January 15, 2025
As we step into 2025, India’s retail landscape is undergoing a transformative shift. Tier 2 cities, once considered secondary to the bustling metros, are now emerging as key growth drivers for branded retailers. The traditional retail playbook, which focused heavily on metropolitan markets, is now being rewritten as retailers expand their footprint into smaller cities, driven by evolving consumer behavior, urbanization, and economic growth.
This article explores the emerging trend of retail expansion into Tier 2 cities, backed by the latest data on new store launches and industry insights. Contact Spatic today to discover how we can help you guide this growing market and unlock new opportunities for your brand.
The Rise of Tier 2 Cities
Over the past two years, the number of branded stores launched in Tier 2 cities has increased. As disposable incomes rise and urbanization accelerates, these regions attract significant attention from retailers across various categories, including food and beverage (F&B), fashion, electronics, and more. This shift marks a key development in the retail sector in India, where previously overlooked markets are now becoming central to growth.
Regional Growth Trends in the India Retail Market
According to recent Industry data, by 2029, Tier 2 and Tier 3 cities are expected to see over 25 million square feet of new retail space. The northern region is leading the charge, accounting for 44% of the upcoming retail supply, with cities like Ludhiana, Jaipur, and Lucknow taking center stage. The southern region is not far behind, contributing 30% of the new retail supply, with cities such as Coimbatore, Mallapuram, Thrissur, and Trivandrum leading the charge.
According to the retail industry in India, in March 2024 alone, cities accounted for approximately 64% of all new store launches in the country, signifying their growing importance in the marketing and retailing landscape.
Expanding into these emerging markets presents an exciting opportunity for those already invested in or entering the retail store business. Please note that all the below data & graphs have considered the following categories of stores in this calculation:
1. F&B: Restaurants, Coffee shop, Other F&B categories like ice cream, cakes and desserts
2. Retail: Clothing, cosmetics, electronics, home décor, Jewelry, footwear, supermarkets, beauty & salons, and other retail categories like watches and luggage
And the data considered for 2024 is from Jan 2024 to Nov 2024.
Table 1: New Store Launches in Top Tier 2 Cities (2024)
While cities like Indore, Lucknow, and Goa have already seen significant growth in recent years, 2024 witnessed some standout performances from other Tier 2 cities, including:
Table 2: Exceptional Growth in Tier 2 Cities in 2024
Key Trends Driving Retail Expansion in Tier 2 Cities
Retail growth in Tier 2 cities is driven by the increasing popularity of food and beverage outlets, a surge in branded fashion stores, and the expansion of supermarkets, making these cities emerging retail hotspots. Here are the key trends that can be seen in retail expansion:
1. Food and Beverage Boom
The food and beverage (F&B) sector has significantly surged in Tier 2 cities, with coffee shops, fast-food chains, and casual dining outlets leading the charge. This is particularly evident in cities like Indore, Patna, and Goa, which have seen a 26%, 25% & 25% increase in resp. In F&B store launches over the last two years (2024 & 2025).
As more consumers shift toward branded, quick-service options, cities like Lucknow and Jaipur also witness significant growth in this category. Here are some of the cities that have experienced the highest percent growth in the F&B sector in 2024:
Table 3: Food Sector Growth in Tier 2 Cities
2. Fashion Retail Surge
The fashion segment in Tier 2 cities has also been growing quickly. Indore, Coimbatore, and Kochi have seen substantial growth in branded fashion stores, with increases of 46%, 22%, and 29% in 2024, respectively.
Among the cities with the highest growth in the fashion retail sector, the following stood out in the year of 2024:
Table 4: Fashion Retail Expansion in Tier 2 Cities
Luxury brands are also eyeing these Tier 2 cities as affluence levels rise. Cities like Jaipur and Chandigarh have seen a 14% increase in luxury retail entries in 2024, with high-street sites and premium malls becoming the preferred choices.
3. Supermarket Growth
Supermarkets are gradually expanding into Tier 2 cities, catering to the increasing demand for organized retail formats. Cities like Lucknow, Coimbatore, and Vijayawada are leading the charge in new supermarket openings, with growth rates ranging from 9% to 16% in 2024.
Some of the standout performances in the supermarket category include:
Table 5: Supermarket Retail Expansion in Tier 2 Cities
Also Reading - City Expansion Strategy AcrossTier 1 and Tier 2 Cities In India
Why Tier 2 Cities?
Several factors are driving the growing interest of retailers in Tier 2 cities:
- Economic Growth: Tier 2 cities are experiencing rapid economic growth, translating into increased disposable incomes and a more extensive middle-class consumer base.
- Changing Consumer Preferences: Younger consumers in these cities are increasingly attracted to modern retail experiences and branded products.
- Urbanization Trends: With growing migration from rural areas to Tier 2 cities, the demand for organized retail services is rising, creating a robust environment for the retail store business.
Challenges and the Road Ahead
While the potential for growth in Tier 2 cities is undeniable, retailers face challenges such as infrastructure limitations, tracking competition from local businesses, and the need to tailor offerings to regional preferences.
As brands adapt and invest strategically, these challenges can be overcome. For businesses looking to tap into this expanding market, understanding the competition analysis and leveraging insights will be key to success in India’s retail market.
Retail Revolution in Tier 2 Cities: Is Your Brand Ready?
The retail boom in India's Tier 2 cities marks a fundamental shift in the country's marketing and retailing landscape. Retailers who can effectively tap into these emerging markets—by leveraging insights into local consumer behavior and tailoring their strategies—will achieve profitable growth and contribute significantly to these regions' economic development. With continued investment and planning, Tier 2 cities are poised to become central players in India's retail market story for years.
As the retail sector in India continues to evolve, now is the perfect time to make your mark. Partner with Spatic to develop customized strategies that cater to these growing markets and ensure your brand thrives in the evolving landscape. Contact Spatic today to start your journey toward success in Tier 2 cities.
FAQs
1. What factors make Tier 2 cities attractive for retail expansion?
Factors such as growing middle-class populations, increasing disposable incomes, urbanization, and changing consumer preferences make Tier 2 cities ideal for retail expansion.
2. How are consumer preferences in Tier 2 cities different from metropolitan areas?
Consumers in Tier 2 cities are increasingly looking for modern retail experiences. They prefer branded products, organized retail formats, and convenience-oriented services like supermarkets and fast-food outlets.
3. What role does infrastructure play in retail growth in Tier 2 cities?
While growing infrastructure supports retail expansion, challenges like limited retail space and logistical concerns must be addressed for sustainable growth in these cities.
4. Are luxury brands entering Tier 2 cities?
With rising affluence, luxury brands are eyeing Tier 2 cities, especially places like Jaipur and Chandigarh, which have seen a notable rise in high-end retail outlets.
5. What opportunities do supermarkets offer in Tier 2 cities?
Supermarkets are increasingly meeting the demand for organized retail in Tier 2 cities, offering convenience and variety to growing consumer bases in cities like Coimbatore, Vijayawada, and Lucknow.
