Economy
Mint Explainer: Why half of urban consumers aged 15-55 now live in small towns
Summary
- Ubiquitous smartphones, cheap data and covid are the primary reasons
An estimated 139 million Indians aged 15 to 55 now live in tier 2 and tier 3 towns, surpassing the number that live in metros, researcher Kantar said in a report released on Tuesday. This demographic and its consumption patterns now influence how brands chart their expansion in these markets. But as consumption picks up in tier 2 and tier 3 towns, brands will have to adapt to changing social norms and expectations of this cohort to ward off local competition. Mint explains:
What does the report say?
More than one in two (53%) of India’s 297 million urban consumers aged 15 to 55 now lives in tier 2 and tier 3 towns, according to the report. Kantar also tracked incomes for consumers across markets. Between 2017 and the first half of 2023, average monthly household income reported a compound annual growth rate (CAGR) of 7.8% in India’s tier 2 and tier 3 towns. The figure for all households in India was 8.4%.
Meanwhile, these markets reported a 5.65% jump in the number of graduates and postgraduates between 2017 and the first half of 2023, mirroring the national average over the same period. Small-town consumers are becoming a large consuming class in their own right, with aspirations mirroring those of their big-city counterparts.
What has brought about these changes?
Faster growth of smartphones and greater internet access in tier 2 and tier 3 towns is bridging the divide between them and metros, Kantar said. There are a host of other reasons, too. While large brands have always had a presence in smaller cities, their pace of expansion has accelerated post-covid. That’s because lockdowns and work-from-home orders prompted many to move back to their hometowns. This resulted in a general uptick in consumption in these markets.
Meanwhile, cheap data has also democratized spending habits in small towns. Consumers are now able to access the latest trends and styles and order goods conveniently thanks to greater e-commerce penetration.
What do these shifts mean for consumers?
Large economic changes aside, access to the internet and the resultant growth in aspirations is also causing cultural shifts in these markets. Kantar research points to greater acceptance of Western values in small towns.
“With the world at their fingertips, we see a potential cultural shift brewing in small towns, where Western influence has become much more acceptable. We see an increased focus on things that drive comfort and self love," said Aditya Kaul, group account director, Kantar. There is also a greater acceptance of equitable gender roles and intent to share household responsibilities, Kantar said.
What does it mean for brands?
Beyond the metros, brands have been making inroads into smaller cities and towns. Real estate consulting firm JLL recently said most brands reported an increase in sales in tier 2 and 3 towns in the previous fiscal. In fact, it added that while tier 1 towns attract the most interest from real-estate investors, tier 2 and 3 towns are not too far behind.
New online shoppers are also emerging from India's smaller cities. Between 2019 and 2022, online commerce reported a CAGR of 37% in tier 2 and tier 3 towns, far ahead of the 20% CAGR reported in urban markets, according to Kantar. Consumers in these markets are now expecting more premium products and greater variety, it said.
What are the challenges that brands face?
As enticing as the prospect may be, smaller markets have their own set of challenges. For starters, brands risk losing marketshare to local players that have emerged in these markets to service emerging consumer needs. This is especially true for makers of fast moving consumer goods. Meanwhile, for retailers, finding good real estate can also be a challenge because the growth of quality malls in such markets remains limited.
