There was a time when entrepreneurs eyed only metros to do business. But that was then, not now. Today, small towns are no longer characterised by their snail like pace, they have grown to match up the unceasing bustle of a metropolis. They have become bi
BE it a home-grown brand or an international one, when it came to a perfect location for popularising a brand's name, metropolitan cities were always the hotspot. But today, it's no longer the same pinch for brands, as saturation has hit metros in a big way. Naturally, entrepreneurs are tapping the smaller cities, which, they say, are sleeping volcanoes of a disguised market that is slowly waking up to trigger profits in no time.
In the last few years, tier II and III cities have been a huge hit for brands, thanks to the growing brand consciousness and greater purchasing power. A more aspirational, informed and confident consumer is making demands in the marketplace in tier II and III cities that the brands are scrambling to satisfy. Franchisors are more than happy to fulfill this increased demand.
Small towns- Hotbed of opportunities
By scoring an edge over metropolitan counterparts, tier II and III cities seem to be on a roll over the last few years. Rolling out the red carpet for brands, which till the last few years were craving to make a strong traction in the metro cities amid the fierce competition, tier II and III cities are providing a secure platform for brands across the different business segments. It's the immense potential and opportunity that exists in these cities that's propelling the brands to grow there.
Easily accessible location with minimised real estate rentals, higher expectancy of return-on-investment (RoI) and moderate cost needed for executing marketing activities are making small towns feasible and favourite hotspot for franchisors to make investments, after squeezing all the opportunities in big cities. Besides, the cost of running a store in a small city is comparatively lower than metros.
Best sector to invest in
The business expansion in small cities has already started in almost every sector. As per the market survey conducted in tier II and III cities, franchise investors are keen on raking in moolah by investing in the segment of food and beverage, followed by education, services and fashion industry. On this retail revolution reaching smaller cities, Dr O.M. Manchanda, CEO, Lal PathLabs, believes: “India is getting urbanised and newer towns are developing and villages are becoming towns. Part of this is due to India becoming a young population (around 35 years) and millions joining the middle class. It's the consumer driven GDP. India is aspiring, there is better access to capital, PE funding and rural marketing concept is taking roots. Increase in FDI will further fuel the prospects. India is also becoming brand savvy a psychographic change is happening alongside demographic change.”
Also, the brands are set to move out of the boundaries of metro to satiate the hunger of population residing in small cities. As more malls are coming up in tier III cities, most of the franchisors are simultaneously seeking partners in business in such cities to tap the growing consumer demand.
Shitanshu Jhunjhunwalla, Director, Turtle Limited, notifies: “The fast paced economic growth with changing lifestyle backed by steady increase in disposable income in metro cities and rising per capita income in tier II and tier III cities of India has facilitated the growth and rapid penetration of popular brands in smaller towns. Hence these regions have become an important focus for all brand managers while preparing their expansion.”
Other reasons behind the growth in tier II and III cities are the unexpected spurt caused by the rising income levels of middle class, transforming consumer lifestyle and their buying behaviour with the infiltration of national as well as international brands. As the margins on investment for every business declined, the costs went higher. This further forced the business entities to plan their brand extension into smaller cities because the investment for business set-up is comparatively lower than metros and there is a high probability of good returns.
Rakesh Pandey, President, Retail and Business Development, Raymond Limited, says: “Organised retail penetration in India is at present about 8 per cent, indicating the huge opportunity for growth, driven by hordes of aspiring consumers hailing from smaller tier III, IV and V towns across the length and breadth of the country. With media explosion, internet penetration and social networking on the rise in these markets, there is a perceptible change in demographics, which is fuelling this trend.”
Crossword Bookstore's Marketing Manager Sivaraman Balakrishnan says: “Crossword bookstores started venturing into tier III cities in the past one year. Kota, Vapi, Udaipur and Durgapur are few of the noticeable cities. One of the primary reasons is also the availability of malls in these cities to open standalone bookstores. The lack of organised bookstores in these cities is a reason for us to open up a bookstore.”
Research before repositioning
To evade the risk of failing, franchisors must take cautionary steps while launching a brand in a new region/city. So, before setting up a base in newer locations, brands must conduct a detailed market research on the demographics, disposable income of every strata of society, consumer's purchasing power, brand consciousness, market potential, existence of brands, how unorganised is the market/location, competition in proximity, real estate rentals, how commercially lively is the location, existence of high streets and malls in the region, and understand the market's needs. The market feasibility must be conducted to avoid any hiccups during brand's extension.
On the parameters that the brands must take before venturing into the small cities, Jhunjhunwalla believes: “In smaller towns, the aspirational values are high and people want to outperform their counterparts. Hence, they want to try brands and be different from the unbranded herd. Proper sales and distribution network along with extensive use of the traditional media to create awareness about the availability of the products need to be of prime importance in order to set a strong foothold in the segment.”
On making shift to smaller cities, Manchanda, shares: “Look at Gurgaon story - every brand 10 years back wanted to capture market share here and everyone opened shop, and look at what happened to real estate, there was a boom. The same is happening slowly in other smaller towns.” In terms of improving customer footfall in small cities, Manchanda strongly believes in making an aggressive connect with local crowd through mix of ATL and BTL marketing activities. Also, the launch plan of a brand must be designed in a focused manner as per the local nuances, he adds.
