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Semi Urbs – The New Consumption Hubs

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The session, “Semi Urbs – The New Consumption Hubs,” held on day two of the recently concluded Food & Grocery Forum India 2014 dwelt upon the opportunity available in the semi urban areas and possible solutions to address the segment.

There are about 80 million people in the top 100 Indian cities (excluding tier-1). The consumers in these cities have similar aspirations to those of their urban cousins, but are an underserved segment. While modern organized food retail has expanded to about 20-30 percent penetration in tier 1 cities, retail chains have only recently started focusing on the tier 2 towns/ semi urban regions, garnering a penetration in single digits.
Sadashiv Nayak, moderated the session comprising Manish Behl, Business Head Foods,Sahara Q Shop; ,Chief Merchandising Officer,Aditya Birla Retail; , Head Direct Trade, Colgate Palmolive; A. S. Chadha, Vice President  Sales,Organized Trade, Nestle; and Aseem Soni, Director, Consumer Sales, Cargill Foods as panelists.

The starting question of the session was to figure out if Madurai will ever become a Chennai or a Kohlapur or a Kokatta. The audience and the panelists argued that the top line in a tier-2 will probably always be lower than a tier-1. Chandna suggested that the comparison should be on metrics like sales per sq.ft. or the average spend per customer.

Soni and Singhal opined that every tier -2 city has its share of SEC A, B category consumers who are equally aspirational and have dreams similar to the urban consumer. They are heavily influenced by mass media where they are exposed to the lifestyles of soap stars, sportspersons, and actors. A look at the graduates of many management schools indicates a larger predominance of students who grew up in tier-2 towns. All these indicate a consumer in tier-2 town who has very high aspirations and who is already educated. The question is how to serve the segment!!

Large organised retail chains and FMCG companies feel constrained with the smaller scale, the lack of infrastructure and hence the higher associated costs of working with Tier- 2 towns and cities. HUL has overcome this for a few of its products with the sachet concept. Another perceived issue is that consumers in tier-2 towns are much more price conscious, which is a debatable point. The semi urban consumer is primarily looking for assortment and availability for which they currently need to travel to the larger cities. So they are less likely to worry about price differences if a similar retail experience is offered in their local community, which is convenient and saves them time. Behl and Chadha pointed out that the opportunity available for organised retail is based on providing a larger assortment and variety of quality products. The chief challenge would be to address the logistics and supply chain issues. Q shop is indirectly offsetting the higher costs associated with an inefficient supply chain, by managing the entire chain on its own. Nestle is doing this by partnering with other chains like Vishal retailmart, which already has a strong logistics structure in some of the semi urban areas.