Urban growth isn’t slowing down; we’re simply looking at the wrong data, says CLSA's Aditya Sonam

Urban growth isn’t slowing down; we’re simply looking at the wrong data, says CLSA's Aditya Sonam

At a time when most experts are taking about urban consumption growth being slower than the rural, Aditya Sonam, India Consumer Senior Research Analyst at CLSA has an interesting take on it.

Deep diving into data, he believes that consumption in metro cities in urban areas is indeed slowing; however, growth in non-metro cities in urban areas was still faster than rural.

The slowdown in metro cities is because of a shift in purchasing behaviour, he said quoting Neilsen data. Consumers in metro cities are opting for quick-commerce and e-commerce platforms over traditional FMCG channels. If urban consumption was truly slowing, concert ticket sales and fast fashion would not be thriving as they currently are, he said.

Most of the quick-commerce platforms are not present outside metro cities, and hence a consumption slowdown is visible in the metro cities when data from the top staple companies is considered, he added.

How scalable is quick commerce in non-metro areas?

Sonam said that quick-commerce businesses require a population density of 7,000–10,000 people per square kilometer to be viable. This density currently exists in around 125 cities, as per a UN statistics.

He added that Swiggy and Blinkit operate in 40–45 cities, while Zepto is present in 15–20 cities. “Over time, we expect them to expand to 80–120 cities however, achieving full density across all viable cities could take 5–10 years,” said Sonam.

Quoting a data by Britannia, he said that the majority of contribution to earnings of an FMCG company comes from the top stores in urban areas.

So, while the big FMCG giants may grow in rural areas because of their strong distribution as compared to the quick-commerce players, they would lose market share in the top 10 percent metro areas.

“The bottom 20 percent contribution to earnings (which are coming from rural areas) can continue growing very fast as the levels of expectations grow. But the problem is if you start losing share in the top 50 percent contribution to earnings, that has a much bigger implication,” he added.

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