India’s next retail growth story is driven by tier 2 and tier 3 cities as aspirational consumers in smaller towns with parity purchasing power are increasingly turning to online as well as brick-and-mortar retailers.
Realising these growth opportunities, major brands like Trent, which is a part of the Tata Group, are increasing their chains of retail stores into tier 2 cities such as Ludhiana, Kochi, Dhanbad, Calicut, Nashik, Vadodara and Nagpur.
India’s major business house Reliance Industries also has a strong presence in the sector with its Reliance Retail brand, which has stores in over 7,000 cities in India.
These numbers demonstrate how big retailers are reaching out to customers in tier 2 and 3 cities to capitalise on
their purchasing power and yearning for a superior shopping experience.
Local city-centric brands are also not staying behind as they are expanding to smaller towns within a state to meet the growing needs of aspirational customers.
“When we travelled to the smaller cities, we realised people there had a lot of cash in their hands and aspired for a good lifestyle like customers do in the bigger cities,” says Biyas Roy, Executive Director at Arambagh Foodmart, a chain of small format supermarkets.
The Kolkata-based firm has now expanded to 77 shops in West Bengal, out of which 40 are in the capital city, 26 in other tier 2 cities, and 11 in North Bengal including Siliguri and Jalpaiguri.
“Finding consumers in towns relatively more aspirational, traditional and regional brands from smaller towns are enhancing their formats and positioning to match the national and international brands,” says Manoj Motta, President and CEO, Indosyki Resources, a turnkey services provider for asset development and management.
Growing market
Estimated to have clocked $836 billion in 2022, the retail sector in India is projected to grow at the rate of 10 per cent to reach $1,109 billion in 2025, according to a report jointly put up by Unicommerce, an e-commerce selling solutions provider and Wazir Advisors, a management consulting firm.
The report further finds that online is the fastest growing channel with shoppers from tier 2 and 3 cities taking the lion’s share of 61.6 per cent of the Indian e-commerce market, reporting 92.2 and 85.2 per cent year-on-year growth respectively in 2022.
The destinations for organised retail are growing across the geographical spread of the country.
“Every small town with a population over 500,000 is growing very fast,” says Susil S Dungarwal, the Chief Mall Mechanic of Beyond Squarefeet Advisory, a shopping mall specialist company. Motta of Indosyki Resources says these cities are predominantly located in the western and southern parts of India, such as Vadodara, Surat, Anand, Vapi and Rajkot in Gujarat, while in Maharashtra, he says cities such as Nashik, Sholapur, Kolhapur and Nagpur are also seeing growth.
“Also, we have Mysore, Mangalore, Indore, Bhopal, Jabalpur, Jaipur, Udaipur, Jodhpur, Raipur, Coimbatore, Salem, Goa (state), and many others,” identifies Motta.
Among the factors driving this spread is the segment of people with disposable income in smaller towns, brought closer to retailers by the advancement of technologies.
“The advent and prevalence of the internet, causing death of distance and the availability of relatively cost-effective real estate are among the dominant reasons driving the demand from smaller towns,” says Motta.
Also, “Thanks to the trend of working from home, there is a fair amount of reverse migration to small towns, which is pushing the retail sales even higher,” adds Dungarwal.
With 12 million people getting added to India’s working population each year, and 65 per cent of the population belonging to the consuming cohort of 18-55 years of age, as well as households earning $10-50,000 growing by 22 per cent over 2015-21 combined with nuclearisation and urbanisation, the indulgence spending is only expected to grow.
Moving forward
Retailers on their part recognise certain discernible differences in customer needs in smaller towns and are customising their approach moving forward.
“The aspirations of the Bharat customers, people who prefer using regional languages as their main language over English, are similar to metro and tier 1 customers but the expression and adoption of fashion is different. For these customers price continues to be the most important factor and shopping for the family is a priority,” says Govind Shrikhande, an independent consultant who is associated with big brands such as V-Mart, Donear, and Brand Concepts.
While Roy finds customers in Kolkata, “Short on time, not big on promotions or price consideration, and comfortable with telephonic order,” in smaller cities, “They prefer to go to the stores, spend time, consider promotions and are a bit price conscious.”
Therefore, while working on the ambiance of the mall, Shrikhande advises for locally relevant brands, foods and experiences; value for money as a priority across all offerings; and engaging artisans in the mall offerings. “Malls need to be a part of the community to remain successful,” he emphasises.
Similarly, Kumar Rajagopalan, CEO of the Retailers Association of India (RAI), says, “Brands are making concerted efforts to create an environment that while mirroring the shopping experience in metropolitan cities at the same time also stay true to local preference.”
Going forward and looking to the future, Rajagopalan sees a blend of digital discovery and physical shopping experiences defining the future of retail.
“We are seeing a trend of O2O, or online-to-offline, where customers discover the products online but make purchases in-store,” he forecasts.
Roy is upbeat about growth prospects in smaller towns and about her store format. “Retail will never de-grow and small towns will never let us down,” she asserts. ●
