Retail business growing faster in smaller cities

The single-largest bill till date of Rs 1.5 lakh comes from a Big Bazaar store in little-known town of Sangli in Maharashtra, and not from rich metros like Delhi or Mumbai.
India is fast emerging as a retail goldmine, with small towns like Sangli, Alwar, Ambala, Raipur, Ludhiana, Jalandhar, Indore, Panipat, Haldia, Durgapur, Salem and Meerut expected to contribute 30-35% of retail revenues.
Little wonder then that all retail biggies are setting up shop in small towns, and even doubling the numbers. Most of the retail chains offer fresh food and vegetables, staples and grocery and fast moving consumer goods in stores which typically range from as small as 1,000 to as large as 25,000 square feet.
Others such as RPG-promoted Spencer’s offer right from fresh fruits and vegetables, staples and groceries, FMCG, personal care, electronics, toys, books, music, pharmacy, delicatessen, while Future group’s Big Bazaar outlet have general merchandise such as watches, plastics, toys, mobiles, apparel, appliances and even gold, besides food and staples.
Organized retail particularly in grocery is very low in Tier II/III cities so there is no doubt that Retail outlets can get a lot of growth from these towns and the indications are businesses in non Tier I towns growing at over 100% per annum in each of these in the next two years. Subhiksha has set up 250-odd stores in medium and small towns.
There is a huge potential for retail which smaller towns offer. Reliance Fresh has been set up in 217 odd cities, of which 20-odd are in smaller towns.
Rapidly changing lifestyle and rising wealth levels of a burgeoning middle class are resulting in a growth of 30% annually in these retail stores.
The most important requirement for stores in these towns is getting the right merchandise mix in tune with the local community’s requirements. In case of food, more fresh fruits and vegetables are offered as against frozen, and in the case of apparel, there is hardly any formal wear, but shirts and pants.
Retailers are also trying to build ‘emotional bank account’ by organizing street plays, events and fairs on local festivals to connect with communities and in turn increase footfalls at their stores. For instance, in Nagpur, Big Bazaar invited all married women to its stores for ‘Karva Chauth’ fast rituals, while Subhiksha regularly organizes social events around festivals such as Diwali and Ramzaan.
Sales in these towns are festive-oriented, and are actually more than what the big cities register during these periods. Events around festivals build brand equity subsequently.
The consumption for organized retail still revolves around major cities where income and hence consumption growth is centered. Delhi and Mumbai are expected to contribute 40% of national organized retail by 2008. The retail spaces in these cities are however, limited and expensive. So even though majority sales revenues come from Tier I towns such as the metros, it is also important to grow business in medium and small towns.
Though sales are much lower in these towns, they are able to break even in four-five months of being set up, as against eight-nine months earlier. This is because of the advantages they enjoy of low rentals, lower operational costs with air-cooled smaller-sized store and good logistics of being close to the supply chain.
The potential of retail in small towns is very high in fact higher than the metros, mini metros and class 1 towns. The CAGR would be 30%.