GDP 2: Supply chain of a Television, a case study

Continued from 1. GDP 1: A look into World’s GDP until now

Making a television!

Let’s take an example: a television. A television is made from many minerals[i]. Usually plastics or aluminium make the most weight in a television amongst the hundreds of minerals used in it. To simplify the imagination, let’s assume that the whole television is made out of just one mineral – Aluminium. Aluminium is the second-most abundant metallic element in Earth’s crust [ii]after silicon. It makes to about 8 percent of the Earth’s crust by weight. It is found in Bauxite, a sedimentary rock with relatively high aluminium content. It is the world’s main source of aluminium and contains only 30–60% aluminium oxide.

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Figure 6: [iii]Bauxite with US Penny for Comparison

The aluminium oxide must be purified before it can be refined to aluminium metal. To process aluminium existing in it’s natural form into an usable form, it takes in reality many companies. This sequence of companies with each company processing one or more steps and handing over to the next company is called supply chain. A simplified supply chain for Aluminium processing can looks like in the following paragraph.

Supply chain of Aluminium[iv]

Company 1 establishes in the market as an Aluminium extractor. It employs labour and uses machines to mine bauxite. The bauxite is refined to white powder called Alumina and sold to an Aluminium smelter, the Company 2.

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Figure 7 & Figure 8

Company 2 uses energy to heat up the ore to extract its metal. Some two tonnes of alumina are needed to produce one tonne of aluminium through an electrolytic process. A smelter gives out Aluminium as slabs.

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Figure 9

Slabs are transported to a Casting company 3 which cuts it to billets that are convenient for storage and shipping.

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Figure 10

Company 4 then buys these billets, extrudes and stretches it to flat plates and sells it to Company 5 which cuts it into size and polishes the surface. The manufacturer of products which we use in daily life is the company 6 – a television manufacturer in our case, who usually places orders to Company 5. They explain the shape and size of their need in the product, and company 5 prepares them accordingly. The television manufacturer assembles it into their final product and hands it over to a distributor or showroom company 7 which takes the product to the end user who is you and me.

Sample Scenario

Each company on the supply chain, if they would increase the volume of production, they will earn more money as long as there are takers. Increase in money with all the companies in the chain means that the government can also make lots of money by taxing them. For an interested government to multiply their wealth, the only problem in the puzzle is that in the end of the supply chain, there will be too many televisions coming out. If no one buys it, the company 7 will not earn money and it will not make orders to company 6, company 6 will not order from 5 and so on till the company 1. Either the factories will be shutdown and workers will lose all their jobs or if they should continue to produce, there will be humongous unsold inventory of aluminium somewhere along the chain. In such a case, the Government cannot risk to lose too many jobs, else it will have to support the people from its own pocket. The solution to avoid this loss would be to have more and more televisions get sold in the market. The government, to motivate the people to buy television, can give tax benefit to company 6 to make sure that the televisions could be produced and sold in the market for a cheaper price. The government would also support company 6 to come up with more innovative products provided they have better acceptance in the market than televisions. With support for funding or subsidies, Company 6 then will invest a lot in Research and development and simultaneously they could also hire the topmost celebrity to endorse their products.

You as the consumer

Given their investments to drive innovation, the company 6 will manage to release a new product successively every few months or years. Their product catalogue will add a tablet, a play station and a smart TV. You, your wife and kid would see people around starting to buy them, having benefits and fun with the devices and now you might also want to have them. Your doctor will want to have those devices too and will start to increase the bill to the patients. Likewise your kid’s teachers and other service providers will slowly increase their bills too. Because of the higher bills that you will have to pay for your services, your budget will increasingly start to hurt and at the same time you want the devices too. Every year your salary will have increased due to your performance and you would even get an additional bonus from the company. Still this wouldn’t be enough. When more people will get into this trouble, things will escalate and will necessitate the government to interfere in the process. The government already had reduced the taxes for the company before and now it will have to support the consumers and get them these benefits. It will then set a minimum wage to increase the wallets of people so that they can also add these products to their lifestyle. You will start to receive a higher salary. The people who did not get a raise, will quit their job and take a second job by negotiating a higher salary at the first place. With successive increase in salaries, you would have bought a tablet for your wife. Two years later, you would have saved up more money and got a play station for your kid. Soon enough with successive increments in your salary, you would buy a smart TV and you would even get a second television to yourself too as your old one had started to perform slow. The common point in all those products is that all of it has aluminium. With increase in sale of televisions and the new innovations, more and more Aluminium got to be produced.  Although the products could last for 10 years, every new product got increasingly attractive, that the consumers will choose to dispose the old ones and replace it with new ones every couple of years. The new products will have aluminium too and in this way we as active consumers will be driving the whole supply chain upstream till the company 1!

You as the worker!

Now the twist in the story! In reality you are not just the consumer, you are likely to be a worker in one such industry too!. Every time you or the labour union has been asking for more wages, the industry gave it. In our example, as the Aluminium industry was thriving, the government was able to set a minimum wage and ask the companies to increase the wage of their employees. The companies were able to afford, as consumers were increasing willing to buy televisions and other products which had Aluminium.  The sample scenario above considered, for the sake of discussion, just one mineral in the product, while in reality we have multiple minerals in any product. In 2018, just the world aluminium industry directly employed about a million people and indirectly supported 5 million jobs. This is just for one mineral. Take all the minerals in the world; it could cover over 22% of the total employments in the world. Taking this supply chain as a reference and drawing parallel to what happened in the 1950s, world governments decided with every consecutive year to drive mineral extraction as much as possible. It earned money through Income tax from the company, Income tax from you as a worker and Sales tax from you as a consumer too. Because televisions and other innovative products were produced in humongous quantities, the government decided to export them and earned even a lot from selling to the foreign markets! The market thrived and there was more and more money getting generated. Households got increasingly filled with diverse products. This never-ending cycle is the phenomenon called consumerism: a market where there is no regulation or limits on how much a consumer can buy!

To be continued … 3. Rise of consumerism

References:

[i] http://www.answers.com/Q/What_metals_are_used_in_a_television_set

[ii] https://www.livescience.com/28865-aluminum.html

[iii] https://en.wikipedia.org/wiki/Bauxite

[iv] https://www.aluminiumleader.com/economics/how_aluminium_market_works/

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Consumer of the future 3: Kids of Today: Markets F & G

Continued from Consumer 2: The classic markets A to E: my generation

Evolution of smartphones and associated behavioural patterns:

I was doing my bachelors between 2005 and 2009. My parents bought me my first ever phone in my third year bachelors – 2008. It was a simple Nokia phone with a touch pad and a bigger screen. It was at this point of time, Sony Ericsson had made a bigger impact in the market with their large display and compact phones. Then came blackberry and with its ultra compact keyboard. It was also one of the first phones which made social networking possible on phone. Any further launch just enhanced this feature. There was also a simultaneous movement to get the size of a laptop reduced. A Tablet got launched. A tablet combined the advantage of a blackberry and a laptop. Then year by year, there was an intense competition on getting its size reduced. The outcome of this was when finally in 2007, the first ever smartphone got launched in the market: Apple Iphone 1. It was a first kind of compact computer which can be inserted in the pockets. Soon enough Android phone got launched, but they got wider adoption and market dominance only by 2012. In 2019 now, we already have the IPhone 10Xs. If we take IPhone as the reference, the growth of this industry was simply at rocket speed. With ten upgrades in just 10 years, the duration that one upgrade lasted was just a year. Comparing to the examples in the previous blog post, these companies cannot have longevity of the product in their brand promise anymore. The speed of innovation necessitated that the companies launched their products faster than their competitors to win the market. Consumers were able to keep up to the latest technologies, but the financial commitment expected from them does not make sense in terms of the longevity of the product. If the consumer will stick to IPhone 1 for its lifetime of e.g 10 years, there would be no takers for IPhone 2 or any of its follow-ups. This was the marketing success of the Apple and the other smartphone manufacturers, despite the credible speculations that smartphones were inherently programmed to die in 2 years.  For users to constantly buy the product, the advertising campaign focused on other subjective aspects as status symbol, being cool, being upgraded and of course getting to use their latest technology. Users grasped to such an extent that they were ready to open their wallets anytime the company would ask for!

