Foreign brands bet big on Bharat’s bulging wallets

• Global brands like M&S and Pepe Jeans India are focussing as much on tier 2, 3 cities as they are metros.
• Small town Rajahs are just as well-informed and brand conscious as their metro counterparts, they say.
• QSR players like Pizza Hut too see half of their growth from smaller cities, and are altering their offerings to deliver to the palettes.

India’s charming smaller cities bring certain images to mind — like a samosa-wala sitting around the corner; and dusty market areas with barely-lit shops or most people commuting on two-wheelers. Think again. Bharat has gone high-end, and now most cities be it Baroda, Budaun, Indore, Nagpur or Udaipur — are where mall developers are crowding to.

In with the trend are not just Indian brands but foreign brands want to go where they see ‘growth’. When it comes to store opening both fashion, cars or even fast food chains, they all want to grow across metros and smaller cities — on an almost equal footing.

For luxury car brands, small is the new big. Companies like BMW, Mercedes-Benz, Lamborghini, and others are eyeing smaller towns and cities like Ludhiana, Kanpur, Surat, etc. to drive up their volume growth in India. By selling an average number of 40,000 units annually, luxury carmakers make up less than 2% of the entire passenger vehicle market in the country-as compared to 13% penetration in China and 10 per cent in the US.

They are now hoping to drive up sales by penetrating deeper into the Tier-II and Tier-III markets in the country. According to top luxury players in India, non-metro cities could drive significant sales volumes owing to an emergence of young entrepreneurs from these places.

Small towns are ‘Fashion forward’

British retail major Marks & Spencers which, recently opened its 100th store in India, is betting big on ‘thriving and vibrant Bharat. M&S has opened a store each in Ranchi, and Kochi has just gotten its second store like Baroda. It’s also present in Surat, Coimbatore, Bhubaneswar and Guwahati.

"Even though growth in Tier 1 cities has not yet exhausted, Tier 2 cities are growing much faster. At present, 40 out of our 100 stores are in Tier 2 cities. Provided the right locations come up in these cities, we will look at more stores in these cities," Ritesh Mishra, MD of Marks and Spencer Reliance India told Business Insider India.

Yet another UK based fashion retailer Pepe Jeans India also said that it plans to open around 30 new stores every year. Of that, a majority would be in smaller cities. “We have not covered many Tier 2 cities, and they also provide higher avenues to growth,” said Manish Kapoor, CEO & MD of Pepe Jeans India told Business Insider India.

Thanks to exposure to the internet, the small town consumers are just as fashion forward as their metro consumers. “Their exposure to brands, fashions and international styles is on par with the metro consumers,” said Kapoor. Online presence also helps these brands service many more pin codes across the country.

Mishra agrees, and adds that there is not much of a difference between the consumers in Tier 1 and Tier 2 cities except that the basket value in the smaller cities may be a tad lower. They also intend to reach more pin codes via e-commerce, taking their style and substance to all of India that wants it.

For a long time, smaller cities have been smaller markets for large brands. But what’s changed in the last few years, the number of middle income households are changing. Their incomes are growing on-par too.

According to consumer insights company Kantar, all-India urban average monthly household income has been growing at 8.4% for the last five years. In Tier 2 and tier 3 cities, it has been growing a compounded annual growth rate (CAGR) of 7.8%.

More money to spend

The discretionary wallet share of a smaller city consumer is also higher, argues Kapoor. “For example, take a person who earns ₹1 lakh per month in Bombay, he or she would spend ₹40,000-45,000 on rent and then some more on commuting and other essentials. Then take a person who earns ₹50,000 pm in Lucknow — all the aforesaid expenses will be under ₹25,000,” he explains.

Moreover, the new generation of consumers – be it millennials or GenZs – are focussed on experiences, consumption and self-care. That’s bringing about a marked change in the traditional mindset of people — all manna for brands.

“Earlier people would feel guilty of spending, now the new generation thinks — Why not? What else do we earn for?” sums up Kapoor, profiling the consumers they’re going after in smaller towns, who wouldn’t flinch before spending ₹5,000 on a pair of jeans.

Value in growth

US major Pizza Hut India too is thinking on the same lines as its apparel counterparts. In the last two years, they went from around 400 restaurants to over 800 stores. And, half the stores as a part of its expansion strategy are in smaller cities.

It expects 50% of its growth to come from newer markets i.e cities that intend to foray into through their franchises, Merrill Pereyra, MD of Pizza Hut India subcontinent told Business Insider India in an interview.

Unlike their apparel counterparts, they are a tad more careful about their approach. Quick service restaurants (QSR) are more of a habit where even consumers with chunky wallets seek value.

“We have to be strategic with the value we provide. We have offers like one plus one meals, My Box which is a meal for one. But we are also appealing to local tastes. One of our innovations is Dhabe Da Keema Pizza, the way a small town consumer would think is, we are used to it, let’s see how it tastes on a pizza whereas a big city consumer would see it as a fusion menu,” Pereyra explained.

Be it fashion or food, the new-age small city customer is seeking the ‘premium’ route — that’s caught the eye of large international players who want to make their mark.

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