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Tier 3-5 Towns Boom: Growth Doubles Metros on Fuel, Food, Fashion

Tier 3-5 cities in India are growing at nearly double the rate of metros, fueled by higher disposable incomes and rising aspirations. This growth is being driven by the "3Fs"—fuel, food, and fashion—along emerging highway and high-street retail corridors. The report highlights a massive 104% surge in grocery spending in these smaller towns, compared to 32% in tier 1-2 cities. Success for retailers now depends on hyperlocal strategies and granular consumer understanding as mass-premium offerings lose relevance.

Key Points: Tier 3-5 Cities Outpace Metros in Retail Growth

  • Tier 3-5 cities grow twice as fast as metros
  • Highways & highstreets are new demand engines
  • Grocery spending up 104% in tier 3-5
  • Premiumisation varies sharply by geography
2 min read

Tier 3-5 towns to grow twice as fast as metro peers driven by higher disposable incomes

A new report reveals tier 3-5 towns are growing twice as fast as metros, driven by disposable income, highways, and premiumisation trends.

"India offers extraordinary growth potential for retailers, but real success lies in understanding how consumer behaviour is evolving. - Rajesh Chopra"

New Delhi, Feb 28

Highways and highstreets are emerging as the new demand engines and the 3Fs -- fuel, food and fashion -- are driving tier 3-5 towns to grow twice as fast as their metro peers, a report showed on Saturday.

Decentralisation of demand and rapid premiumisation are accelerating India's retail transformation, according to a new report by ClarityX, an AI-driven data analytics and consulting firm supported by MapmyIndia founders and Mastercard.

Tier 3-5 cities are growing almost twice as fast as metros, driven by higher disposable incomes, rising aspirations and a lower starting consumption base.

Categories from dining to apparel are seeing clear trading‑up behaviour, but the meaning of 'premium' varies sharply by geography - making hyperlocal product assortments increasingly important as mass‑premium offerings lose relevance.

With tier 1-2 markets approaching saturation, highway and high‑street retail corridors (2H) are emerging as new demand engines.

Fuel and food consumption along these routes indicate rising footfall, first‑time brand adoption and the formation of new retail hubs. Future growth will depend on category mix, micro-marketing and the ability to understand consumers at a highly granular level, said the report.

The seeping of retail demand and its premiumisation at lower demographics are strong markers of democratisation of purchasing power and inclusive economic growth.

"The evolution of AI-enabled retail intelligence is bringing together multi-party datasets that identify high‑potential geographies, shifting consumer demand and enabling precision-led expansion strategies," said Rakhi Prasad, Co-founder, ClarityX and Non-executive Director, CE Info Systems Ltd (MapmyIndia Mappls)

According to the report, offline consumer spends grew 20 per cent between 2023-25, while retail outlets expanded 25 per cent in the same period. Electronics, durables and jewellery are still in early growth phases, while footwear has reached maturity across tier 1-5.

Grocery spending rose 74 per cent nationally, but growth was uneven - 32 per cent in tier 1-2 compared to 104 per cent in tier 3-5 cities.

"India offers extraordinary growth potential for retailers, but real success lies in understanding how consumer behaviour is evolving. Aggregated and anonymized payments data can tell us who customers are, how they shop and what they value," said Rajesh Chopra, Senior Vice President and Head, Advisors, South Asia at Mastercard.

- IANS

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Reader Comments

S
Sarah B
As someone who works in retail analytics, the hyperlocal point is crucial. A "premium" product in Gurgaon is very different from one in Gwalior. Brands that use this data to tailor assortments will win big in these emerging markets.
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Rohit P
The 104% growth in grocery spending in tier 3-5 cities is mind-blowing! It's not just about more money, it's about better quality food and branded items entering the kitchen. My parents in a tier-3 town now buy packaged snacks we never had growing up.
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Priya S
While the growth is impressive, I hope this development is sustainable. We need to ensure these new retail hubs don't create traffic chaos and that local kirana stores aren't completely wiped out. Growth should be balanced.
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Vikram M
Highway retail is the next big thing. I recently drove on the new expressway and the food plazas and fuel stations are like mini-malls now! It makes sense for brands to be there where the footfall is guaranteed.
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Karthik V
The report is right about aspirations. In my tier-4 hometown, having a certain brand of phone or wearing specific footwear is a status symbol now. It's not just need, it's about identity and aspiration driving these purchases.

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