Personal marketing

Smartphone introduced two things. First it made the screens personal. Contrary to that one TV per street or one newspaper per household, now each of the 15 persons in the household have their own personal screens where companies can talk to you one on one. Off from generic advertisements, it gave the opportunity for marketing to be personalized. By marketing, it was not just about ads on the screen, it was also about social networking: Facebook, Whatsapp, Instagram, Pinterest etc… They are even bigger in terms of peer advertising. The selfies our friends make with their new fashion release from Zara, or the new Samsung edge or with their new TATA car is also form of advertising for the companies from your peers. You are likely to purchase a Samsung edge because your friend recommends it than recommended from a random ad on the sides. Marketing was getting wildly personal. These days, if you should click the “like” button for your friend with his new Samsung edge, you automatically start to get ads for the same phone on the sides. Basically your use pattern in your phone is also used by the companies in getting to know you and to send you more personal ads. With so many new products and new innovative features being released in the market, a marketing expert can easily say that you are likely to buy this product based on your past behaviour! Off from this personal marketing, smartphones also captured a second thing too – the consumer’s time!

Your time!

Just few decades ago in 1980s, the market was shifting from one screen per street to one screen per household. The notion of marketing was different too. There was a classic marketing with posters on the wall, peer marketing if you should see a product physically at someone’s home and word of mouth. Advertisements in newspapers and magazines were available too. TV marketing had just begun. It was more an indirect advertising on the TV i.e. the clothes that a movie star would wear or the items that were used by the characters in the movie. Video ads also slowly made way into the market, when Doordarshan, India’s national channel had upgraded its status to national broadcaster in 1982. Until then it had series of experimental programmes telecasted on smaller scale from 1959. Doordarshan in the initial years had just a few programmes per week. TV Channel got the grey screen, If I remember right, after 8PM. Overall, including newspaper and Doordarshan, the time spent on media was less than one hour per day. Media gave three items: productive information, entertainment and ads on products. On top the ads, there was also an indirect awareness of the latest trends in the market – the clothes a movie start would wear. I remember pestering my mom for a certain eye glasses that my favourite star Vijay was wearing in the movie “Love today”. Considering such influences, my experience would judge that the media used 10% of the consumer’s time in making them aware of some product. In one hour, this 10% was just 6 minutes which was used to sell a product. Rest of the 54 minutes went into some productive information and entertainment.

With inception of Internet and social network which was adopted mainly by the new generation, the total exposure per day on desktop computer, in my case, increased to about 6 hours. Meanwhile the exposure of my parents also increased to the same level as TV also started making a high impact. It was the same 6 hours, but just the type of media was different. My parents had increased exposure to generic advertisements on the TV and newspapers and meanwhile my time got higher exposure in Peer marketing due to Orkut, the predecessor of Google plus, and Facebook. Further introduction of Laptops and tablets did not change this scenario much until the first smartphone made its way to the consumers in the household. Smartphone made it possible that the user is by default available all the time to the seller and for the seller it was just about making the right ad to get the attention. There are many apps in my android today which oversees smartphone usage and which apps are being used to what extent. The 10% number which I had estimated for the awareness time for the consumer would now span to above 90%. Only 10% or less of the usage is really bringing something productive for the user in terms of information. Entertainment, peer marketing through social networking and direct marketing has consumed the rest of the time. Internet and TV got the usage upto 6 hours and now that smartphone made it above 15 hours easily. Even our average sleep time has got reduced. If I take 6 hours as a standard time for sleeping, smartphone is available in the background for all the 18 hours! In reality it does not mean that we are constantly staring at the smartphone for 18 hours. I use Smartphone for 30 min before I go to work. I listen to the radio for 30 min while im in the car both ways, I have my computer active at work for 10 hours in which I’m using it for a minimum of 6 hours, coming back home I use my smartphone for about an hour and watch TV or listen to a podcast for 2 more hours. The collective direct exposure is 9 hours out the 18 hours I’m awake. Of which my productive usage would be about 30% i.e. reading news, communicating to someone or active working. In the rest 70%, peer marketing and indirect marketing is turned up to the full and classic marketing has taken a backstage. For the rest of the 9 hours, where we are not actively using the phone, the scary part is that we are at its service!

Market F

This 9 hour collective usage is also not one single usage at a stretch, where we can resort to something without its presence for the other 9 hours. It can vibrate, ring or blink and we are immediately at service or we ourselves have the itch to check from time to time if there is new information waiting for us. Addictive quotient in making us not avoid its usage was also one of the biggest successes from the marketing perspective. Addiction was a prevalent topic in the gaming world, but how the social networks managed to bring it to the non-gamers in form of “Scrolling” was impeccable. Empty scrolling for hours and receiving constant peer information has grown into a personal habit, favouring the sellers. I read about some new guidelines which defined any usage more than 5.5 hours on a smartphone can be termed as addiction. In my perspective, I would look at the collective usage too. This personalized “constantly on the hook” marketing is the Market F! Back to our tooth-powder example, Market F managed to install an automatic order chip at our home, where the consumption and ordering of dental products happen by itself automatically.

Market G

At the time when I was thinking that Market F is the most aggressive version of marketing or in other words when I was suspecting if there could be a Market G, I was proved wrong when I saw a 8 year old kid who liked toys from a brand called “Top Model”. Market A to C is the shift which transitioned the products from the generation of my parents to my generation and beginning from the Market F is the transition to the next generation. Market A to F, had one basic assumption where a consumer had requirements and wishes taught by the parents, school, family and friends. These markets tried to cater to their requirements and simultaneously made them aware of as many world products as possible and got access to their wallets. The evolution from Market A to F also changed the definition of a consumer. From a market serving a joint family, the latest market considers each person as a market! Each person is a market! Meanwhile Market G begins with a generation, where information fed to the kid from the media will be as much as or higher than that of the teachings from the parents, school, family and friends put together. In a way, the consumers of the market G are groomed by the market itself as soon as their senses start to work. An eight year old kid looking at the “Top Model” cover picture is conveyed that she needs to be slim, wear tight pants, have well styled hair, have puffed up lips, wear lip stick, apply makeup, wear glitzy t-shit and sneakers. All of this combined, at the time when my wife is about to give birth to a kid in a few months, had put me under distress in thinking what can I do to my kid about this. What should my wife and I teach this next gen kid?

