Small cities turn out to be big market for several retailers

Small towns, or tier 2 and 3 markets, are growing faster than the larger metros across diverse categories such as packaged foods, beauty, personal care and quick service restaurant chains, executives said. Manan Jain, chief growth officer at personal care and beauty products direct-to-consumer company Good Glamm Group, said tier 2 and tier 3 cities are currently growing at 50% higher compared to tier 1 cities. “Tier 2 and tier 3 cities used to do 28-35% of our revenue till last year. This year, we are running at 45% contribution from the same cohort,” Jain said.

Executives said small towns are either growing faster than the metros, or are contributing equally to growth. This is across sales of both direct-to-consumer (D2C) brands, which retail online only, and mainstream retail brands.

Packaged foods company

‘s chairman Suresh Narayanan said in its second quarter earnings call: “In the April-June 2002 quarter, class one towns (with less than 1 million population) grew in double digit; these semi-urban markets were getting ready for growth because small town aspirations and availability had to match. That is bearing fruit for us now.”

The maker of Maggi instant noodles and Nescafe coffee said the acceleration across smaller towns was on the back of the company’s ‘rurban’ strategy of pushing distribution coverage.

Even brands perceived as ‘urban-centric’ are growing rapidly in the smaller markets, and increased digital adoption by consumers in these markets, which started during the pandemic, has translated to consumption at physical stores too, now.

“Markets like Guwahati, Surat and Ahmedabad are among our best performing ones,” said Ankush Tuli, managing director at Mexican cuisine quick service chain Taco Bell Asia Pacific. Taco Bell, which announced the setting up of its 100th store in India this week, said it will focus as much on smaller markets as metros, as it expands to meet its earlier stated target of 600 stores on a capital investment of about $100 million.

The growth is riding on companies pushing last mile direct distribution, bringing in first-time consumers, ecommerce platforms and smaller and more affordable ‘bridge’ (or smaller) packs amid the ongoing inflation.

Vishal Chaturvedi, VP (South Asia) at cosmetics maker The Body Shop, which operates over 200 plus stores, said: “Demand from markets like Rajkot, Pudicherry and Darjeeling is leading us to set up an incrementally higher number of stores there. Our sales are back to 2019 levels”.