Rukam Capital’s Recipe For Success In India’s Diverse Consumer Market

Creating for the masses or premiumisation for the niches – which trend will shape India’s consumer landscape in the long run? Many would choose the first option. Given an inflationary environment and slowing growth worldwide, what’s better than leveraging affordability and scale in a classic price-conscious market? Yes, the margins are low, but industry giants like Reliance, the Tata group, Hindustan Lever and Dabur India have built their brands on volume-driven growth. 

Lately, however, the Indian consumer market has witnessed a great divide in spending patterns. Of course, the charm of mass-market products is far from fading. Affordability remains crucial for broad household consumption (food, groceries and other home essentials), and a UBS Securities report estimates that growth in this sector will remain subdued at 4-5% YoY in FY26. Conversely, in a report titled The Rise of Affluent India, Goldman Sachs has underscored how consumption by the top end of the country’s income pyramid is ushering in a new trend.  

According to its estimates, the top 10% of urban India (around 3.5% of the total population) spend eight to 10 times more on premium categories than the national average. It is further suggested that roughly 30 Mn or 20% of Indian households engage in high-end consumption. But delving deep, we find a unique convergence of aspirational minds across the country, which means tier II and III cities are also playing a significant role in this transformation, unlocking new opportunities for direct-to-consumer (D2C) brands and venture capital players investing in them for early advantage.

Undoubtedly, this is no fad. Per a NielsenIQ report, premium FMCG categories are growing twice as fast as their mass-market counterparts, accounting for 27% of FMCG sales and contributing 42% of the sector’s value growth. A similar surge in premiumisation is also seen in the tech and consumer durables space. 

Experts attribute this trend to rising incomes, global awareness and a willingness to invest in products that resonate with one’s aspirations. In essence, people today pay more for quality, sustainability and value-driven options, reflected in high demand for organic foods, customised fitness solutions, out-of-home dining, clean-label beauty and personal care (BPC) products and experiential travel/hospitality.

Consider this. Domestic airlines are seeing unprecedented demand for business-class seats, prompting even budget carriers to introduce premium cabins on domestic routes. Outbound travel is surging, with India’s international spending projected to reach $55.4 Bn by 2034. Travellers are no longer deal-hunters but seeking boutique hotels, curated experiences and offbeat destinations. Or think of compact SUVs with hybrid engines and advanced safety features. 

Data reveals that SUV sales grew by 140% during 2019-January 2024 against a 20% rise in passenger vehicle sales. Understandably, people purchased them more because they offered superior value, combining fuel efficiency, cutting-edge technology and enhanced safety in a practical package.

Herein lies the crux. Building formidable brands in a world of conscious consumers not merely chasing the exclusivity of high price tags – is no easy feat. As for consumer VCs like Rukam Capital, the ultimate ‘strategy black box’ leading to early stage funding and a healthy return on investment remains complicated due to the market shifts and a lack of benchmarking. 

When one is betting on new trends and brand new consumer startups, elaborate sourcing and commercial due diligence is hardly as adequate as they are for funding late stage (and more established) entities.

Diving Deep Into Micro-Trends Help

 VC players go all out to make their portfolios resilient against market shifts. But for Archana Jahagirdar, Rukam Capital’s founder and managing director, what matters most is a fine-grained analysis of every transition and trend. “For instance, we know that discretionary spending is rising, but value-for-money is the mantra for essential purchases. Consumers are willing to pay a premium for BPC, travel and dining, but when it comes to staples, they expect both quality and cost efficiency. The message is clear – premium is acceptable, but pretence is not.”

However, she notices a quiet transformation in the way the Indian middle class spends on non-food items, be it clothes, footwear, leisure or conveyance. “They are not splurging. They are upgrading to products that offer tangible benefits. It is not about spending more; it is about spending smarter. Call it premiumisation lite or value-conscious aspiration, but this shift is reshaping industries in ways that cannot be ignored.”

