Entrepreneurship May, 17 2014

Smaller cities, bigger returns

If you are running a franchise business and wish to expand at a faster pace, then moving to tier II and III towns is considered as the best decision these days.

By Ekta Sharma Verma, TFW Bureau
Sr. Sub-editor
Smaller cities, bigger returns

From fashion to food, education to fitness, all top level brands are considering tier II and III cities as their destination to swell their businesses. Let’s know more about the trend and what strategies these brands are adopting in these cities.Rapid income growth, growing urbanization, younger population and availability of skilled labour are a few factors for brands to move to tier II and III cities. Experts believe that these climbing towns prove to a business booster for most of the brands.Tier II and III towns have begun to witness balanced growth across all business sectors because expanding in metros calls for high operating costs.

Dr Batra's Health Care, a homoeopathy clinic chain, is eyeing tier II, III cities for further franchise expansion across India. The brand currently has 141 clinics in 72 cities out of which 22 are operational via franchisees in India. The brand has plans to open 350 clinics by 2016. There are no doubts about the fact that a franchisor can have a mounting business by opening more stores in tier II and III towns, preferably he maintains the local flavor and expertise according to the local demands. Companies want to mark their presence in different markets to leave no consumer untapped. Skyrocketing rentals in big cities is also one of the chief reasons for brands to move to tier II and III. Even the retailers are no behind. The Arvind Store is targeting tier II, III and even IV towns for further expansion and penetration. The brand started its franchise operations in 2010.

International brands, local leaders

Even international brands like Lenovo and Gold’s gym have opted for the tier II and III cities to expand. With metros and tier I towns getting more stagnant, franchisors prefer to take their brands to the smaller markets. US$34 billion personal technology company and an emerging PC plus leader, Lenovo has also walked the same path in India. Currently, Lenovo is serving customers in more than 160 countries and has 1400 franchise stores. Ashok Nair, National Sales Director, Lenovo India said: “These markets offer huge potential in terms of consumer demand owing to the low PC penetration. As a part of our expansion drive, we have opened a new smart connected devices store in Phoenix market city, Pune.”

Another player, Gold’s Gym India has quick plans to increase their center count from 86 to 101 this year. Althea Shah, Vice President, Marketing, Gold’s Gym India said: “Gold’s Gym India is planning to further expand its presence across India. The company is eyeing tier- II and III cities to tap country’s growing fitness market and plans to launch more than 30 fitness gyms by June 2015.” Founded in Australia, Cartridge World also believes in growing further via franchisees in smaller towns. Sharat Kumar , Country Head, South Asia, Cartridge World opined: “ Mostly we are tapping tier II and III cities as there is a big void in good quality printing at affordable costs in these markets.” The brand plans to open 25 new stores in tier II and III cities. This will bridge the gap between high quality branded products and low priced products. These stores will create opportunities for customers in the corporate / SME segment to buy genuine products of high quality.

The mall shift

Under pressure of high rentals and low footfalls, one-third of retail tenants at the shopping malls in the large cities like Mumbai, Delhi, Chennai, Bangalore and Kolkata are shifting in tier-II and III cities like Nagpur, Jaipur, Pune, Indore, Lucknow, Ludhiana and Chandigarh among other such cities, revealed an ASSOCHAM trend survey. This clearly shows that with the rising golden opportunities in the tier II and III cities, brands plan their strategies well to move into these markets. With intensifying competition and soaring prices in the metros, the demand and competition in tier II- tier III cities has gone even high.

Learnings

With the movement into the smaller towns, the franchisors get a lot to learn from the franchisees sitting at the local level. Franchisees know more about the local markets and thus franchisors have a chance to consult them before investing and expanding in the same area via multi-units. This is definitely a win-win situation for both, franchisor and franchisee. Donear NXG already has a vast popularity in tier II, III and IV cities. “We intend to open 100 EBO’s of Donear NXG in the current fiscal year. We look at the basics of retail expansion like catchment area, visibility, vicinity, influencing local partner, purchase dynamics of the consumers and many other metrics for that matter,” concludes Akash Manwani, Senior General Manager– Marketing & Brand, Donear Industries Ltd, Retail & Apparels.

Related: Turn South for great returns

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