Growth and development
Considering the tremendous potential and accelerating growth rate in tier II and III cities of India, franchisors are nowadays extremely bullish about strengthening their brand's footprint to give customers a reason to splash. Pandey says: “Catering to this demand is the retail brand bandwagon extending its network into these markets as ambitiously as in metros over the past year, as a direct response to aspiration levels amongst consumers in these markets matching their counterparts in metro cities. Raymond was the first fashion retailer to extend its brand’s network in the tier IV, V and even VI markets.”
Several aspects need to be looked upon both by the franchisor and the franchisee before spreading wings in tier II and III cities. Any franchisor looking to strengthen its business domain in a new location must do a market analysis by understanding the market preferences and the target consumer behaviour in terms of eating habits or tastes in clothing, and thereafter customise the brand as per the local market requirements. They must make an effort to customise their brand as per the market conditions. This may include customisation in terms of brand's product offering, pricing strategy and picking up the right location. So, customisation helps the brand to win customer's heart and drive in profits. It's an integral part of growth strategy, as it not only assures higher customer footfalls but also generates revenues too. On highlighting the parameters that the franchisors must follow, Ankur Shiv Bhandari, MD, Kantar Retail, says: “First understand the consumers and shoppers you are going to target before making investments. The requirement in tier II and III town could be quite different from urban cities.” On setting up brand's outlet in smaller cities, Balakrishnan states, “Decide which media is to be selected to communicate to the city population, the merchandise mix and customisation to suit the reading habits of that particular city.”
By giving thumbs up to brand customisation, Rachna Aggarwal, CEO, Indus League Clothing Ltd is quite optimistic about attracting customer footfall and building a stronger grip in the market. She adds, “We do not dilute the core essence of the brand's offering rather we try to localise with minimal changes and yet try to fulfill their requirements. Brand awareness, pricing and product offerings is a challenge. To deal with it, we do local marketing activities to bring awareness of the brand and run promotions to match the price/product offerings.”
Through their growing consumption, smaller cities are stimulating India's economic expansion and evolving out as key markets for franchisors, who are seeking to tap their purchasing power. Heading towards the smaller cities is also being practiced as a key growth stratagem that has been adopted by many brands that are upbeat about generating a fair share in the market. As the market in small cities is less explored, it allows a better opportunity for franchisors to open medium-sized as well as large-sized stores because getting a right place is not a big deal. Since there is a dearth of malls in smaller cities, franchisors prefer to open their brand's stores in the commercial hubs of the marketplace. For instance, Crossword Bookstore prefers to open their store inmalls or extremely good high street locations with parking facility in a B or C class city. Talking about the location it targets, Jhunjhunwalla says: “We as a brand try to take up locations which drive high footfalls of the right consumers.” On enlightening about the growth rate at which the tier II and III cities are burgeoning as a next promising retail destination for expansion, Sandeep Kulhalli, Vice President Retail & Marketing, Tanishq, says: “Due to lack of availability of business equipped infrastructure and exorbitant property prices in the existing metros, the IT, ITES and the BPO companies are vying for the smaller cities where they are promised better infrastructure, state-of-the-art office spaces and skilled manpower. Also, the potential that exist in the smaller cities are huge as disposal incomes have risen and the media exposure has also contributed in making the Indian consumer more accessible to varied products.” Considering the demand generation is such locations, Tanishq is currently planning to open 25 new stores in tier II and III cities in the year 2012-13.
Potential cities and their priorities
As of today, Turtle Limited has presence in small cities like Allahabad, Bhubaneswar, Cuttack, Silchar, Tezpur, Gangtok, Indore, Jamshedpur, Hisar, Raipur, Ranchi, Nagpur and Patna, amongst others. Going further, Jhunjhunwalla of Turtle Limited expects to increase its brand's reach in cities like Patna, Agra, Varanasi, Rourkela, Sambhalpur, Hubli, Belgaum, Mysore, Vijaywada, etc. Crossword Bookstore plans to increase its network by opening stores in Chandigarh, Goa, Raipur, Bareilly, Cochin, Madurai, Trivandrum, Calicut, Mysore, Mangalore, Coimbatore, Jalandhar and Guwahati. Classic Polo will be targeting mainly southern region by opening stores in Coimbatore, Pollachi, Namakkal, Kumbakonam, Trichy, Pondy, Shimoga, Bellary, Davengare, Belgaum, Kannore, and Kovalam.
How franchising fares
As a business model, franchising has not restricted the brands to eye expansion in metros only, rather it has contributed in a big way for brands to make way into markets by launching their outlets in tier II and III cities. Every brand, be it big or small, has a reason to smile as franchising is proving a successful business model for expanding faster. Through a highly replicable concept, many franchisors have been scaling up their retail network by venturing into potentially lucrative cities. As of today, there has been a rise in demand from smaller cities, where many franchisors have witnessed a lot of traction and thereafter, are thinking in terms of exploring feasible business options for expansion. In the last few years, tier II and III cities have caught the attention of many top-guns such as such as Pizza Hut, Domino's, KFC, Subway, Gitanjali Jewels, Tanishq, Reebok, Adidas, Raymond Ltd, Turtle Limited, Allen Solly, Classic Polo, Crossword Bookstore, EuroKids, Amul, Cartridge World, Motilal Oswal Securities Ltd, Starwood Hotels and Carlson Hotels, who are buoyant about increasing their network.
Seeing that, the real estate rentals in metros have also touched the unsustainable stage so, penetrating aggressively into the unexplored markets is the way for brands in the coming times.