My grandma was an all-rounder in the household. For the woman of the 50’s to 80’s generation, she knew tailoring, she knew cooking, she knew how to prepare her own ingredients, she knew how to keep the home clean and decorate it, she knew hospitality, she knew how to entertain herself, she knew singing, she knew dancing, she had friends, she played with them, she knew how to read astrology, she knew nature and this list can go on long. Thanks to this topic, I developed a completely new respect to her and her peers. Now one device has replaced almost all of these activities and is increasingly covering more. On how the kid will interact with other people and moreover how the kid will get to appreciate nature: this is a bigger threat. She can theoretically be left with this one device in a room and with access to finances, the device will completely take care of her. The demarcation between her basic requirements and wishes will blur and her wishes might not be her wishes at all. One thing is for sure and my only hope to save the kid from this misery is to teach her finances. Sticking to the basics, all this drama is just for the wallet! If I can teach her how to save money from the beginning no matter what and if she gets to learn that all these antics are just distracting her in making her wear the hook, she will lift her head up and live the present!

My grandma’s generation knew how things worked and the next gen kid of Market G should know financial planning!

—-fin—-

Market H?

It’s hard to say which direction the world will go to. Some random thoughts which occur to me are.

  • System will have to crash at some point of time. An economic recession of heavy nature will happen when world credit will cross a certain threshold or supply of resources will reach a saturation point due to over consumption; personal finances will take a big dent. Governments will have to chip in to save the economic downturn or health of the audience.

  • Virtual reality or alternative reality experiences will be the next immediate step. Connection to the reality will blur. The new reality will have interactive advertisements in a virtual 3D room. You talking to a seductive man or woman in that virtual environment will initiate some sort of purchase in the real world.

  • First world will get f**ked sooner or later, with its people taken care by the government. The manpower will come from the third world. The bias between an active workforce and technology slaves will be strong. There will be moral dilemma on which mode earns a better status symbol – lost in alternative reality or being conscious in a workforce. Companies might have to install jammers of different kind to keep their workforce active. Robots and AI might even reduce the need for workforce. Jobs of the future will be for people who have understanding towards the electrical and mechanical world. Programmers will be high demand. Doctors, Strategy makers, managers, Technical programmers, mechatronicers, lawyers, designers could be some of the jobs of the future.

  • Minimalism and all products are computers – TV, phone, laptop or tablet

History says one thing again and again: “Don’t let a salesman in your home” (E.g. this statement is a simplified version of the British occupation of India)

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Consumer of the future 2: The classic Markets A to E: my generation

Continued from previous post 1. Life couple of generation ago

Market A

As you saw in the lifestyle of the times of my grandma, the expenses catered purely to the minimal requirements which couldn’t be managed inside the house. The first terminology to describe this basic setup is “Market A”. (I would use diverse terminologies in the following section to show you how the market evolved. Please note that these are my own picks and not from any other source). Where a government couldn’t support the population with employment opportunities, it was this joint family system which held the whole structure from crashing down. Sharing was the basis for such economy and savings was the only way which could rescue a family in case of any mishap. Please note here that I’m not using the word “person” rather “family”. For this “Market A”, a person would always be addressed in a “collective” sense. So selling a product to such a person would be bought only if it made sense to the whole household, especially the women who will mostly be the users of the products. This mindset exists even today and can be seen with the Indian ad’s where they typically try to sell a product to a woman, even sometimes if it’s a product for the kid or the man of the house. Of such private produced products, the ones which made way in the initial years into the house were tooth cleaning powder. With this powder as an example, the evolution into further market types are described below, which then gradually in the end will tend to understand the consumer of the future. Products like tooth powder were the transitional products which led to a “Market B” which tried to ease the effort of running a joint family household.

Market B

Before arrival of tooth paste and a brush, south Indians used the branch of a lemon tree to cleanse the teeth and which was also not an easy thing to use. Convincing people to move from such a habit which had been in practice over decades and making them buy a brush was a humongous task. Instead of one simple branch, it’s normal that there was inertia to buy two products – a paste and brush – to do the same job! It felt as an expensive plastic alternative for a simple branch which was found everywhere. But the one problem the branch had had was the ease of use. If pressed hard, sometimes the tooth would bleed hard or even break in worst case. Colgate might have used this as an anchor and introduced a powder! The powder was packed in a can with some holes on the cap. One shakes the can and releases some powder on the left palm. Using the forefinger of the right-hand as a brush, one would brush their teeth. The powder did the same task as a lemon branch and was not hard on the teeth. It was just one product and not two. Moreover, the genius part of a powder was, the usage was left to the user. A conservative user will brush with a just a meagre amount of powder and would have the sensation that the product is lasting forever!

Over years, what really got ingrained in the heads of people was the trust on the brand. “Colgate” as the company was considered to have thought something for the customer after trying to sincerely understand their problems. Later when the company introduced a tooth brush and paste, the attitude towards these products weren’t seen as an alternative for a lemon branch, because, by this time one generation later no one was using the branch anymore. What went in the people’s mind was “Our trustable Colgate released a new product which will be certainly in good intention as how they got the tooth powder for us. It will certainly be something which will make my life better”. This modus of operandi was the same with many other products. The one hidden agenda what all the products targeted was to get the household outsource their jobs and also reducing dependency on nature. For which, the first thing was to break a habit which was many decades old. First release a product which addressed their immediate problem. Change the habit and simultaneously gain the trust for the brand by maintaining consistency over years and then release the actual product which they had in mind from the beginning.  In a similar fashion to tooth powder leading to paste and brush, external tailoring eventually led way to ready-made clothes, cinemas eventually led to a Home screens, external mills led to owning a Mixer and Grinder, milkman led to packaged milk, public transportation led way to private owner vehicle, automatic and electric cars are leading way to driverless cars and so on.  Not all the products had this pattern. A Radio was government driven, the savings mindset made the sale of Fridge easier and climatic conditions easily led to an electric fan to be accepted in the market.

Market C

When one by one the products started increasing in the household, more time was available to the individual person in the household, but not all the households converted this extra time to productivity. Before they did, the TVs rushed in and held its audience hooked to the Programmes – mainly the women! Men escaped this for most part of the day, as they were working. Women population, the housewives were neither highly skilled as their mothers in nor let to work, as the man’s salary was enough to address their needs too. From the eyes of my grandma’s generation in “Market A”, it was seen that only a poor household would send their women out to work. Such mindsets did not let the women to grow in “Market B”. Amidst these superstitions and social fear, an Indian housewife of the 90’s or 2000s was nowhere close to the skills her grandmother had. That housewife still was as busy as the grandmother, as joint family concept was broken by the new market. The household which had its activities divided among more women, now had to be run by one woman. It also brought an advantage in a way that children got more attention than the previous generation. In grandma’s generation, the saying is that the children brought up by themselves. The joint family brought up all the children of the house together and not necessarily just the mom and dad. Childcare got high in that sense that the parents had more private time for the kids. Also TV domination which began in the 80s still had its strong hold. This scenario is “Market C”, which managed to change the definition of a customer from joint family to nuclear family. “Market B” sold one big tooth powder box to a whole joint family with five sub nuclear families with three people in each family. Meanwhile “Market C” sold 5 toothpaste tubes to the 5 sub nuclear families and 15 tooth brushes!

People were happy of this development as it gave them silence and got them peace from friction in a joint family setup. Although financially a joint family setup made more sense, the preference moved to individual liberation! “Market C” also infused a new habit: it decreased the inertia to buy a new product. People got trained that any new product got them liberated in some way.  This in a way drove innovation too. New products aimed not only at easing some of their existing activity, it also introduced new activities: the best example to this phenomenon was “Treadmill”. “Market C” enhanced peer pressure too. New products got bought not just for the sake of liberation, but also to catch up with a neighbour who seemed to have got a different liberation due to some newly brought product which she is proud of. “Treadmill” gained a wide acceptance in the society mainly by peer pressure. In reality it hardly got used and just either held a space or was used to dry clothes. Some or the other product of peer pressure may have been useless, but it led to an even bigger concept called “Branding!”

