India's Fastest Consumer Growth is Coming from Tier-2 and 3 Cities

So far, the growth story of Indian D2C brands might have been told through the lens of metro cities, but recent trends show that the focus has now shifted. Now, Tier-2 and 3 cities of India are shaping the country's consumer markets more decisively than ever before.

Recent reports highlight that India is projected to add nearly 100 million new consumers to branded and organised retail by 2030, and a disproportionate share of them will come from smaller cities.

Bain estimates that the country's e-retail market, valued at around USD 60 billion in 2024, is on track to reach USD 170-190 billion by 2030, with almost three out of every five new online shoppers since 2020 emerging from Tier-3 or smaller towns. Another analysis by Deloitte notes that over 60 per cent of e-commerce transactions now originate from Tier-2 and Tier-3 markets.

What is Driving This Shift?

With 800-900 million Indians online, rising per-capita incomes, expanding middle-income households, and a creator economy that already influences up to USD 400 billion in spending, Tier-2 and Tier-3 India have reached a level of aspiration and digital fluency that parallels metros, without the saturation that constrains growth in major cities.

The shift is also evident at the merchant level. "What we are witnessing is a clear structural shift in India's consumption landscape, with growth engines moving decisively beyond the metros," said Raman Khanduja, CEO & Co-founder of Mintoak, an embedded FinTech firm.

Drawing from the firm's Festive Spending Insights 2025 report, he added, "Tier-2 and Tier-3 markets are no longer 'emerging', they are increasingly driving national consumption patterns."

The firm's data shows Tier-3 cities recording a 77 per cent surge in digital payments for watches and jewellery and a 59 per cent increase in grocery and supermarket spending. Tier-2 cities posted similar momentum, with 64 per cent growth in watches and jewellery and 46 per cent in grocery categories.

These patterns reflect deeper behavioural drivers. Rising disposable incomes are expanding the number of households that can afford premium categories. Local discovery, shaped by digital platforms and creator-driven influence, is accelerating the adoption of new brands.

Digital payments, once considered a convenience, have transitioned into a daily habit in these markets. "Digital payments in Tier-2 and Tier-3 cities have moved from convenience to confidence. Merchants feel secure, and customers are comfortable making repeat purchases," Khanduja added.

While the narrative around urban India often centres on the rise of quick commerce, the model is expanding aggressively in smaller cities as well. Q-commerce players are entering 80+ Tier-2 and Tier-3 cities, cutting delivery times and exposing consumers to a larger variety of brands. For D2C companies, this has lowered acquisition friction, enabling faster trials and repeat purchases.

Evidence of this shift is playing out across categories. Organised penetration is rising quickly in staples, beauty, home products, apparel, and food and grocery.

Small Cities, Big Demand

For many D2C founders, the shift has been unmistakable.

Griffith David, Founder and CEO of Habanero Foods, said his biggest learning came from watching consumption patterns flip. "If you'd asked me five years ago where Habanero's biggest growth would come from, I'd have confidently said Bengaluru, Mumbai, Delhi. But the real story has turned out to be very different. Today, our hottest demand comes from Tier-2 and Tier-3 cities," he said, adding, "Places like Coimbatore, Vizag, Indore, Mysuru, and even smaller towns we'd never shipped to before are now ordering our sauces and pastas faster than the metros."

For brands, this has meant reorganising operations. "This shift has pushed us to double down on these markets, expanding our distribution, strengthening delivery speed, and even planning local warehousing so people don't have to wait for their orders. If you're building a brand in India in 2025, you can't afford to ignore this audience. They're not 'the next big thing', they're already the driving force," David added.

The intent behind consumption in these cities is also evolving. Smaller-city consumers, once perceived as conservative spenders, are now more experimental and value-driven.

Arvind Patel, Managing Director of Bharat Vedica, an Indian organic F&B brand, says, "Consumers in smaller cities are deeply value-conscious, but they are also increasingly quality-driven and brand-aware. What's changed is their exposure: access to digital platforms, social commerce, and relatable creator ecosystems has allowed them to discover and adopt brands with the same confidence and aspiration seen in metros."

Patel believes the long-term story is even more compelling. "Tier-2 and Tier-3 consumers are choosing clean, honest, and transparent food products not because it's trendy, but because it aligns with the way they want to live. Their rising incomes, expanding digital comfort, and openness to experimenting with new categories make them India's most profitable and loyal audience today," he said.

What sets these markets apart is not just their scale but their endurance. They offer high retention, frequent transacting behaviour, and lower marketing fatigue compared to metros.

The geography of Indian consumption is being rewritten. The next decade of brand-building will be shaped less by saturation in metros and more by the depth, diversity, and rising purchasing power of smaller cities. For Indian brands, Tier-2 and Tier-3 India represent the biggest opportunity to win the next 100 million consumers.