Tier 2 cities account for $100 billion in e-commerce market; challengers like Meesho stand to win

Meesho crossed Amazon India’s monthly active users (MAUs), as per the brokerage firm.

The e-commerce market in Tier 2 and beyond regions has grown to a massive $90-$100 billion in size over the past years and now accounts for 35 percent of the overall market which is pegged at a $280 billion opportunity in India, brokerage firm Bernstein said in a note to its clients.

While Flipkart and Amazon are major players in the industry, the larger market is growing thanks to challengers like Meesho.

“We believe the expansion in Tier 2+ markets will drive emergence of new challengers across quick, social, vertical commerce,” the brokerage said in its note.

“While larger platforms Amazon and Flipkart lead on scale, with about 60 percent market share, challengers are growing faster. Meesho is unlocking the Tier 2+ market focusing on small sellers driving healthy growth, around 30 percent year-on-year (YoY) growth,” it added.

Apart from Meesho, Blinkit, Zomato’s quick commerce arm, is also growing at a 100% YoY rate which will help in increasing the overall e-commerce pie.

While the average order values (AOVs) are lower in Tier 2 cities when compared with metros, it is being offset by lower labour and logistics cost, Bernstein said.

“E-commerce penetration is higher in metro cities at 15 percent, while Tier 2+ cities are only at 6 percent. We see Tier 2+ markets catching (up) over the next decade leading to new challengers,” Bernstein added.

Meesho surpasses Amazon

Meesho crossed Amazon India’s monthly active users (MAUs), as per the brokerage firm.

“Meesho exhibited a 34 percent relative market share, as a % of MAUs, while Amazon India held a 31 percent market share. Meesho monthly active users (MAUs) grew at 25 percent on a YoY basis in August 2024, compared to Amazon and Flipkart degrowing at 5 percent and 2 percent respectively,” Bernstein said in its note.

This was driven by Meesho’s focus on affordable products and deep penetration into underserved regions, where traditional platforms have struggled to gain traction, it added.

Flipkart is however the market leader with a comfortable lead over its peers.

The company had an annualised gross merchandise value (GMV) of $5.6 billion as of December 2023, growing from $4.7 billion in FY23.