Rural Gold Rush- Why Tier 2 & 3 Cities Are the New Battleground for FMCG Growth

Delhi, Mumbai, Bangalore, Chennai

About 4 decades ago, these 4 cities used to be the undisputed darlings of the FMCG industry. Back then, the Tier 1 , Tier 2 and Tier 3 city buckets looked very different from what we see today in 2025. 

After these metropolitan Tier 1  giants came the original Tier 2 heavyweights - Kolkata, Pune, and Hyderabad, maybe even Ahmedabad. Then came the emerging Tier 3 cities like Coimbatore, Jaipur, Indore, Chandigarh, Surat, Bhopal and Nagpur, each starting to ‘be seen’ by  FMCG companies looking for a national presence. Whatever else was left in the country got collectively referred to as ‘rural India’, often treated as a homogeneous market and lumped into a single bucket in planning and priority.

Today the scene is very different. Rural India, once the quiet, overlooked backbencher in the FMCG classroom, has undergone a remarkable transformation. Like the unassuming student who blossoms into the charming, enterprising star whom everyone admires, rural India has become the centre of attention. This transformation resulted in quite a few cities jumping from ‘rural’ to Tier 3, and some from Tier 3 into Tier 2 (also known as semi-urban).  With over 65% of the population residing in these areas and contributing nearly 50% of India’s overall consumption, rural India is no longer a secondary market; it is the new battleground for FMCG brands.

ITC, for instance, is offering its premium dark fantasy cookies in smaller Rs 10 packs in rural markets where consumption of biscuits and snacks, an otherwise urban centric category, is growing. "We are offering a wide-range of our food portfolio in the rural market including our premium range at specific unit points to drive consumption-led growth," Shuvadip Banerjee, chief digital marketing officer at ITC. 

Even D2C brands have similar stories. “If you look at the data, the top 8 cities account for only 35-38% of our D2C sales,” shared Shankar Prasad, Founder & CEO of Plum Goodness. For Plum, non-metro cities account for around 60% of its sales. 

What does Rural India have that Urban India doesn’t? 

1. Low Cost of Living

   Tier 1 cities are getting so crowded that opportunities for jobs, business growth, and even social mobility are reaching their saturation point. Things like high housing rent, transportation, and spiralling daily expenses are why more people and businesses are opting for smaller, more affordable cities, where they can have a better quality of life.
   
   

2. Underpenetrated Markets

   Urban FMCG markets possibly have over 90% penetration in categories like soaps and biscuits, so there is less scope for brands to grow. However, rural penetration likely remains under 60%. That is a huge untapped market for brands who want to expand their reach.
   
   

3. Rising Disposable Incomes

   A lot of village-friendly government initiatives like PM-Kisan and MGNREGA, as well as improved agricultural incomes have significantly increased spending power in rural households. According to the National Sample Survey Office (NSSO), rural income growth outpaced urban income growth by 1.5 times in recent years.

All these things combined with an increased digital penetration has exposed rural audiences to urban lifestyles and aspirations. As per NielsenIQ’s quarterly FMCG update in November 2024, urban demand was up 2.8%, demand in rural India grew 6%. While the majority of Indian rural population still hails the Rs 5 and Rs 10 packs, often called popular or magic price points, the slow shift away from them for daily essentials and grocery products is an indication that consumers have started upgrading their shopping basket or opting for larger packs that offer them more grammage for every rupee spent. 

If Rural India Is Booming, Why Aren’t FMCG Brands Keeping Up

Despite the opportunities and the massive potential for scaling consumer brands, rural FMCG distribution comes with its own set of challenges:

• Infrastructure Barriers

  Poor road connectivity and underdeveloped logistics networks significantly increase costs and delays in product delivery.
  
  

• Limited Retail Access

  With over 12 million kirana stores dominating rural retail, most of which fall in the ‘fragmented’ category, it becomes very challenging for brands to navigate such a complex, unstructured market without the benefits of organized retail.
  
  

• Inflation and Price Sensitivity

  Historically, Rs. 5 or Rs 10 price packs have played a key role in capturing rural consumers because they offer affordability and accessibility. However, maintaining these low-price packs has become unsustainable for many brands due to soaring raw material costs. This restricts the ability of smaller players to compete and also forces larger brands to rethink their pricing strategies, potentially alienating cost-sensitive rural consumers. 
  
  

• Cultural and Regional Diversity

  India’s rural markets are far from homogenous, so one-size-fits-all strategy can create havoc due to linguistic, cultural, and lifestyle variations in not just among states, but within the same state! Just because a product is successful in Prayagraj does not mean it will be successful in Lucknow. The unique consumer demographics of people even 200 kilometers away from each other is what forces brands to finely hone their GTM according to different territories.
  
  

• Word of Mouth is Greater than Any Promotion

  Local influencers and word-of-mouth marketing significantly impact purchasing decisions, much more than retailer schemes and discounts.

"Pintola ka peanut butter ke liye customer log demand kar raha tha, par idhar milta hi nahi tha. Badho se order kiya aur seedha brand se maal aa gaya! Ab naye naye product laana easy ho gaya, jo customer maangta hai, woh de sakta hoon."  — Dhruba Kumar, Shop owner, Palasbari, Assam

How Badho Empowers The Rural Revolution for FMCG Brands

Badho acts as a bridge between FMCG brands and rural retailers, enabling seamless distribution and real-time insights. Through Badho, brands can:

1. Leverage Data & Insights

   Advanced analytics help brands map demand patterns and refine supply chains. Platforms like Badho provide real-time insights by connecting brands with retailers, enabling smarter decision-making.
   
   

2. Get Access to Curated Distribution Networks

   Most brands find it challenging to build distribution relationships in rural and semi-urban areas. Badho helps them by connecting them with the right distributors who can create immediate traction for brands in these new territories.
   
   

3. Enable Channel Marketing

   It’s not easy for a salesman to showcase the entire product portfolio in Tier 2 and 3 cities because of how widely the retail outlets are dispersed. Badho makes it easy for brands to showcase relevant SKUs and attractive promotions and schemes to distributors and retailers to drive higher order volume. For example, single-use sachets of shampoo and detergent have been game-changers in rural markets.

Today Badho is helping more than 60 FMCG brands fuel their expansion across hundreds of retail shelves. Take the example of Sadguna Masala, a brand from Jharkhand that recently partnered with 4 new distributors who expressed their interest in Badho. Pintola, a renowned peanut butter brand, used Badho to fulfil an order from a small town in Assam where they didn’t even have their own sales team!

Rural consumers are not the same as what they were 15 years ago. Tier 2 & 3 cities and rural markets are now the next frontier of FMCG growth. We think it’s just a matter of time that their consumption patterns will mirror urban trends so closely that brands will have dedicated GTMs, technology solutions, and teams exclusively for them.

Succeeding in these regions requires not just ambition but strategic, localized execution. The FMCG brands that shine that spotlight and act decisively and innovatively are the ones who will bask in the glory for a long time to come.