IRF 2008: 'The small cities of today are the mega towns of the future'

The last day of the India Retail Forum 2008 (IRF 2008) started with Rajan Malhotra, chief executive officer, Big Bazaar, and the anchor for the day, highlighting the topics covered in the two earlier days. Like most of the speakers, he admitted that understanding retail was a bumpy ride, but it was a learning curve and everyone was growing with it. IRF 2008 was held at The Renaissance, Powai, Mumbai, over three days.

Malhotra introduced the next speaker for the session, Roopa Purushothaman, chief economist, Future Capital Holdings, and managing director, Future Capital Research. Purushothaman started by revealing the interesting findings of a research study. The study predicts that by 2015, more than 45 per cent of India will be urbanised. This, naturally, was a positive note to start on.

Purushothaman said that 20 cities that have the potential to become the next major retail destinations had been identified as a result of the study. These cities were further divided into three categories: mega cities such as Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad and Pune; boom towns or Tier II cities expected to flourish, such as Surat, Kanpur and Jaipur; niche cities or Tier III cities, such as Faridabad, Amritsar and Jalandhar.

A surprising fact thrown up by the study was that the fastest growing cities were Surat, Nagpur and Ahmedabad. Surat is gaining popularity because it offers expansion possibilities to retailers despite not being a mega city.

According to Purushothaman, the study revealed that the middle class segment across the 20 cities is about 40 per cent. She said that by 2015-16, the high income segment would triple and quadruple in the boom towns. The study found that ownership patterns across the various cities were different. For example, the middle class segment dominated high end technology products such as computers and television sets, while the aspirant sector, which was just below the middle class, was the leader in low end technology products such as mobiles.

This trend could be due to the spending and saving patterns of the different sectors. For example, the middle class in the Tier III cities preferred to keep their savings at home, rather than investing them or keeping them in a bank. Purushothaman concluded her session by highlighting that retailers and investors would find the study useful.

Rajesh Shukla, director, NCAER, took the mike next and supplemented Purushothaman’s presentation by providing some more statistical data. He said that serious research was needed to understand Indian democracy.

Malhotra then introduced the next speaker, Manoj Chandra, vice-president, marketing and customer service, Bata India. Chandra began by saying that future growth would come from the smaller cities. He said, “Tier II is important because these small cities have infrastructure, but lack excitement, which is what modern retail wants to give them.”

He continued that Tier II and III city consumers want branded goods now as they have been exposed to a better and advanced lifestyle, and the response of the consumers in these cities is better than that of consumers in the big cities.

Malhotra then asked Chandra what made him decide on a city. Chandra replied with a smile, “The thumb rule is the number of legs that are present in the city. We also look at evolving patterns among consumers. Earlier, sports footwear was considered to be a North oriented product. Now, consumers from the South are also warming up to it.”

Malhotra turned to Manish Kalani, managing director, EWDPL Group, and asked him how EWDPL decides on developing cities that are not even known. Kalani said it was just gut feeling. He said that when his company started developing properties in small cities, it had no data on them; now, he hoped these would be the next 20 cities to watch out for at next year’s IRF.

Kalani said one has to ensure that the business model is financially viable. He ended the session by thanking Kishore Biyani, as Biyani was the only one who had supported his idea years ago.