Indicus in News

Consumer 2.0

Volume no. I, Issue 6, April 2008

Tier II and III cities: The expansion space In the past month, increased consumer spend kept up the growth in consumer market. In parallel, inflation also continued to tread its upward trajectory. High growth, rising energy and asset prices accounted for this rise and is expected to persist in coming times. Growth in consumer markets is expected to temper in coming months as interest rates are likely to go up to counter inflation. Marketers are now pushing up their efforts to find areas that are growing more rapidly. Tier II and III cities are witnessing undivided attention from major industry and service sector players. Most FMCG and other consumer good companies already have considerable penetration into small towns as well as rural areas. But now sectors such as travel & lifestyle, cinema and others are also trying to utilize the latent or unmet demand existing in small cities. As mentioned, consumer market traversed a healthy path with an equally healthy pace in the past month. With the onset of summer, consumer durable industry set off with innovative strategies in design, feature offerings and marketing, to draw attention towards their ACs and refrigerators. In the automobile sector Maruti came out with Swift DZire, a new entry-level sedan that replaced its earlier mid size sedan Maruti Esteem. The rising aspirations of swelling middle class fueled the luxury and lifestyle segment as last month witnessed brisk activities in hotel, travel and entertainment businesses. Tier II and III cities such as Ghaziabad, Rohtak, Faridabad, Bhiwani, Chandigarh, Indore, Ahmedabad, Kochi, Secunderabad, Rajkot, Pune, Nagpur, Surat, Jaipur and many more, are in the initial phase of a rapid economic growth. Major industrial sectors are making large investments in these cities as demand and supply side opportunities are in plenty. Availability of property and that too, at affordable prices, is one of the major factors that is pulling in all this investment. Coupled with relatively better infrastructure than other similarly sized cities, these cities are rising up the growth ladder very fast. Real estate investors are opting for these cities to set up homes and corporate offices as the cost of land and associated infrastructure in big cities is very high. Consequently, many companies have focused their expansion in such cities.

Market Insights Source: Housing Skyline of India,2007-08

Samsonite has plans to open stores in cities like Coimbatore, Madurai and Vizag. Wanderers Leisure Travel Pvt Ltd also has plans to operate from tier II and III cities from next year onwards. Worldspace radio would also enter small towns as the demand for entertainment options is always unsatisfied there. Following the same cues, entertainment major Pyramid Saimira Group will open about 2,000 movie screens across India by 2010 and its multiplexes will be opened mainly in tier II and III cities.

These cities are one up on land prices, cost of manpower, competition and infrastructure when compared with mainstream cities. The residents also have a higher purchasing power in most of these cities. Thus, recently retail sector has gone to these cities in a big way and the trend seems to be catching up even more with newer segments knocking on their doors.