Ripple Effects And Consumer Cannibalism

There’s a conundrum that’s appearing in developing countries and emerging markets, and it’s having a ripple effect on everyone from global retailers to the man on the streets of Bangalore. It’s a situation where an advance in one part of an economy is cannibalizing progress in another.

India is considered one of the top emerging markets for ecommerce

Many consider India to be an emerging market with tremendous potential for the future. Barrons described the Indian consumer economy as “an emerging market bright spot.” Euromonitor used the same optimism, comparing it to other BRICs and predicting it as the country likely to see the strongest economic growth.

But a deeper examination of the trends within individual economies reveals ripple effects that make such forecasting complex. In India, for example, there are signs that the rise of the smartphone is stymying the consumer goods market.

India’s smartphone users are expected to number 244 million in 2017, surpassing the number of smartphone users in the U.S. But at the same time that a new cheap range of smartphones is bringing mobile technology to almost every Indian home, those smartphones are taking profitability away from consumer goods vendors.

Internet Access a Priority

The Indian population, and presumably other developing country populations, use smartphones mostly to access the internet and, according to The Times of India, rural mobile internet users grew by over 90 percent between December 2014 and December 2015. For many Indians, a study by Ericsson found that smartphones are their only access to the internet because they are cheaper than a personal computer.

A study by McKinsey&Company on the grocery trade and consumers stated that “ecosystems in emerging markets are partly shaped by players that can concentrate and coordinate a critical mass of what otherwise is a complex set of routes to market.” One of those routes to market is the availability of cash.

Companies Nestlé SA and Coca-Cola told The Wall Street Journal that as people are paying for data plans to access the internet, they have less cash to spend on other consumer items. A few extra minutes on the internet to apply for a job or to message a friend on Facebook is more important than a week with coffee.

“The growing consumption of mobile data and impressive growth in the number of mobile users … has resulted in consumers increasing their spending on phones rather than on fast-moving consumer products,” said Sanjay Khajuria, a spokesman for Nestlé in India, and Unilever for one is blaming smartphones for a drop in sales.

It’s ironic that the cash now spent on mini data plans instead of snacks and drinks, for example, is handed over in the same family grocery stores. An extended ripple effect is that store owners stock fewer of the less lucrative products that people would normally buy and more of the data and voice plans. In some cases, the plans account for almost 80 percent of daily sales, according to The Wall Street Journal. Loud signage dominates small storefronts advertising the data plans available inside and is evidence that cellular companies are winning the consumer spending war.

Free Basics and Free Internet

But consumer goods companies are fighting back. Uniliver, for example, is reaching the mobile phone consumer through a free radio station that an individual can dial into and listen to popular songs interspersed with ads for Uniliver products. The company also offers mini educational webinars, which require only small amounts of data, on subjects such as how to dress for a job interview.

This conundrum of cannibalism is not likely to be limited to India. SMS Global lists Brazil, China, Indonesia and Mexico in the top ten of emerging countries for smartphone proliferation according to usage and penetration. And Pew Research found that rates of internet and smartphone usage are also increasing in Turkey and Malaysia, which saw the most significant jumps in internet connectivity.

Facebook CEO Mark Zuckerberg was disappointed to see his Free Basics program banned by regulators in India earlier this year. Zuckerberg’s idea was to institute free basic access to the internet for everyone in the country, but regulators were concerned with the idea of all that data in the hands of a single conglomerate.

Nevertheless, although environmentalists are enjoying the idea of a consumer society with a larger digital footprint that wastes fewer natural resources than its ecological counterpart, it is in the interests of retailers to support a version of Free Basics. That way, people will spend their money on something other than data plans and perhaps use their mobile phones to pay.