brands hope to cash in on big bucks in small towns
towns and even villages are blinking ever more rapidly
on the radars of big retailers.
Sales of products in nearly all categories in second rung
cities like Indore, Kanpur, Ludhiana, Jalandhar, Nagpur,
Coimbatore, Nashik among others are rising rapidly on
the back of rising disposable incomes as well as due to
the demonstration effect of big cities.
According to a recent study by AC Nielson-ORG Marg small
cities have pockets of big spenders and that the level
of ownership of certain high-priced consumer durables
such as laser discs, home theatres and MP3 players is
higher in small towns than in large metros.
has also been a dramatic shift in lifestyles with aspirations
being fuelled by cable television, which has exposed Indian
audiences, particularly the middle class, to global lifestyles
and standards of living. This, accompanied by an increase
in disposable incomes, has led to increasing aspiration
levels among consumers. All this is evident in the mushrooming
of entertainment complexes, restaurants offering international
cuisines, etc. In fact, with an increase in the disposable
income and the propensity to spend, a similar surge is
evident in semi-urban regions and villages also.
retailers were the first to discover the spending power
of small towns. Dominos was the first fast food chain
that opened its outlets in smaller towns. To everyone's
surprise, the chain recorded its second highest sales
in India after the metros of Mumbai, Delhi, Chennai and
Kolkata, in the industrial town of Kanpur, in UP. Pizza
Hut and McDonald's are also known to have received a great
response in Ludhiana and Amritsar in Punjab.
astonishing consumer response to fast food outlets and
branded goods from clothing, household goods or music
cassettes and CDs is now driving more and more companies
towards smaller towns. The biggest advantage in small
towns, according to some retailers, is the low real estate
costs in town like Nasik, Coimbatore, Kanpur, Lucknow,
Salem and Vishakhapatnam, which enables them to achieve
Hut, owned by the global Yums restaurant chain, is aggressively
penetrating smaller towns and expects a 20 per cent growth
from its outlets in these areas. Pizza Hut plans to have
a 100 restaurants by the end of this year in places like
Jalandhar, Meerut, Kochi, Mysore, Nashik, Coimbatore,
South-based Pizza Corner is taking the franchisee route
to expansion, having already set-up 28 outlets. Of these,
23 are company-owned while five are franchised. Pizza
Corner's next tier expansion will be into cities like
Vijayawada and Visakhapatnam in Andhra Pradesh and Coimbatore
and Salem in Tamil Nadu.
McDonald's fast food chain, which began its operations
in New Delhi and Mumbai is now expanding to Punjab, Haryana,
Uttaranchal and Himachal Pradesh. Vikram Bakshi, managing
director, McDonald's India (North) says he plans to open
outlets in Chandigarh, Shimla and Kasauli. He says there
has been a very good response to McDonalds offerings in
cities like Ludhiana and Jalandhar with huge potential
in the smaller metros and cities.
It is not only the food retailers, which are moving up
the countryside in droves. RPG Group company Music World
Entertainment (MWEL), is planning to expand its network
through a franchisee model and expects at least 25 per
cent growth in revenue during 2004-05.
World's first outlet through the franchisee model was
launched earlier this year in Vijaywada. The company plans
to setup 100 new outlets in various parts of the country
including Orissa, Jharkhand, Bihar, UP and Haryana.
surveys undertaken by the company have found that there
is a huge untapped potential for regional music segments
and it plans to concentrate in that area. The company
currently operates from 200 outlets in 31 cities, including
14 major showrooms, 35 destination stores and 152 retail
South-based Amalgamated Bean Coffee Trading Company also
plans to expand into three tier cities with its Café
Coffee Day (CCD) brand of stores. CCD plans to have 200
stores across 60 cities by the end of 2004. At present
the company has 170 outlets and is the biggest coffee
chain in India.
CCD plans to reach cities like Kolhapur and Nagpur in
the west, Hubli, Belguam and Vizag in the South, Allahabad,
Varanasi, Ambala and Patiala, in the North, Jodhpur and
Mount Abu in Rajasthan and Bhubuneshwar, Ranchi, Cuttack,
Darjeeling, Guwahati and Jamshedupr in the East. CCD feels
there is huge demand waiting to be explored in the smaller
cities. Says a spokesperson of CCD, "With our supply
chain and logistics in place across the country, its a
lot easier and economical to expand now."
Similarly, garment retailer, Arvind Brands, is planning
to tap small towns with a vengeance. The company is increasing
the number of outlets of its brands such as Newport, Ruf
'n Tuf jeans and Excalibur shirts.
strategy is first to convert small town consumers to readymade
wear. According to Darshan Mehta, MD, Arvind Brands, the
company plans to address the bottom end of the pyramid
and entice these consumers to shift from tailored to readymade
Arvind Brands plans to push the retail presence of Newport
jeans, the once top-selling mass-market denim brand priced
at Rs399, from 1,200 outlets across 480 towns to 3,000
outlets covering 800 towns by the end of 2004.
For food retailers, gaining acceptance in smaller towns
means catering to local tastes in a concerted manner.
Pizza Hut, Pizza Corner and Dominos are 'refining' menus
to an even greater extent in order to provide offerings
that appeal to regional palates. Pizza Corner already
makes 20 per cent of its revenues at some of its outlets
from the sales of its version of pizzas. Now it plans
to add more offerings to suite the palates in the smaller
cities of South India.
However, analysts say the success of these companies will
ultimately depend on their price strategy. According to
Anoop Sequeira, CEO, Pizza Corner, "Since consumers
in smaller towns are more price-sensitive, their price
and portion preferences have to be kept in mind."
a company official in Café Coffee Day, the only
challenge in small towns is pricing. A cup of coffee at
Rs35 is more likely to be accepted in the metros than
in the smaller towns, where decor, ambience and the experience
play a more important role.
Some retailers have evolved their strategy around villages.
These include tobacco and hospitality company ITC and
petroleum marketers BPCL and HPCL. These companies are
setting up elaborate shopping plazas / hypermarkets in
villages to tap rural shoppers.
The hypermarkets cater to local needs and stock up items
ranging from groceries to seeds and even tractors. ITC
recently had a soft launch of its first rural hypermarket,
Choupal Sagar, spread over five acres at Sehore in Madhya
With investments of estimated between Rs3 and Rs4 crore
per store, ITC plans to open around 50 such stores across
rural Madhya Pradesh and Uttar Pradesh over the next one
year. Choupal Sagar has been attracting 700-800 people
on weekdays, going up to 1,000 people on weekends.
PSU, BPCL has made an entry into rural retail with its
Hariyali Kissan Bazaar store at Shahjehanpur in Uttar
Pradesh. BPCL also plans to extend the Bazaar, which stocks
a host of items ranging from pesticides to farm equipment,
to include large grocery and other items of daily consumption.
considering that rural incomes are heavily dependent on
agriculture, these marketers may find their fortunes fluctuating
with the monsoon.
the smaller towns, setting up of branded outlets like
Dominos, Pizza Hut, McDonald's and Pizza Corner means
large investments inflow in addition to newer employment
opportunities. Besides, they are
likely to fuel just the kind of boom the Indian economy
these retailers may soon find that they have just found
themselves sitting on a gold mine.