Large FMCG companies are expanding significantly in tier II and III markets. ITC's Sanjiv Puri explains how the company is latching on to emerging opportunities, in an interview with Ritwik Mukherjee.
How much thrust does ITC place on tier II and III cities?
Enhancing distribution reach is one of the key pillars of ITC's trade marketing and distribution strategy and tier II and III cities form an integral part of this approach since they are the drivers of growing business.
Just about 15 years ago, India had four metros, while today there are eight such cities which marketers have to treat alike, keeping in mind consumption patterns and per capita income. This base is only going to expand further. Tier II and III cities are growing at double the rate at which tier I cities are growing, and these markets now contribute to nearly 30 per cent of the FMCG industry's turnover.
These cities are seeing rapid changes in the retail landscape, where more organised chains are expanding, as well as a number of existing general stores are converting to self-service formats. This changing landscape ensures that we continually evolve our coverage and input strategies in these markets.
Another area is the increasing spending, power and hence premiumisation of products - while on one hand, ITC has launched premium products, it has adapted it's portfolio to markets beyond the metros through more affordable price points of premium products, some examples are Delishus and Dark Fantasy in biscuits and both premium atta variants(Aashirvaad multigrain atta and select).
How have these cities been contributing to ITC's topline and bottomline growth?
With the company's growing thrust in these markets and the emerging opportunities, the contribution of these markets have been increasing for us and would account for roughly l/3rd of the business that we do in our FMCG categories.
ITC's focus on expanding it's premium portfolio has ensured robust growth in metros while in tier II and III cities, we have driven growth through a mix of enhanced distribution and customisation of our portfolio to meet consumer needs.
What has been the general industry trend (FMCG sector) when it comes to tier II and III cities?
While rural has been the fastest growing area this year, the industry trend for tier II and III cities are only second to rural and growing at a much faster rate than tier I cities (double the rate of growth).
What kind of change in this break up, do you foresee in the coining days and why?
The break up will continually evolve in favour of tier II and III cities, given the higher rate of growth than tier I cities, owing to the large potential that still remains untapped there. Some examples that continue to demonstrate the importance of these cities:
- Locational landscape for BPO outsourcing is fast increasing outside the metros and into these markets (some like Kochi, Trivandrum and Jaipur already have high activity, while others like Indore, Vizag and Chandigarh are at a nascent stage). Also, one must remember that tier II and III locations are also becoming centres for higher education within the region and state and they also attract talent from nearby areas, therefore, adding to the overall talent pool.
- India is expected to have 68 cities with over a million population by 2030, and these markets will provide huge opportunities to marketers.
- There are examples such as in the quick service foods industry, where restaurants are opening in tier II and III cities, as the next leap, going forward.