There is drastic shift witnessed in consumption patterns in smaller towns with people moving beyond necessities and using products that were once sold only in urban areas. Hit by high rentals and low foot-falls, one-third of retailers at shopping malls in big cities like Mumbai, Delhi, Chennai, Bangalore and Kolkata are taking interest for buying property and are shifting to tier-II and -III cities. This clearly shows that with the golden opportunities being promised by these cities, brands are planning their strategies well to move into these markets. The number of urban dwellers has been rising and will continue to swell in the coming years. As markets in metro cities mature, retailers are moving into tier- III cities brought about by increased earnings, western influences, increased number of working women, desire for luxury items and lifestyle. Despite the current inflationary environment, tier-II and -III towns are showing strong momentum with an improved demand.
It’s not surprising to know that today luxury cars sell more in small cities than in the metros. Big Bazaar’s single largest bill till date comes from its store in Sangli, a little known town near Kolhapur and not from metropolitans like Mumbai or Delhi. Many specialty and evolved categories (such as Food Products, Beauty Products, air fresheners, prickly heat powder and cheese) rank on the top of the shopper list in smaller towns and cities. Even fashion products, watches, apparels, bags and Purses are showing signs of growth in smaller towns. India has become the next big destination for retail business. Consumers in small cities want to indulge on food, shopping and entertainment like their counterparts in the metros. There is a growing awareness among people about brands in smaller towns but there is lack of availability of branded products. People who live in smaller towns travel all the way to urban cities to purchase quality products. Market research has shown there are immense opportunities in tier-III cities and this is the reason we see many branded outlets opening here.
Brands entering into smaller towns are cash rich but they do not embrace the concept of plastic money. They like to express power and prestige through high-end brands, and the acceptance for the same is quite high. Though, it is not a volume game. Besides, from the marketing perspective, the mediums are rather restrictive and hence it is challenging to execute any form of saturation. Today, practically all the soaps showcase lifestyle and life in tier-II and tier-III cities. This substantiates the fact that there is huge aspiration among the people in these cities, which the retailer has to tap.
Dominos was the first fast food chain that opened its outlets in smaller cities. Pizza Hut, owned by the global Yum’s restaurant chain, has also become aggressive in its attempt to gain a foothold in the smaller cities. Expecting a 20 per cent growth from its outlets in these areas, Pizza Hut already has stores in many Tier-II & III cities. McDonald’s fast food chain, which commenced operations in New Delhi and Mumbai, is now expanding to the smaller cities, customising its offerings and promotions to gain faster acceptance. Aditya Birla Group planned to invest more than US$ 1.3 billion over a period of three years in areas like food, grocery and lifestyle. Reliance entered the non-metros attracted by low rentals after thw success in hyderbad it has now plan to start a hypermart chain in Ahmedabad.
Woodland, a brand of the Aero Group, was earlier targeting only metros but following its success in tier-I cities, it is now expanding to smaller cities as well. Making a beeline for the smaller cities, the garment retailer, Arvind Brands, is also planning to increase the number of outlets of its brands like Newport, Ruf n Tuf jeans and Excalibur shirts. German high-end domestic appliances maker Miele plans to expand in Maharashtra. Dr Batra’s Health Care, a homoeopathy clinic chain, is eyeing tier-II and -III cities for further franchise expansion across India. The brand currently has 141 clinics in 72 cities in India.The company Gold Gym is considering tier-II and -III cities to tap the country’s growing fitness market and plans to launch more.Cartridge World Australia also believes in growing
further via franchisees in smaller towns. They plan to tap tier-II and -III cities, as there is a big void in good quality printing at affordable costs in these markets.
While the metros will continue to witness emergence of new malls and lifestyle stores, almost a third of new development will happen in the tier-II and -III cities. Even stand-alone stores will opt for greater emphasis on visual displays, staff training and modern ambiance with their entry into even smaller towns. Companies such as Gitanjali and Titan Industries Ltd. have significantly expanded their retail operations in the past few years and they continue to penetrate into new markets. Jewellers who are already expanding to or keenly looking at smaller cities include Orra, Malabar Gold and Diamonds, Kalyan Jewellers. Most of the players are taking retail space on rent or lease basis while some are even opting for the franchise route to reach new locations while controlling their costs. Though rural India or smaller towns and cities have a lot of rich shoppers but they are widely dispersed.
Other than the inherent challenges to enter and operate in tier-II and -III towns, organized retail offers considerable advantages for the smaller cities as well. Whereas on one hand the success of organized retailing in tier-II and -III cities rests largely on further development of appropriate infrastructure, supply chain and logistics, local government support, changing habits, income dispersal, etc., on the other, this entry has helped improve the living standard of the local population by practices such as contract farming, local sourcing, aiding the growth of ancillary industries and by providing employment to locals. Organized retail has also been able to pass on the benefits of efficient sourcing to customers by improving supply chain efficiencies. Small town markets provide greater opportunity for the growth of private labels. Modern and organized retail is expected to grow. The good news is that tier-II and -III cities would be the ones to push it towards this goal. The advent of organized retail in smaller cities and the rural hinterland is a win-win situation for all the parties concerned. The retailers benefit from increased sales and higher profit margins for their premium brands and private labels by reaching out to the richer classes in the non-metros.