retailers: small towns are proving to be a big market for many retailers

Small towns, or Tier 2 and Tier 3 markets, are growing faster than large metropolises in various categories such as packaged food, beauty, personal care and quick-service restaurant chains, executives said.

Manan Jain, chief growth officer of personal care and beauty products company Good Glamm Group, said Tier 2 and Tier 3 cities are currently experiencing 50% higher growth than Tier 1 cities. “Tier 2 and Tier 3 cities accounted for 28-35% of our revenue until last year. This year we are operating at 45% contribution from the same cohort,” Jain said.

Leaders said smaller cities are growing faster than metros or contributing to growth equally. This includes sales from direct-to-consumer (D2C) brands, which only sell online, and consumer retail brands.

The packaged foods company’s chairman, Suresh Narayanan, said on his second quarter earnings call: “In the April to June quarter of 2022, Class 1 cities (with less than one million inhabitants) experienced double-digit growth; these semi-urban markets were gearing up for growth because small town aspirations and availability had to match. It is paying off for us now.

Maker of instant noodles Maggi and coffee Nescafé said the acceleration in smaller towns was due to the company’s “rurban” strategy of expanding distribution coverage.

Even brands perceived as “urban-centric” are growing rapidly in smaller markets, and the increased consumer adoption of digital in these markets, which began during the pandemic, has also translated into consumption in physical stores now.

“Markets like Guwahati, Surat and Ahmedabad are among our top performers,” said Ankush Tuli, general manager of Mexican fast food chain Taco Bell Asia Pacific. Taco Bell, which this week announced the opening of its 100th store in India, said it would focus as much on smaller markets as it does on metros as it expands to meet its previously stated goal of 600 stores on a capital investment of approximately $100 million.

Growth relies on companies pushing last-mile direct distribution, attracting new consumers, e-commerce platforms, and smaller, more affordable “bridge” (or smaller) packs amid inflation keep on going.

Vishal Chaturvedi, Vice President (South Asia) of cosmetics manufacturer The Body Shop, which operates more than 200 stores, said: “Demand from markets like Rajkot, Pondicherry and Darjeeling is causing us to open more and more of them there. higher than stores. Our sales are back to 2019 levels.”

Real estate consultant Anarock said in a report a week ago that new retail space in shopping centers is expected to increase by 76% this year, with commercial real estate making a strong comeback, including in the cities of level 2 and 3 in 2022, and an additional 7.25 million. square feet in 2023. The report named cities such as Baroda, Budaun, Indore, Nagpur and Udaipur as key markets that would see new malls spring up within the year.

Many companies have introduced “gateway” packs to ensure consumers who sell less (or buy smaller packs) stay loyal to brands. Beverage maker Coca-Cola offers smaller packs of returnable glass bottles and affordable single-use PET packs to meet the needs of price-sensitive consumers, as well as affordable “bridge” packs.

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