Seriously clueless

India, private equity and more ...

Sunday, October 09, 2005

Whats wrong with this picture?

Every newspaper, magazine and TV channel covers the Indian consumer boom with monotonous regularity. I am numb from hearing terms such as 300-million-middle-class, rising aspirations, credit-culture etc. One of my pet peeves is that most of these articles (and the data they quote therein) are poorly researched, inconsistent or plain wrong. What worries me further is a culture where we as readers/viewers neither notice nor question these mistakes. I would like to use a recent example to highlight the fact that we are relatively loose with data and assertions. My objective is to get each of you to ask “Hey, does this make sense?” the next time you see any data being thrown across by so-called experts and then come to an independent, fact-based and rational view-point. Take a good look at the chart that I have attached. This is from a recent research report on the Indian consumer, published by the equity research division of a decent investment bank. Further, the chart quotes its source as market research done by another well-known consultancy. Given this pedigree, one would assume that they have their facts right. I did so too, and my first reaction was that the Indian consumer spend on lifestyle categories was a significant 30% (add up books&music, entertainment, movies, eating out and vacation). Just as I was thinking that I needed to apologize for being wrong in my more pessimistic post on the same topic, I noticed that this picture didn’t really add up. Take a second look. What do you think? Here’s what I thought:

  • These categories cannot possibly add up to 100% - what about health, education, rent (or EMI on home loan), power/fuel, transportation, communication??? I didn’t know these were free!
  • Some glaring inconsistencies, both within the report and with respect to market data
    • A 10% eating-out expense is great news for restaurants. Then I wonder why the report goes on to size the restaurant market at Rs. 11,500 crore vs Rs. 17,600 crore for branded apparel (after all, this says that entire clothing spend is only 7% of the basket). Don’t even mention the fact that branded apparel in India accounts for under a third of the total apparel market.
    • The chart claims that people spend more money on books & music than on durables. A quick google search on “India music industry size” throws up an estimate of Rs. 450 crore. I don’t have an estimate on books, but expect it to be in the same order of magnitude. TVs alone sell over Rs. 13,000 crore a year.
I know I’ve quoted all-India market sizes, while the chart refers to urban spend (wonder if you noticed!). However, my comparisons are like-to-like, and shows that some of these inconsistencies are glaring and off by an order of magnitude. I encourage you to spot other mistakes in this data (e.g. savings look kinda low, wonder how large the Indian movie industry is). Note that I’ve taken an example from a detailed (the entire report is over 180 pages) report, published by a good quality firm, targeted at discerning investors. This problem is a lot worse in newspaper and TV sound-bites. All I can say is, Reader Beware.

25 Comments:

At 11:28 AM, Blogger thennavan said...

Came across your blog thru the IIPM episode. Your credentials are impressive. Right now I am in the DC area but plan to shift to Chennai sometime in the near future. Have plans to enter the VC area too and will try to touch base with you frequently.

 
At 5:09 PM, Blogger Just another news junkie said...

This comment has been removed by a blog administrator.

 
At 5:11 PM, Blogger Just another news junkie said...

Welcome to the real world of grays and imperfect knowledge/information :-)

Data-driven hypothesis generation on the other hand requires constant data-assimilation. Of course strong intuition is a great substitute :-)

- A

 
At 7:38 PM, Blogger Swami said...

I completely agree with you. Working for an mnc advertising co in Mumbai, we tend to look at urban cities and think Indians live the same way across India, has been one of our problems. There's still an Iyer's mess, Chettinad hotel, Saravana Bhavan and a Singapore plaza( don't get fooled by that name!) that offers significant VFM products for the average Indian. Successful companies have to beat the brilliant value proposition these guys offer yet add a tweak of innovation that can make intelligent Indian customers turn their heads to their side first.

 
At 8:48 PM, Blogger Satya said...

What can readers really do? It takes lot of time and effort to even get this kind of data. In US the data is collected at many source location (ex: all retails know who is buying what and when). Unless we can get source data right and have lot of computing resources to store and mine that data, we will never be good at these reports. We are not even close on our GDP numbers with so much black market deals everything from realestate to private sector salaries.

 
At 7:38 PM, Blogger Rajan said...

A very good analysis !!

 
At 5:45 AM, Anonymous Anonymous said...

Very good post and high quality Blog. I worry about Indian Urban Professionals . Their health especially. Indians are genetically predisposed to heart ailments. On top of it, the outsourcing model has put pressures on these professionals to work late into the night. Most of the technology people have their dinner past 10pm. And then it is off to bed. This type of lifestyle is going to result into several metabolic syndromes. Type 2 diabetis and heart attacks will be major killers of the urban population. I think this provides investment opportunities into fitness and well being sectors in India.

 
At 5:49 AM, Anonymous Anonymous said...

Mumbai Investments .

 
At 2:56 PM, Anonymous Alam Singh said...

Hi,

I agree that data is incomplete. I have been trying to find credible data on spending patterns. Can you refer to any source where the data is more reliable.

 
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At 9:17 AM, Anonymous Clear Skin Max acne treatment said...

The statistical report you have presented here is nice. you have worked a lot in this sector. keep it up.

 
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At 8:48 PM, Anonymous Sizegenetics penis traction device said...

The readers should take a look on the picture that you attached..Then may be the confusion will disappear then.

 
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The export opportunity is likely to be substantially larger than the domestic market opportunity.

 
At 11:30 PM, Anonymous Caliplus said...

What worries me further is a culture where we as readers/viewers neither notice nor question these mistakes.

 
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i think that pie-chart its a little overloaded

 
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I think that the appropriate question here is "whats not wrong with this picture?". Wish you the best.

 
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