Monday, December 12, 2005

Indian Cities Ranked by Affluence 

The Indian Readership Survey (IRS) jointly conducted by the Media Research Users Council (MRUC) and Hansa Research have released the household potential index, a new methodology to determine the affluence of a household. How does it work?
Household potential index indicates the amount of disposable income and purchasing power of a household. The orthodox way to measure this was by dividing households into socio-economic classes (SEC), based primarily on two parameters - education and occupation. This was not truly indicative since a lowly educated farmer could have greater purchasing power than his far more educated counterpart in a metro.

The new study, however, took into account eighteen durable goods, twenty two FMCG products, four services (telephone, C&S, internet and banking) and six demographic measures (education, number of working members, house), to gauge the true affluence of the household. The research also emphasised that if a home was premium (or well off), this must show in its product consumption or ownership. A premium product was defined as something that was wanted by most but few owned or used it.
Maxus (a WPP company) business manager Anil C says, “Earlier, SEC covered only the urban market. But HPI has studied the rural market in addition to the urban market and this will help us to define our audience better. It’s important because 70% of the country resides in rural India.”

According to the results of the survey, these are the 20 most affluent cities in India.

Rank Cities
1 Delhi
2 Chandigarh
3 Trivandrum
4 Ludhiana
5 Lucknow
6 Bombay
7 Madras
8 Amritsar
9 Cochin
10 Guwahati
11 Hyderabad
12 Jaipur
13 Pune
14 Calicut
15 Ahmedabad
16 Faridabad
17 Indore
18 Jabalpur
19 Bangalore
20 Baroda

There are quite a few points of interest in this table. First of all, Delhi is the only metro in the top 5. Not surprisingly, the east of the country is severely under-represented, with just Guwahati making it to the top 20 (Calcutta does not). The North has 8 cities in the top 20, which is just about right relative to population size, though 5 of these 8 cities belong in the Haryana/Punjab belt. The South is probably over-represented with 6 cities, though it came as a surprise to me that Bangalore was at 19. The West has 5 cities in this list, which is once again just about right relative to population, though I was surprised to see only Bombay in the top 10. I wonder if that means that wealth in the West (and there's quite a bit of it, as we all know) is more spread out and not concentrated in the big cities.

The other lesson in this table clearly are the opportunities that are lying untapped in non-metro areas. Most investment activity has been restricted to the big cities, while this survey shows affluent (yet underserved) consumer markets in places like Trivandrum, Jabalpur and Ludhiana. Clearly the VC/PE types among you should stop being bogged down by a mindset that imagines affluence to be a metropolitan phenomenon and strike out into these Tier 2 and Tier 3 cities as well, where very lucrative non-sexy (ie, not IT, Bio-tech etc) opportunities exist.

As Anand Sridharan reported last week, Bessemer Ventures has made one of the more interesting VC investments in recent times by placing $8.5 million in a budget hotel chain. Though their initial hotels are going to be metro-centric, they plan to build 50 hotels in 5 years and I suspect a lot of the cities in this list will be targeted.