Market narratives prove her point. In the BPC space, brands like Pilgrim and Minimalist are recording strong sales not because they are the top luxury brands everyone wants to own. The secret sauce lies in their science-backed skincare offerings at aspirational yet affordable price points, which hit the sweet spot of Indian consumers. The same applies to many cost-conscious healthy snack brands, proving that trust, transparency and smartly positioned private labels can capture a big chunk of consumer spending.

As the market bifurcation grows, VCs like Rukam Capital try to decode all dynamic trends and their multiple challenges to build a balanced and profitable portfolio. A nuanced approach is critical to cater to a multi-dimensional market, says Jahagirdar. Premiumisation is required for those trading up, while mass-market benefits must appeal to value-driven but price-conscious buyers.

A Close Look At Rukam’s Premiumisation Initiative 

Luxury is no longer about excess but seamless access to what the world prefers and practises. Neither is it about massive out-of-pocket spending, thanks to innovative fintech solutions such as BNPL (buy now pay later) subscription plans and flexible financing. In fact, more than 40% of discretionary purchases involve some form of digital credit. Therefore, it is more about a mindset without which the rise of premium brands beyond the metros would not have been possible. 

“Confidence in premium spending stems from overall economic well-being and belief that the economy is set for further growth. People breathe easier when their earning potential is not capped, and financial stability helps shift their focus beyond survival and cautious saving,” observed Jahagirdar.

Now that India is projected to emerge as the second-largest consumer market by 2030, fuelled by significant income growth and an estimated 46% expansion, the buying power of Indian households will continue to climb, and the premiumisation of consumer goods may soon become the new normal. However, Rukam has identified yet another reason behind growing consumer spending. 

Post-Covid, consumer-brand interactions have shifted from transactional to experiential. People are moving beyond value-for-money to emotional and ideological connections, and sales depend a lot on big-time brand loyalty. The pandemic era’s doomsday outlook – why save for tomorrow – has shifted to a more optimistic view of abundance (why save for tomorrow when there is plenty to go around). Globally, this trend is clear and irreversible – people are now willing to spend more.

“As investors, we can recognise this change [a rise in experience-focussed spending]; we are part of this change. Startups, too, can benefit from this shift as they swiftly redesign their offerings. However, large companies struggle to cope with these changes and challenges,” said Jahagirdar.        

Nevertheless, there is a catch. The major consumer segments – baby boomers, millennials and Gen Z – are anything but frivolous. As Dirk Van de Put, chairman and CEO of Mondelēz International, rightly pointed out at the 2023 Consumer Goods Forum’s Global Summit, consumers will lose interest if brands continue to charge a premium without offering added value. 

The Rukam founder concurred. “Several industries are primed for premiumisation as consumers seek better quality, greater transparency and lifestyle upgrades [think of food, BPC, healthcare and wellness]. While the consumer is ready to spend, brands can’t be lazy and take things for granted. Only those offering a real, compelling value are going to succeed.”

 

Meanwhile, Rukam Capital has strategically invested in premium and mass-market brands, creating a balanced portfolio to weather market volatility. As premiumisation is no longer just a market trend but a long-term shift in consumer behaviour, approximately 30-35% of Rukam’s investments are in niche brands, while 65-70% include aspirational and high-quality mass-market businesses. Central to its investment thesis is an emphasis on omnichannel D2C brands, reducing reliance on any single sales channel.

“Our positioning across segments allows us to leverage high-growth opportunities and resilience in demand. However, our portfolio gravitates toward aspirational brands that resonate with evolving consumer preferences,” added Jahagirdar.

Sustainable margins and strong retention metrics are also pivotal in Rukam’s investment criteria, and there is a keen interest in brands gaining early traction in metros and Tier I and II cities. 

“Our premium brands have seen 2.5–3x revenue growth over three years, with gross margins consistently surpassing 50%. Although mass-market brands acquire customers more quickly, they operate on thinner margins, typically 20-30%, making profitability a longer-term play,” the founder said.