Market D

The advertisements still targeted women. Only transportation related advertisements and exclusive products for men like shaving cream targeted men, rest of the household products were making their focus only on women. Appealing to women, by this time, all the households got filled with products the market could sell. It felt as if the market was heading to saturation, but then, product variants started arriving just in time. My house had a TV from Solidaire Company for more than 10 years. Then word started spreading around that a new company from Japan entered the market and that they were better. Guests coming home would mock us saying on how outdated we were. Soon enough, the brand “Aiwa” made its way to our home. Please note here my conscious usage of the move from “company” to “brand”. A company makes a product. A brand shows promise. Ironically, no one knows how a “promise” is defined. Does it bring me longevity in usage? Does it make my use maintenance free? Does it hurt my wallet less? Or May the promise encompasses all these criteria together. But in reality, by the time we test the first promise, we tend to switch to a new promise from a different product. Onida might say that their TV would last for 10 years, but then the promise of “Aiwa” offered a much stronger promise, which due to peer pressure was difficult to ignore. This is “Market D” – the explosion of product variants. People received the trick called Branding! Correlating to the same example describing the other types of markets, “Market D” managed to replace the brand from “Colgate” to “Oral B” and some of the 15 brushes got even replaced with electric toothbrushes!

Colgate came back into game by introducing sub-brands. Concept of sub-brands let the company not falter when one their products should fail. Colgate had Colgate white, Colgate total, Colgate extra clean etc. If one of their products wouldn’t work, the whole company wouldn’t be blamed rather just that product series. Soon enough, this gave the company to completely disavow that series and make a new one. “Market D” also led to this concept of sub-brands which helped the company sustain its market by constantly introducing and renouncing product lines. This facilitated innovation too. Houses started to get filled with more and more products. Brands, sub-brands and product variants became enormous that no-one could keep track a new introduction to the market. Advertisements increased in their standards, as awareness more than the function of a product, brought revenues.

Monthly budget at the time of “Market D”: One big thing what worked in favour of India was the success of software industry. Money flow increased in the society and general affordability went higher. The biggest part still went to groceries and almost in the same proportions. Fresh vegetables got replaced with branded packs e.g. Reliance! The second biggest part of the salary went to the depreciation of assets or the monthly EMIs (Equated monthly installments) for diverse gadgets. Third share went to the now outsourced outdoor activities – gym memberships, swimming, karate, dance classes, singing classes etc.., Savings, if it all it existed, had the final place! Individual liberation does come at a cost!

Market E

Then came a “Market E” – its people were the new liberated generation! They were never in a joint family setup to begin with. They were less dependent on family members from birth! The gadgets which were available from the first time they opened their eyes did not give them the need to be dependent on other people! The shocking speed of all these developments was that the evolution from Market C to Market E happened within one generation. I belonged to this generation. Although Market E had many similar traits with Market D, there is one significant change. The new market spoke to my small cousins and the new budding members of the family! What made this possible and what also gives the need to differentiate Market D and E was the wider acceptance of internet and introduction of social network! Internet brought awareness on the A, B, C, D, Es of other world markets, thereby more new types of products were suddenly made available. Correlating to our tooth powder example, now “Market E” introduced Dental floss, Mouthwash, tongue scrappers, teeth whiteners etc. And social network offered the play ground to enhance peer pressure. More and more services got offered that people started choosing services not just to win the peer pressure, but also simply out of curiosity. Exponential product innovation gave them the tools to stand tall among peers. Restaurants started adopting western cuisines. An Italian meal of Rs.500 was bought without much thought, but a daily necessity of Rs.10 for rice was bargained.  My small cousin was sent for horse-riding classes in a 35°C burning hot city like Coimbatore. Coimbatore city had hardly any known arena to practice and the city itself was immensely crowded to take out the horses out on the streets. Innovation in product and services and speed of innovation blinded people from seeing their requirements. Before they understood the service, the money was already out. The monthly budget wasn’t enough anymore to afford the products. At the time, because of this lack of budget, when a second saturation in the market was about to happen, the banking industry came up with an innovative solution to make this situation profitable to themselves and get the market running too. When the customers did not have money anymore, they simply let them trade their future time to buy their product today. Higher the credit means, higher the time the person is liable or leashed to the bank. This Market E could also be said the introduction of Credit card in the market. Banking systems facilitated this consumerism and offered this electronic leash. Consumers on one side were bamboozled by what the market has to offer. The advertisements and the products themselves were so innovative on the TV and social networks that they couldn’t take the eyes of it anymore. At the same time, the banking leash to the wallet ensured that they could react to the desires and promised money flow to the sellers. The consumer’s liability to the bank increased. This was till 2010.

1

Figure 1: Market E represented in true Indian style 🙂

Continued … 3. Kids of today: Markets F & G

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Consumer of the future 1: Life couple of generations ago

Recently a colleague had invited my wife and I for a brunch. He has two kids. One is eight and the other is two. I asked him on what I could buy for his kid. He refused, but I insisted. Then he said that there is a brand called “Top Model” which his eight year old kid and her friends in the class are crazy about. He said, any item will work as long as it’s “Top Model”. My wife went to Galeria Kaufhof in Heidelberg in the kid’s section. She was shocked at the assortment of goodies this brand had for the kids. All were glitzy and overpriced! She bought a slam book which had picture of three girls in early teens on it. Until I was 15 years old, I had no clue what a slam book was and now the current generation seems to be knowing “urban dictionary” terminologies already from birth. On one side you have the parent’s wallet getting a dent and the other side I had a shock on what these three girls, the picture was conveying: body fit clothes, puffed up lips, rosy cheeks, elaborately made up hair, slim figure, big bust etc… I was discussing this with a friend. He had a totally valid third shock over the brand “Top Model” itself. He exclaimed “How the hell does a eight year old has a grasp of branding?” The 90’s kids group I was, I can’t point to a single point of time, when I understood or started demanding a product based on a brand, but certainly not this young! Brand insistence came much later in the market. This discussion was the baseline which got me into this topic: an analysis on the consumer of future.

I would like to capture the life times of my Grandmother and my mother in the first part, for the readers, especially if there is a new-gen accidentally reading my blog. This is to give them a reference point on how the market they are living in today in 2018 evolved.


The setup is an Indian neighbourhood from 1950’s to about 1990’s, after which the digital life slowly but exponentially changed the dynamics to what we have today in 2018. I belong to this generation, which I would like to call as the “Transition” generation. My wife, my friends and I have lived in an Analog time, where getting what we want, even a simple thing like watching a TV, was a process. The antenna might not work or the wind might have turned the Antenna to a different direction. One person, usually I, had to climb the roof and shout to mom below saying “Okva?” (“Is it ok?” as in “do you receive the signal?”). This “Okva” question and she replying back “Illa! (No!) can go on for 15 minutes, until finally the right position of the Antenna makes the channel work. Mom will then shout back “Sari, keela va” (Good, come down now!). Once down, the process is not over yet as few more adjustments have to made to make the picture clearer. I have to plug out the cable from the TV socket. Unscrew and unwind the copper wire. I might even have to cut the cable further and take in fresh copper wire for the connection. Screw it to the pin and plug it in. The same life in today’s digital time is where I can talk to an empty room and the TV switches on automatically: I meant “Alexa! Can you switch on the TV?”

