Smaller Indian towns and cities expected to drive next retail growth wave: Kearney India

• Follow

The tier-II and III cities of India  like Jaipur, Chandigarh, Kanpur, Vijayawada, Kozhikode and Nasik  will be the future drivers of the upcoming retail market wave in the country, suggested consumer and retail consultancy firm Kearney in a report on March 18. The report titled, Kearney India Retail Index, said smaller towns and cities appear suitable for growth and new opportunities for retail expansion in the country due to an increase in disposable income, evolution of technology and deeper mobile internet penetration.

“This is especially evident from the share of luxury retail spending, which grew from around 9% in 2013 to 55-60% in 2018 in non-metro cities, especially Jaipur, Udaipur, and Chandigarh. The shift in consumption pattern in smaller towns over the past decade has resulted in higher purchasing power on discretionary items in these markets,” the report stated.

The growth of tier-II and III cities is also evident from the fact that beyond top 20 metro cities, the share of organised retail remained very low overall. At the same time, impact of Covid-19 pandemic on retail activity was less severe in smaller towns as compared to big cities like Delhi, Mumbai and Hyderabad.

More than 800 cities were ranked by Kearney based on their retail market potential which stated that retailers were looking beyond top 100 cities to expand their business as “consumers’ appetite for branded goods, access to quality retail infrastructure, and improvement in back-end processes have expedited growth in these emerging markets.”

Smaller cities, Kearney revealed, received 5 times higher retail investments compared to tier 1 and metro cities between 2006 and 2017.”This influx of investments has put these cities on a fast track to reaching the retail potential of tier 1 cities,” the report explained.

Meanwhile, the large metros including New Delhi, Mumbai, Chennai, Bengaluru and Kolkata continue to remain the first choice for retail investment as they regained the top five slot in the ranking index. However, cities ranked beyond 20 such as Kanpur, Ludhiana, Bhopal, Thiruvananthapuram, Ghaziabad, Kozhikode, Vijayawada and Bhubaneswar will eventually become the driving force of retail market soon.

The report also highlighted the shrinking contribution of tier 1 cities in the growth of India’s retail industry.

“Over the years, most of the organised retailers have established strong presence in metros and tier-1 cities. The next wave of growth in retail will be led by emerging cities beyond tier 1 and emerging hotspots within metros and tier 1. It is imperative for organised retailers, across different product categories, to evaluate the optimal level of penetration across these markets,” Siddharth Jain, Partner  – Kearney, was quoted in the report.