In India's Retail Race, One Chain Finds Gold in Small-City Strategy
As India's retail giants battle for supremacy in megacities like Mumbai and Delhi, one fast-growing chain is thriving by looking the other way.
Vishal Mega Mart, a $5.25 billion retailer that went public in December, has built its success by targeting the small cities that most major retailers overlook. With 645 stores across India, VMM has just one outlet in Tamil Nadu, two in Maharashtra, and one in Gujarat - states that are usually prime targets for retail expansion.
Instead, the company has concentrated its firepower in three states -- Uttar Pradesh, Karnataka and Assam -- which together deliver 37% of its revenue. This unconventional geography reflects a calculated bet on what retail watchers call "aspirational India": 225 million middle and lower-middle-income households hungry for modern retail experiences.
In these smaller cities, where VMM has planted 70% of its stores, the company has become a one-stop destination. Its stores blend apparel (44% of its sales), household goods (29%), and daily necessities (27%). The company's own brands make up 73% of sales, and its stores offer amenities like trial rooms and return policies -- rarities in India's smaller cities.
That's not to say that VMM's strategy isn't facing challenges. In larger cities, where it operates 107 stores -- 16% of its network -- the company is squeezed between quick-delivery startups and established chains. Nearly a third of its stores in India's top 45 cities now share neighborhoods with Zudio, a value-fashion chain backed by retail powerhouse Trent.
The company's digital response has been modest. Since launching online delivery in August 2021, the service has reached 574 stores across 375 cities. Yet digital sales remain at 1% of revenue, and the company admits it hasn't cracked the code for profitable online expansion.
Vishal Mega Mart is planning to double down on its current strengths, aiming to grow to 856 stores by 2027 and targeting districts where modern retail remains scarce. There's plenty of room -- VMM has yet to enter nearly half of India's districts.
But this expansion comes with its own risks. JPMorgan analysts warn that VMM's concentration in three states could leave it vulnerable to regional economic downturns. The company's projection of 18% annual revenue growth through 2027 will test whether its small-city strategy can withstand intensifying competition from both old-school traders and digital newcomers.
The outcome may in many ways signal whether India's retail modernization will follow the traditional path of physical stores or leap directly to digital commerce, especially in the smaller cities that make up three-quarters of India's retail market.