Applying this enjoyable struggle to the generation of my mom or grandma, their life would be as described in the following paragraphs. This is not an exact depiction, but it will give you a basic idea. Until 1990’s the living was usually in a joint family setup. The concept of a person was always addressed in a collective sense i.e. in the context of a family. There was a strict division of roles between men and women. The ladies of the house have to wake up first. Each lady will have their own duty. The first one goes to the house entrance and cleans the part of the road in front of the house. It’s swept with a broom and wet washed with water and cow dung. She makes an art called “Kolam” with colourful powders. The point of this activity is to indicate a guest coming to the home that the inmates are ready to receive them. The second lady goes to the cowshed and milks a litre in an aluminium can. She then has to pat the cows and feed them with hay. She addresses the cows with their names, as they are also considered as part of the family too. In houses where Egg-vegetarian food is eaten, eggs would be collected from the chicken too. My household had 5 ladies and my grandma’s household had more than ten. The rest of the ladies would begin setting the kitchen. Two people would collect the fuel for the stove from the backyard where the men of the house would have stacked up the dried coconut tree rests. Once collected, they pile them up to a foot high, pour a bit of fuel on it and light it up. By this time, the rest of the team would have gotten their ingredients ready. At 6AM the vegetable seller would visit every home with a push cart and bring fresh stuff from the farmers. The ladies wait in front of the homes for him to arrive. They argue with the seller to make the best picks and buy the stuff for the day’s cooking. Over time, the seller understanding the needs would have already pre-sorted them on a bamboo basket. It will just be simple exchange of money and basket. Sometimes, if the ladies wouldn’t make it on time, he would even take the effort to knock on the door, deliver and offers to take money later too. Same applies to the milkman who delivers milk to houses who don’t have their own cows.

All the ingredients, the freshest they could get, would be piled up on a mat for the morning meal. Each of them would be cut or ground or sliced or chopped as per the need. The head cook is usually the eldest or one of the ladies who has gained reputation in the family for her taste. In my grandma’s case, it was her youngest sister. The stove made from burning the coconut rest in a clay frame gets very hot and very fast. There is just one big flame and once the bowl is placed on the clay frame, it gets cooked in seconds or few minutes. Therefore, everything is pre-mixed in the bowl already, such that the heat simply finishes the cooking. There was hardly any step by step processing. By 7.30 AM, the meal is ready and served on banana leaves. The men of the house and the children would line up and sit on a bamboo mat unrolled on the floor in the common room. The men would have gotten up my 06:00 AM, done a bit of exercise by lifting heavy wooden logs, read the newspaper which also gets thrown into the house by a paper boy, then have finished taking bath by the side of the well by pulleying up the water, dress up the clothes ironed by the ladies the previous day and finally they are ready to eat and leave out for the day.

The kitchen ladies are dedicated to their job. They would have to repeat their job in cycles for the other two meals and one snack time too. They would take bath after the men are gone to work. Ladies from other houses visit each other after 10AM and they exchange gossips over board games. The working class, majority being men, usually work in government, school or agriculture. There were hardly private establishments. There were landowners, workers, clerks, teachers, journalists and shop owners employing a handful. Educated jobs like doctors, engineers, lawyers and professors were few and were highly respected. Their work will span till 19:00 PM, but with ample breaks for them to visit home for meal time and even may be take a short afternoon nap. In the evening, the men would visit each other in bakeries and discuss daily politics of the state on tea benches. Depending on the profession, some men meet at bakeries in the morning to read the newspapers together with other men too.

Children had to wear uniform for the school. Like then, it’s still a rule in most Indian schools to have identical looks for the children to avoid discrimination by looks. They pack their books and notebooks in the school bag the previous day before they go to sleep. When they wake the next morning, they would be herded up by the women, given bath and prepared for the school and be given with their school bag and a lunch bag. Depending on the school’s facilities, they might have benches to sit or the students would simply sit on the floor. The teacher reads out aloud and writes notes on a blackboard for children to copy to their notebooks. In 8 hours of school, they would be let to play on the ground for an hour with the other children. Cricket, hide and seek, football, badminton, throw ball and other games needing bodily effort for outdoor sports or chess and carom for indoors. For outdoor sports, for a longer period of time, the children would play barefoot on sand.

What did this life mean to them financially?

As many people lived under one big roof, either the house would usually be an asset which was passed down the generations or the many men of the family would split their costs in renting a big house. All the men handed over their monthly earnings to the eldest person in the family, which was usually a woman. She would then use the money for all common expenses which includes food and clothing too. For clothes, the women went to the textile market and bought one long piece of fabric in few colours. One or two of the women would also be skilled in tailoring. They would stitch clothes for all the persons in the family once a year. For furnitures, the flooring of the house was prepared in a way for easy use i.e. the floor would remain cold during hot weather. With just simple bamboo weaved mats put in use, the necessity of furniture was bare-minimal. They would be built mostly for elderly people as they wouldn’t be able to sit on the floor. Many a time it’s also built for the head of the family, in a way of symbolizing respect to their authority. Rich families usually bought wood in bulk and brought carpenters to home. The workers would stay in the home for many days and built as per requirement. The furnitures would turn out to be of such a good quality that they would last for a lifetime. Televisions came into homes only by 1970s. Till then one person in a street would have a TV and programs would be telecasted once a week – Doordarshan. The whole street would assemble at this house. By 1980’s and 1990’s there would be a TV for one joint family. Before that entertainment was usually group games, board games, newspapers or outdoor playing. With many men earning for one household, the only biggest part of the budget was just ingredients for the meals. Schools and transportation were government subsidized and were cheap. The concept of food as preventive medicine ensured healthy diets and thereby less need for medicines. Services like ironing, tailoring, cooking, preparing ingredients and even simple medicines were all made inhouse. Also such activities needed just a onetime investment in the gadgets and hardly any replacement. They were all of the mechanical type. Electrical gadgets came in much later. The knowledge of one household, especially the woman was humongous. The man was street smart and the woman was house smart! Any service which needed an external person would soon enough be learnt internally to cut down those additional costs. My grandma learnt to read Astrology to save costs for an astrologer! With major expenses going for food, this setup made it possible to allocate the second significant part of the budget to savings! Rest of the expenses were cut down to minimum by learning and having the costs inhouse. Only costs for the material remained. Machines were mechanical and labour was all inhouse. All those savings either moved as inheritance or ironically would be used as dowry for the woman in the house when getting her married off. This also meant that the son in the household had higher value as he brought dowry into the home. Considering what the women in household are capable of, the expectation on the skills of new daughter-in-law entering the household was significantly high!

To be Continued … 2. The Classic Markets A to E: my generation

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GDP: 1. A look into World’s GDP until now

Abstract

The thought for this article struck when I was writing a blog post on “Consumer of the future”. There I had made an observation on how within just a few decades, the number of household products had a humongous increase until now in 2018. Extrapolating this thought on a global scale and trying to understand what this would mean to the global economy necessitated to look into the growth of world GDP over years. My assumption was that with increase in products at the consumer side, the whole supply chain upstream should have made a profit and thereby the numbers should reflect at not just at the country level, but globally too. One information leading to the other, it led the article to make more focus on what happened to the world after 1950. It looked as if this year was the tipping point to the global increase in consumerism. That this economic rise occurred right after the world wars was a very logical, as world wars facilitated rapid innovation and thereby access to sophisticated technologies. USA, being the forerunner among the allied forces, had the whole situation favorable to it. Combining this technological boost from the world wars to what when humans find a new resource, this article is just a look back on how fast such resources were found and capitalized. More importantly it tries to make focus on understanding the side effects this economic swelling caused and what the world governments have to watch out for human sustenance in the immediate and the far future!

