This document discusses the expansion of modern retail in tier 2 and tier 3 cities in India, along with the associated challenges and opportunities. It notes that per capita incomes are rising in these cities, which have lower living costs than tier 1 cities. Surveys found that residents spend an average of Rs. 1500 per shopping trip at modern retailers and spend 71 minutes shopping. However, modern retailers face strong competition from traditional retailers and issues with talent retention, infrastructure, and shrinkage. Opportunities for modern retailers include the large amount of real estate investment in tier 2/3 cities, their high urbanization rates, and the potential for personalized offers, experiential shopping, and gamified training programs.

1. Expansion of Modern Retail in
Tier 2 and Tier 3 Cities:
Challenges & Opportunities
Yashi Srivastava
Aditya Srivastava
Aditya Agrawal
BIMTECH, Plot Number 5, Knowledge Park 2, NCR,
Greater Noida, Uttar Pradesh 201306, India

2. Current Scenario of
Tier 2
and Tier 3 Towns
◂ Increasing Per Capita Income
◂ These cities have relatively lower living cost and
generally fall in 40 to 65 range on price index rating of
India.
◂ Average visits made to the modern retail outlet : 2
(Primary Data)
◂ Average amount spent per shopping trip is more than
₹ 1500
◂ Average time spent in a modern retail store is
approximately 71 minutes.
◂ Average time spent in travel to reach any modern
retail outlet is approximately 22 minutes. 2
0
50
100
150
200
250
2010 2015 2020
PerCapitaIncome(INR)*1000
Per Capita Income
(INR)*1000
Per Capita
Income
(INR)*1000
Source : India's Growth Paradigm Shift, EY, March 2017
11%
30%
25%
3%
31%
Average amount spent per shopping trip
Less than Rs. 500 Rs. 1000-2000 Rs. 2000-5000
Rs. 5000 and more Rs. 500-1000
Source: Primary
Data
46%
16%
35%
3%
Average time taken to reach any modern retail
outlet
15 - 30 Mins 30 - 60 Mins Less than 15 Minutes More than 1 Hour
Source: Primary
Data
49%
5%
45%
1%
Average time spent in a modern retail store
1-2 Hour 3-4 Hour Less than 1 Hour More than 4 Hour
Source: Primary
Data

3. Challenges
◂ Modern Retail faces a
strong competition from
traditional retailers
Opportunities
◂ High amount of real estate
investment in tier 2 & tier 3
cities
3
7% 10%
93% 90%
0%
20%
40%
60%
80%
100%
2016-2017 FY 2020 E
Low Penetration of Organized Retail
Unorganized Retail
Organized Retail
Source: Retail ,
IBEF, April 2018
0
1000
2000
3000
4000
5000
6000
7000
TIER 1 TIER 2 TIER 3
Investment amount in Million $
Investment
amount in
mn $
Source: Fueling the
Retail Revolution- The
Paradigm of Emerging
Cities, JLL- CII,DEC-
2017

4. Challenges
◂ Finding, Training &
Retaining Talent
◂ High frauds and shrinkage
in tier 2 & Tier 3 cities
◂ Poor infrastructure for
supply chain and storage
facility leading to huge
wastage
(Source : Indian Retail Next Growth Story, KPMG)
Opportunities
◂ High urbanization rate of
33.57%
(Source : Statista: Urbanization Growth Rate India
4

5. Challenges
◂ Sales people volunteer to
help me while shopping
Opportunities
◂ Shopping takes a lot of
effort at a kirana store.
5
Strongly
Disagree
12%
Disagree
15%
Neutral
32%
Agree
22%
Strongly
Agree
19%
Source:
Primary
Data
Strongly
Disagree
12%
Disagree
11%
Neutral
24%
Agree
39%
Strongly
Agree
14%
Source:
Primary
Data

6. Challenges
◂ I want to shop from the
nearest possible retailer
)
Opportunities
◂ Discounts on merchandise
encourages me to go an
extra mile
6
Strongly
Disagree
8%
Disagree
6%
Neutral
22%
Agree
22%
Strongly
Agree
42%
Source:
Primary
Data
Strongly
Disagree
3%
Disagree
7%
Neutral
28%
Agree
26%
Strongly
Agree
36%
Source:
Primary
Data

7. RECOMMENDATIONS
Personalized offers &
Experiential shopping
Gamification of training
program
Proper Discounts
Strong Competition from
traditional retail &
E-commerce
Finding, training & retaining
talent
Customer Proximity
Strict zoning policy
Providing Omni channel
experience
Create stand-alone stores
High amount of real
investment
Increased Mobile
Penetration
High Urbanization
Expansion
Challenges
Opportunities

8. THANK YOU