be on the upper end and I can never take very long position. Just holding Pricol and Zomato in small quantities.

Note that many companies are very niche and requires in-depth reading to understand the moat. Currently, I’m on building up the knowledge.

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Yes Devang, even I’m trying to build my knowledge base in this premiumisation arena.

As India just unlocked $2500 per capita income, it will be on a high consumer spending phase with more people coming in the rich strata of society.

Identifying the key players here would be a good headstart.
Even I hold Pricol and am looking for opportunities to add Ethos/KDDS

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Its your individual call. I invested in KDDL around 1500 levels and was lucky to get better returns in such a short term. I preffered KDDL over ethos for low market cap, better value for money relative to ETHOS, holding company with their own business and less institiuinal holdings.

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Might I add two more names

Sai Silks

Metro brands

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This is a good interview where we can spot on the trends and its second order and third order derivative companies taking advantage of the situation -

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A company where the product mix is changing to a premium product with capex going on as well -
Steel Strips Wheel Ltd

Forum’s thread is very useful - Steel Strips Wheels Limited - Attractive Valuations

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May we add IHCL to this trend ?

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May also add Carysil to the list

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I think

CCL Products - growing consumption of coffee and the company trying to get into premium speciality coffee

And

Indian Hotels - Growing domestic travel and increasing number is of hotels in every price point specially in the premium segment

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