Story of GDP[i]

Gross Domestic Product (GDP) in simple terms is the income of a nation.  If the salaries of every person in a nation are combined together, we would get GDP. This is a very simplified statement, but the actual calculation is very complicated. The USA is the most powerful country in the world simply because it has the highest GDP of ~$20000 billion today in 2018. The terminologies like “first world”, “developing world” and “third world” countries are derived with this number as a main input. Usually indicators on life standards, longevity etc. also will be taken into consideration, but for the sake of this discussion, just the GDP factor is considered. To analyze the numbers in detail, USA and China are taken as main examples and and other countries are also touched wherever needed.

The average GDP of the world in 2018 over 211 countries is 360 billion$. With this as the reference number, the USA had a growth from $ 367 billion in 1952 to ~$ 20000 billion in 2018, which is duration of 66 years. That is a year to year average growth rate of 3.3%[ii] from 1950. West considers China as a threat because in a very short amount of time, China’s today’s GDP of $ 12000 billion has grown from the reference value of $ 360 billion in 1990 i.e. it is having a year to year average growth rate of 9.58%[iii]. With this speed, it is expected to surpass the USA by 2026[iv] or sooner!

Speed: $1 to $80 Trillion in 100 years!

Was the USA on the throne forever to be reluctant to give up the seat? Trying to answer this question, the internet had the graph below (Figure 1) which had the answer on who were the world powers over time. Following the green patch on the graph, we can see that the USA had its start in the 18th century. With Independence from Great Britain in 1776, the economic growth within about 100 years overtook that of China and India who were dominating the world trade until then. The rise for the USA was steady, but then something happened around 1950, which this graph is not showing and it was from this time it had a meteoric rise in economy.

1

Figure 1[v]

But a second graph below (Figure 2) had the answer: The history of world GDP in absolute numbers. Unfortunately the graph had data only from 1967, but the point I wanted to make is visible here too. The actual shift began from 1950. Until 1890s regardless of who had the most percent of GDP share, the total world GDP was under $1 trillion ($ 1000 billion) [vi]. This was also the time period when second industrial revolution had just started (Figure 3). With Industry 2.0 and the drive from the world war, by 1950 the world GDP increased to $ 4000 billion. Then something should have consciously happened in 1950’s, which brought the meteoric rise in the world GDP to today’s value of ~$ 80000 billion. Figure 1 describes GDP share in percent, but it does not give the complete information. 10 cents is 10% of 1 dollar and likewise 8000 billion$ is 10% of 80000 billion $ too. Without the absolute number, percent information does not really show the size of impact as we can see below, the rise of the red lines.

2

Figure 2[vii]

Notes: Figure 1 and the commonly available information on the internet depict GDP in percent. What I needed for my discussion was absolute numbers. Somehow curiously it was very difficult to find this information. It is also important to watch out that the different representations of GDP in this article, the consistency between nominal and real GDP may not be followed through simply because of availability of data. But regardless of whichever GDP parameter is taken, I have given extra attention to attempt the right interpretation for the subject.

3

Figure 3

What could have triggered this rise of world GDP?

Quoted[viii]: “Global oil production went from about 0.1 billion barrels in 1900 to about 4.2 billion barrels in 1950′ (CounterCurrents, 2009) and since the mid to late 1950’s, oil has become the most important resource available to mankind. In this decade, oil production had just ‘exceeded 500 million tons for the first time’ (Odell, 1963) giving the annual increase in oil production at around about 7%. In 1943, the British controlled 81% of Middle Eastern oil production as compared with 14% under American control. However after World War 2, the United States was dominating oil production by having a significantly greater advance in oil production than anyone else in the world. Combined together the ‘Seven Sisters’ controlled almost 99% of world oil production

Between 1950 and 1960, oil ‘production doubled and proven reserves increased threefold’ (Odell, 1963) showing that even though technological advances were not that significant,  different types of drilling were discovered helping exploration and consumption which was rapidly expanding around the world. This was helped by the discovery of the Ghawar Oil Field just before the 1950s in Saudi Arabia which is the world’s largest oil field to date”

4

Figure 4[ix]

USA took the first step and increased production from 1950s which eventually catapulted the status of its wallet. Parallel technological advancement and ability to identify and capitalize on new resources faster favoured the rise of not just USA. Likewise many western countries had “post-war” economic miracles[x] Collectively Figure 5 shows how the use of different resources has gone on the rise.

5

Figure 5[xi]

This growth of the west was lasting into the 2000s till China entered the game and was tagged as a threat, mostly by the west, as it was the first ever country which showed a competition to the west this close after the rise in 1950s. USA is at ~$20000 billion mark at position 1 and China followed up quickly to the second position with ~$12000 billion. European Union can also be a competitor if counted as one entity: then it will have a collective GDP of ~17000 billion $.  EU is after all the father of the modern day USA i.e. all the money would be still within the “Western” family. What the west did not expect was the rise of a neighbour China. The USA can tag it as a threat, but in reality China is just another competitor. China has showed intense growth in the last decades. But how can a country decide to increase its GDP and carry it out? If China can rise so fast in 28 years, can all the other countries do so too? The story in the coming section will try to answer that question. It’s is important to understand your/ our role in the system to understand the big picture of GDP.

To be Continued … 2. Case Study: Supply chain of a Television

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References:

[i]https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

[ii]https://www.thebalance.com/us-gdp-by-year-3305543

[iii]https://tradingeconomics.com/china/gdp-growth-annual?continent=africa#calendar-table

[iv]https://www.bloomberg.com/graphics/2016-us-vs-china-economy/

[v]https://www.theatlantic.com/business/archive/2012/06/the-economic-history-of-the-last-2-000-years-in-1-little-graph/258676/

[vi]https://en.wikipedia.org/wiki/Gross_world_product

[vii]https://datainvent.org/category/microsoft-power-bi/

[viii]https://sites.google.com/site/globaloilproduction12/1950-s-oil-production

[ix]https://alternativeenergy.procon.org/view.timeline.php?timelineID=000015#1951-1999

[x]https://en.wikipedia.org/wiki/Economic_miracle

[xi]https://ourfiniteworld.com/2012/03/12/world-energy-consumption-since-1820-in-charts/

 

Electricity 2: Understanding my home: How to reduce my electricity bills?

Continued from Electricity 1: How much does a meal cost at home?

It was of a total coincidence that I got enrolled in a training on electricity. I confessed to the trainer that I’m nowhere close to the field and that he has to treat me like teaching to a Kindergartner. I told him to begin with the utter basics. In my college times, I had to learn all those symbols of resistors, capacitors etc, but my college syllabus in India did a mistake from the beginning. They began right away with advanced concepts as star networks, series and parallel connections etc. and moreover there were no hands on teaching too. All these mysterious symbols and terminologies which were taught over 6 months, by the time I had finished writing the exam, felt like being shoved down my throat. I simply shunned and consciously stayed away from anything electricity until now. A new opportunity knocked on door in a different land. My shock had subsided by this time and I considered giving it a second try. In the first class, he began with “Watt”. It was a simple beginning and I could understand as I have seen this term on many products. It’s something familiar and my mind voice said, “Yes, go ahead, I’m hearing”.

