Beyond the Metros: India's Growth Frontiers

Strategy Briefing

About This Report

Mar 2016

Future growth in India is expected to be driven by the tier two cities, where the majority of Indian consumers reside. As well as population growth, these cities are set to witness significant rises in consumer income and expenditure. This briefing looks at the growth potential of the various tier two cities, and identifies those that posses the greatest potential for growth over the coming 15 years.

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Beyond the Metros: India's Growth Frontiers

Metros will continue to remain important

Metros with high income levels and large consumer bases will continue to be important over the next 15 years. However, lack of retail space, high rents, and slower growth in annual incomes and consumer expenditure over the coming 15 years will present challenges for operators in lifestyle industries such as apparel and footwear, personal accessories and luxury goods. Delhi and Bangalore will be the top performing metros, while Mumbai and Kolkata are expected to register income and expenditure growth which is lower than national average.

Future growth to be driven by tier-II cities

Chennai, Hyderabad and Pune are predicted to be the top performing tier-II cities in terms of annual income and consumer expenditure growth over the next 15 years. Mallapuram, Thiruvanthapuram and Thrissur, from a lower base, are also set to witness strong annual growth in income and expenditure over the next 15 years. These cities all offer interesting opportunities to penetrate the market more fully.

Increasing broadband penetration to drive growth of internet related industries and devices

Pune, Hyderabad, Faridabad and Kochi are expected to see strong growth in broadband internet penetration over the coming 15 years, and will be hubs for internet retailing and m-commerce. These cities are likely to witness strong growth in sales of laptops and smartphones. Online-only players can focus on these cities for expansion over the coming 15 years.

Luxury market to move to tier-II cities

Sales of luxury goods were initially concentrated in the major metros, but there is an increasing appetite in smaller cities. This, coupled with lack of retail space and exorbitant rents in the big metros, means that expansion into tier two and even three cities could be more profitable.


Key findings

Overview: Indian cities

An overview of Indian cities

Overview: Indian Cities

Population: Urbanisation will give smaller cities the advantage
Bangalore to witness fastest population growth among metros
Annual disposable income: Delhi exceeds 200% growth
Annual disposable income: Indore, Surat and Kochi top performers
Consumer expenditure: Smaller cities to witness stronger growth
Consumer expenditure: Delhi and Bangalore top performing metros
Chennai, Hyderabad, Pune to be the top performing tier-II cities

Income and Consumption in Key Cities

I ncome and consumption patterns of key cities
High middle class incomes lead to strong growth potential
Richest households will become richer
Opportunities: Cities with high growth in disposable income per HH
High income cities to drive growth across industries
Faridabad and Patna are the key industry growth drivers

Key Trends in Consumer Expenditure

C onsumer expenditure trends in Indian cities
Highest spending on food and non-alcoholic beverages in 2015
Kannur spends most on food and transport
Tourism and cars drive discretionary spending in 2030
Less spending on food and more on travel in 2030

Possession Rates and Opportunities

Possession rates and opportunities they present
Microwave oven penetration: Opportunity for ready meals brands
Rapid rise of vehicle ownership will lead to increasing mobility
Broadband access expected to increase substantially by 2030
Opportunities exist for LED/LCD TVs
Consumers make a definitive move towards smartphones

Infrastructure: A Growth Catalyst

Investments in infrastructure a key growth catalyst
Tier two cities: A new future
Surat: Improved connectivity to boost industrial development
Nagpur: C ommercial infrastructure and IT to boost demand
Lucknow: Housing projects and public transport to push demand
Vadodara: A key tier two city in Gujarat
Jaipur: Improved connectivity with Delhi-NCR and infrastructure
Indore: Continues to be commercial capital of Madhya Pradesh

Luxury Industry and Cities in India

Case Study: Luxury players focus in India should now shift away from metros
Tier-II cities: N ext markets of opportunity for luxury players
Luxury malls currently concentrated in the metro cities too
Top 10 destinations for luxury over the next 15 years


State of metros by 2030
Lifestyle, electronics goods to pick up in high income growth cities
Next growth centres for packaged food and internet industries