Premium Vs Mass Market: Which One Struggles More In India And How VCs Cope

For venture capitalists, the challenge of building a premium brand becomes even more pronounced due to their unique market dynamics. Premium brands with a smaller addressable market require highly targeted, niche marketing strategies for customer acquisition, and the CAC often skyrockets.

  “The sales volume for premium brands is significantly lower than mass-market products. However, brands led by the right founders can ensure better customer retention, higher margins and long-term loyalty, making them attractive to VCs who are in it for the long haul,” explained Jahagirdar. 

There are many roadblocks to profitability, including long customer acquisition cycles, high customer acquisition costs, scalability limitations, and a general lack of awareness regarding niche products – factors that early-stage investors must consider. 

Scaling a premium/luxury brand in India’s Tier-II and III cities is another major hurdle that slows segment growth. However, brands offering affordable luxury (more on that later) are navigating this challenge by targeting a larger pool of middle-market consumers. 

On the other hand, mass-market brands benefit from several key advantages. Thanks to a large customer base, they can scale more quickly, often without a robust brand narrative. The broader target audience leads to lower CAC, and their ability to generate organic growth translates into sales that are usually difficult to match. It also allows mass-market players to build momentum more rapidly, even without the deep brand loyalty seen in the premium segment. 

 

The trade-off? Margins, of course. Premium brands typically yield higher ROI in the long term, driven by strong brand loyalty, repeat purchases and superior margins. In contrast, mass-market players often experience rapid initial growth due to their broader reach and bigger customer base. But given their low margins, they are always at a price war with competitors.

According to the founder, both segments have long-term potential, buxxt Rukam has a differentiated approach to maximise growth. For instance, it wants to back premium brands that can scale beyond metros and scours for mass-market brands with quality differentiation, particularly in high-growth sectors like health and personal care. 

“We see the Indian market maturing to the point where premium and mass-market brands can coexist and complement each other rather than competing,” she said.

Will Affordable Luxury Define The Future Of Consumer Markets? 

Over the next decade, the Indian economy is poised for unprecedented growth that may exceed all projections. Powered by a young demographic, rising disposable incomes, healthy consumer demand and stable government policies, the country is primed for a wave of mid-tier premium brands catering to discerning consumers. Understandably, these brands are not targeting the true-blue luxury market. Yet, they keep up the perception of luxury through differentiated products and keep their prices a notch above the mass market (after all, price is positioning, says Blair Enns). These products are not exclusive or overpriced but gain traction from aspirational buyers from Tier II and III cities.

That is affordable luxury, a segment that makes people feel good about buying something worthwhile minus the exorbitant pricing and makes premium consumption more accessible. A luxury car company can do it by introducing a smaller model with fewer features. Or there can be luxury-inspired product lines delivering a premium experience at a fraction of the cost charged by global peers. Brands like Pilgrim are doing that and getting good business. They also present a compelling investment opportunity for consumer VCs like Rukam Capital.  

“For venture firms, affordable luxury provides a scalable investment model. It offers higher margins than mass-market brands but a larger audience than ultra-premium segments,” said Jahagirdar.

 Meanwhile, the market for organic, clean-labelled and health-and-wellness-focussed products is expanding across mass and premium segments. The future, however, belongs to those who can blend price, quality and fast access.

 Again, adding the latest technologies to this evolving mix is mandatory for success. Premium brands increasingly leverage AI/ML to deliver hyper-personalised shopping experiences while digital-first D2C brands continue to scale rapidly, outpacing traditional retail. Not to be outdone, mass-market brands are also harnessing innovations to enable sophisticated data analytics and smart logistics to reduce costs and improve operational efficiency. 

Rukam Capital is closely watching this space, investing in brands that balance pricing, quality and scalability. The VC firm’s strategy is clear: Support startups aligning with India’s evolving consumer aspirations through premiumisation and smart mass-market positioning. As the Indian economy expands, so does its consumer sophistication. Brands that master this dual dynamics will shape the next decade of Indian retail.