He just didn’t teach the concepts; he also made us to build simple electrical devices. The problem with electricity is that you cannot see it! Playing with such devices bettered the imagination and thereby the understanding. We were excited as we got to build like a Lego and simultaneously got to learn something which loomed like a monster years before. Learning was gradual and star networks came only after 10 classes. By this time, we had covered all the relevant basics to be able to imagine such concepts. Learning by imagination is more relevant to this field than many other. It’s a different world altogether.

Back to “Watt”, I asked him how to understand it. A bulb has 40W Rating. I saw from the bills that my electricity cost is 0.27€ per kWh. He said that if I switch on this bulb for one hour, I will use 40 Watts electricity. A bulb with 40 Watts rating means that it consumes 40 Watts power when it is used for one hour. In kilowatt hours 40 Watts mean 0.040 KWh (Divide the Watt Rating by 1000). Multiplying 0.040 with 0.27€m which is the cost of electricity for one kWh, I pay 0.0108€, which is one cent. I pay one cent Euros to use this bulb for an hour.

'Do you mind? No point wasting electricity.'
‘Do you mind? No point wasting electricity.’

This basic understanding got me excited that I went home and noted down the Watt ratings of all the electrical devices at home and together with my wife we tried to estimate how many hours per week we were using each device. I programmed a simple calculator on Excel. While I was trying to calculate the yearly consumption per device, my wife already got anxious on which device the calculator will spit out as costly. Even without seeing the numbers, for the first time, she got conscious of the usage. I think we all are normally wired that way. I never had read any Watt Ratings while purchasing and I hardly ever thought of the usage, as it’s something not visual or giving instant feedbacks like an over-heated pan. You react instantly to remove the pan from the stove, as you will feel the heat right away.

The calculator gave the results. My wife got over-worked up looking at the numbers that she wanted to unplug everything. Although we knew that washing machine and stove would end up on top of the list, we did not know that it almost cost 2€ to run them per hour. My wife was like “Do we even need to launder clothes?” I asked her back rhetorically “Do we even have to eat?” It took some time for us to cool down from the over-excitement. My wife decided then and there to make higher loads and run simpler programs to get lesser cycles. Similarly we discussed on how to cut down the usage of the top 10 items. It was a healthy and financially impacting discussion. One surprising candidate on top was kitchen bulb. I had no memory that I had bought a 70W bulb. It’s also a device which we use daily and for many hours. We decided to use it carefully. What the list also showed us was the many of the unused devices. If you had invested a lot into a product and not using it, this is the best time to resell it.

By entering your usage, Watt and cost of electricity, the analyzer will tell you your overall power consumption in a year. When I tried this tool for the first time, the result what came out and the cost of my electricity bill were two different numbers. My sheet had way higher kWh (yearly consumption) than what was actually consumed. It is not that the calculator is wrong, rather the judgement of our own measurements of usage and the real Watt needed by the device itself (see Appendix). What the sheet eventually tells you are the proportions. If a device has 12% of usage in the calculator, there are higher chances that it’s taking 12% of your final electrical bill as well. Proportions are a reliable indicator of usage. The colours in the columns show you the proportions. Below you can download the sheet to evaluate your own home. Just fill in the fields. It will hardly take few minutes. Once the sheet is ready, you can filter and sort different columns in descending order to see which device you are using the most/ least and which is costing the most/ least.

 

Click here to download the calculator: My Home

 

My yearly consumption came to above 8000 kWh, because of an old styled electric heater we have at home. It’s a heart-ache every time to see the bill. If we act on just the top 20% of the list, we can easily influence 80% of our bill. By doing this exercise, you can easily target to save 20% of your annual consumption year by year. It is about 500€ for me per year or 50€ a month! I have also pasted an Infographic from our Energy supplier EnbW which lists the recommend kWh usage per household. Check it out. Have fun. Share your thoughts and queries in the comments section below. Cheers

P.S. Unplugging idle phone chargers does save electricity, but not much. Unless your device is from decades before, you don’t have to worry. Modern devices use 1 Watt or less on Stand-by (even a TV!). That is 8.76 kWh in a year or less than 3€! Apparently TV Set-top boxes or Audio systems consume a lot on Stand-by. Watch out! Rule of thumb. Bigger the device left on Stand-by, higher the chances of consumption.

*Source: http://michaelbluejay.com/electricity/vampire.html

Watt

*Source: EnBW AG: (Language: German)

To be continued: Electricity 3: CO2 Emissions: a floor report

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Appendix: 

I felt like Tom Hanks coming back to the city in “Cast Away” when my friend showed me this link. I’m late to the game by that much, that someone already had even made a business out of it.

Arendo – Home power measuring device

You can measure the exact Watt usage with this meter. You still have to enter the usage though. uff! Thankfully at least some use to my tool. 

What’s even advanced or which made me want to hang myself was a Wifi power measuring device which you can centrally control through Alexa!!!!

TP Link – Wifi power measuring device3

Recommended Reads:

1. https://cleantechnica.com/2019/03/30/the-best-summary-of-kenya-renewable-energy-dirty-energy-you-can-find/

Electricity 1: How much does a meal cost at home?

Recently, we had to undergo a budget cut in our monthly expenses. Our household has two people, my wife and I. April and May had been horrible with many unavoidable and unforeseen expenses. We decided to look a bit into the details on where we could save money and compensate for the high expenditures. One immediate and obvious expense was eating outside. On an average we saw that we have been giving out 100€ traceable and 250€ untraceable money for eating out at restaurants or visiting cafes and bars. We decided on two things right away, one was to try to make as many expenses traceable as possible and second was to cut down on eating outside.

Easier said than done, I was hesitating to change my habit and was not convinced enough. My job came in handy. My current job teaches me to tackle world of numbers. Numbers can be intriguing and can even be haunting. It’s very easy to fall for the trap and get into an endless loop of nothingness. Such a world, the more obsessed you will become, almost looks like Neo’s vision in Matrix, but really does not bring you anything but a dizzy head. My job simply tries to put a hand in this garbage and derive something meaningful. The more we befriend the numbers and simplify the content, the more they will help us to our advantage. Therefore, I decided to convert our decision making into numbers, to see if I can derive some conviction from there. Does it make sense to replace a meal from outside to a meal at home?

Funny enough, I guess this is the beginning of adulthood. All these attempts simply mark that. How many times my mom or grandma would have shouted at us kids saying “Don’t burn the money to ashes, little demon”? (Kaasa Kariaakathada!! Saniyan!!). Finally the time has come and here I am, scratching my head on how much money could be saved from the ashes. Even before getting into the details, I could see two alarming things on eating pattern comparing my mom and grandma to mine. One was that they hardly ate outside. May be once in a month, they would unavoidably eat outside, but a planned outing was usually once in three months. This was probably the behaviour of their whole generation. In a two person household, with three meals a day, one person would have 90 meals a month or two people would have 180 meals a month. They ate all the 180 meals at home. On the contrary, if I could guess mine, I would have hardly eaten half of that at home.

Blame it on the aggressive marketing from the restaurants, celebrity endorsements to food chains, evolution of fast food, slowly the habit has grown in me, and may be with you too, that we stopped to see it as a social push and even accepted eating outside as a norm.  In my parents’ home couple of decades before, if guests would come home, offering them food from outside was seen as disrespectful. It conveyed that you did not take time for them in making them feel special i.e. the respect was not offered. For today’s standards, ignore offering home prepared food to guests, it is not surprising that if we meet our guests directly at a restaurant than inviting them home. Later we fight over the bill.  With someone else making the effort, respect has got translated to just paying.

It’s true that the contemporary relationships aren’t that formal anymore and thereby such expectations are very much relaxed too.  Combining this attitude with the opening up of the market, the acceptance of restaurant eating culture seems like the logical outcome. It will be hard debate on what came first: did the attitude change first, leading to a new market or the other way round. Let’s not get into the topic, but I think the rebelliousness of this generation is just natural. That one phase of generations (ours) could go haywire with their spending, when the previous phase of generations was very conservative. I at least tagged my mom and grandma as misers. I did not want to have the same tag. Soon the next-gen phase of rebels might go conservative not being able to tolerate the over-spending of their parents.

Now trying to tackle all this issue in numbers, my rebelliousness needed some data to begin with. We have an induction stove at home. Although it came together with the home i.e. we didn’t incur the costs, but we need the equipment cost for the calculation. It’s 1000€ and we would use it for 3 years. We use it for approx. 7 hours a week, or 364 hours a year. Electricity cost is 0.27€ per kWh. The device has a Watt rating of 2500W. You can find this number on the device itself or check the product manual. You can also Google the device Wattage too. Finally, we needed all the supermarket bills to calculate the material costs. My wife and I put together all the bills and found out that we spend approx. 200€ a month for Groceries and drinks. In the beginning of this article, we discussed that we have 90 meals a month at home. This would translate to 1080 meals a year.

Now we have all the data to begin with. If you want to proceed with me, to calculate your meal cost at your home, now is the time for you to take a pen and paper. Collect the above data for your home setting too. Depending on where you live and how many people are in the household, the meal cost can vary drastically. Also pointing to the exact cost of each meal can lead to complex calculations. My goal is to simplify the scenario and give you rough idea on how much does a meal cost.

I have three unanswered questions, which I want to address with the calculations. First is that for two people, is 200€ per month supermarket bill high or conservative? Secondly, am I saving money if eat at home? Third is that by all these actions that my wife and I could take, how much could we impact on our monthly budget. Relaxing the monthly budget is the final driving necessity.

Let’s tackle all the questions. Are you ready? Do you have all your data? I will list them again below, so that you can crosscheck your checklist

PowerPoint Slide Show - [Presentation1]

There are three factors to consider for calculating the cost of a meal. Cooking devices are usually very reliable that we hardly incur any maintenance or repair costs. If so, please add on top too. I will ignore this in the calculations.

  • Capital cost (Cost of cooking device)
  • Material cost (All the food bills)
  • Operational cost of the cooking device (Cooking fuel bills)
  1. Capital Cost

This value takes into account of all the money that we have spent for our kitchen equipments. After all, the outcome of all these expenses simply would go into our meal cost. Else, if we don’t want ownership of the devices, we will simply pay this meal cost to a restaurant and get a meal. The capital cost number will show you how the price of your equipment will impact your meal.

I said that we gave 1000€ for our induction stove and that we would want to use it for 3 years. We have a total 1080 meals in year.

Cap.Cost

My Capital Cost = 1000€ / 3 Years * 1080 meals in a year = 0.308€

That means 0.30€ Cents of my Kitchen equipment goes into my every meal

 

  1. Material Cost

This is easy. You just have to track all your supermarket expenses. Include everything: food, snacks and drinks. Some people might want to leave the drinks aside, but for a simplified calculation, I would recommend to include all your expenses. It goes with the thinking that if we go to a restaurant we don’t just eat, we usually order some drinks too. It’s part of the meal. For my wife and I, the monthly expenses came to 200€ and for 90 meals in month.

Mat.cost

My Material cost = 200€/ 90 meals in a month = 2.2€

Wow! That was a big jump from the capital cost: 2.2€ goes into our every meal. How much did you get?

 

  1. Operational Cost

This is the fuel to your stove. If you are using a gas cylinder or some liquid fuel, the calculation is easy. You just need to look at your monthly bill.

Op.Cost 1

If you should have some type of fuel recorded by a meter, like electricity, we have a longer formula.

Op.Cost

My Operational cost = 2500W * 364 hours used in a year * 0.27€ electricity cost / 1000 * 1080 meals in a year = 0.22€

I spend 0.22€ to fuel every meal

Total = 0.30€ (Capital cost) + 2.2€ (Material cost) + 0.22€ (Operational cost) =

My Meal cost = 2.74 €

(Total cost of a meal in Germany: 2 person household and using induction stove)

2.74€! That’s a cost of two hamburgers at Burger king. It looks decent. Is it cheap or costly? There is no cheap meal or costly meal. The definition of cheap or costly depends on what you are willing to give to a meal. For my earnings, 2.74€ looks fine, but I also want to see how much it would cost if I eat like my mom or grandma. Basically they would eat all the meals at home and would not buy anything unnecessary from the supermarket. I will assume that my supermarket bill would go 100€ higher to 300€. For two people it’s 180 meals a month. Without boring you with calculations, I will simply write the final number.

Best Meal cost = 1.92 €

Theoretically I could reduce my meal cost to almost one euro (0.82€) For 2160 meals in a year, currently I spend half at home and the other half outside. 2.74€ per meal for home and 350€ for eating outside (traceable + untraceable expenses)

(1080 meals at home * 2.74€) + (350€ per month for eating outside * 12 months) = 2959€ + 4200€ = 7159€

If I would eat all my meals at home for 1.92€, my total cost would be 1.92€ per meal * 2160 meals in a year = 4147€

Roughly 3000€ (3012€ exactly) is the money we could generate in a year by doing all the actions to save money from working on eating habits. That’s 251€ per month!! Now that’s some money what we could impact on our monthly budget. I’m sure we will not be able to turn to a hermit life like our moms overnight. Habits are difficult to change. Even if we manage to save half of the above, it’s a big success. Good habits being rewarded. That’s a nice incentive to slowly consider changing a habit.

Tips for handling food costs:

For me 2.74€ is my meal cost. What could increase or decrease this cost?

Increasing the cost: Higher equipment cost, equipment with higher wattage, cooking fine long recipes too often, eating less at home, electric exhaust or any support device in your kitchen are some things which will drive your per person meal costs higher. In India, the electricity cost is almost the same as in Germany. Switching to electricity source might significantly increase the capital costs. At the same time, using a gas will need an exhaust and also will not have a cleaner or safer setting as in electric source.

Decreasing the cost: Cheaper equipment, simpler groceries, cooking for more meals at once, eating more meals at home are going to drive your per person meal costs down. Using the cooking equipment for longer than planned time also reduces your meal cost.

Conclusion:

  1. Is 200€ Supermarket bill less or high?

Decent! But crap could be cut out still

  1. How much money would I save if I eat at home?

In Germany, eating a meal outside would cost from 6€ for fast food to 15€ for casual restaurants. Comparing to an approx 3€ meal cost (2.74€), I would be spending 3€ more on fast food and 12€ more for restaurant food. That’s the extra money I spend for my laziness. I would never be able to justify fine dining. On the contrary, if the outside food is same or close the calculated meal cost of 2.74€, it’s a great deal!

  1. How much monthly budget could we impact to compensate for the increase in expenses?

250€ monthly or 3000€ yearly

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Congratulations! You have survived this journey. What is your meal cost? How much could you impact on your monthly budget? Share in the comment below. Thanks for reading.

P.S. I tried to calculate my mom’s meal cost in Coimbatore, India. Of course, the material and capital costs are cheap in India. The meal cost came to 30 Rupees or 0.38€!!

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To be continued: Electricity 2: Understanding my home: How to reduce my electricity bills?

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