E-Commerce Boom: India's Small Towns Are Outpacing Big Cities In Online Spending

In August, 30-year-old Somesh Nishad from Bhopal, Madhya Pradesh, was pleasantly surprised when a parcel he ordered for his mother arrived just 24 hours later—perfect timing with the festive season on.

“Usually, it takes Amazon or Flipkart 4 to 5 days to deliver,” Nishad shared. “But getting a phone within a day? Super convenient, and I didn’t even have to step out to a store!”

This year, Flipkart’s Big Billion Day Sale and Amazon’s Great Indian Festival saw record-breaking numbers. The two e-commerce giants raked in over Rs 54,500 crore, reflecting a 26% year-on-year jump between September 26 and October 2.

“In just the first 48 hours, the event (Amazon’s Great Indian Festival) recorded 11 crore customer visits, with 80% of those visits coming from tier 2 and smaller towns. Additionally, more than 65% of sellers have received orders hailing from tier 2 and 3 cities such as Moradabad, Saharanpur, Churu, Haridwar, and others,” Saurabh Srivastava, vice president – categories, Amazon India told The Core.

Last year marked the smooth rebound for online sellers post-COVID, with tier 1 cities leading the charge in order volume growth. As per a report by Unicommerce, a SaaS platform for e-commerce companies, tier 1 cities saw the highest year-on-year (YoY) order volume surge at 31.1%, while tier 2 and tier 3 cities followed with growth rates of 23.3% and 22.4%, respectively.

While online sellers last year did see the trend of demand coming from the tier 2 and tier 3 cities, this festive season the numbers have taken a new height.

The Core also recently reported on how the e-commerce industry is tapping into villages in India.

The e-commerce growth isn’t just an urban story. Demand from tier 2, 3, and even tier 4 cities is fueling the boom. Take Meesho, for example. Originally focused on tier 2 shoppers, the platform is now attracting a wave of customers from tier 4 regions too.

During its Mega Blockbuster Sale 2024 (September 27 to October 6), Meesho saw 145 crore customer visits, with about 45% coming from tier 4 towns. The company reached buyers from remote places like Ranaghat (West Bengal), Neyyattinkara (Kerala), Bhadohi (Uttar Pradesh), and Naugarh (Uttarakhand) while also maintaining strong sales in metros like Delhi, Mumbai, Hyderabad, and Bengaluru.

This surge in online shopping, particularly from smaller towns, presents a stark contrast to the muted growth reported by FMCG giants like Hindustan Unilever and Nestle India, who have cited weakened consumer demand. While rising prices and economic concerns have impacted urban spending, India's rural heartland is driving a new wave of e-commerce adoption, fueled by increased accessibility, faster deliveries, and a wider range of affordable products. This shift underscores the growing economic power of Tier 2 and 3 cities and their increasing integration into the digital economy.

Moving Beyond Urban Cities

Fueling this surge in e-commerce adoption are mobile phones and electronics, which accounted for 60% of combined sales on Amazon and Flipkart during the festive season. Mobile phones led the way at 38%, followed by electronics at 21%, demonstrating that this trend extends beyond the "iPhone effect" and encompasses a broader range of consumer electronics.

“Looking ahead, we expect this upward trend in demand and digital adoption to only intensify, especially as e-commerce becomes even more accessible to consumers in these regions through faster deliveries, better affordability options like No-Cost EMI and UPI, and an expanding range of products tailored to their needs,” Srivastava added.

This festive season, the e-commerce sector in India is eyeing a $12 billion sale, a 23% jump from last year’s $9.7 billion, as per Datum Intelligence report, a comprehensive data offering company.

According to the India Brand Equity Foundation (IBEF), India is well on its way to becoming the third-largest consumer market. The country's online retail market, which was valued at $70 billion in 2022, is expected to explode to $325 billion by 2030.

In 2023, Amazon sold 2.5x more smartphones as compared to 2022 in the premium segment, with some of the sales coming from tier 2 cities too. In 2024, Amazon reported more than 75% of total smartphone sales were from tier-2 and tier-3 towns, and nearly 70% of premium smartphone buys (priced above Rs 30,000) came from these cities, which also accounted for a massive 80% of TV orders.

“When we spoke to electronics and fashion brands, electronics brands were more bullish about faster growth in smaller markets. In metro areas, mobile and appliance penetration mostly peaked, especially for smartphones and Apple products. Now, the growth story is shifting to smaller cities, where e-commerce is key. Brands are more optimistic about these markets driving quicker growth,” Kushal Batnagar, associate partner at Redseer Strategy Consultants told The Core.

In metro areas, though, the trend leans toward premiumisation. Consumers in urban hubs are splurging on high-end smartphones, large-screen TVs, and luxury home appliances—thanks to rising disposable incomes and financing options like BNPL (Buy Now Pay Later). The appetite for premium products reflects a shift in purchasing behaviour, signalling that Indian consumers are ready to level up.

E-commerce Ramps Up Delivery

E-commerce platforms, particularly Amazon, are always pushing the boundaries of delivery speeds, with options like same-day or next-day shipping becoming the norm.

Customers now expect quick delivery, so platforms are optimising inventory by strategically positioning stock near demand centres by setting up warehouses in tier 2 and 3 cities as well.

To tackle this growing demand, e-commerce companies are expanding into untapped markets and pouring resources into infrastructure. This allows them to reach more regions and maintain their speed and efficiency.

“It’s about making the most of warehouse space and channelling products through the best avenues. For instance, high-end electronics often perform better in physical stores, while mid-range items excel online,” Bhatnagar explained.

Platforms like Flipkart are also fine-tuning inventory based on customer preferences and market trends, offering tailored selections to specific regions.

Amazon, for instance, is opening fulfilment centres in non-metro areas, ensuring that customers in smaller cities get the same deals and speedy delivery as those in metros.

“To ensure a seamless shopping experience during the festive season, Amazon has significantly ramped up its operations across the country. We have added three new fulfilment centres to the existing pan-India network, which now consists of over 43 million cubic feet of storage space,” Srivastava said.

Flipkart isn't far behind. It has opened 11 new fulfilment centres and created over 100,000 temporary jobs across 40 regions to ramp up its same-day and next-day delivery capabilities.

But it's not just the big names. Third-party logistics (3PL) providers like Shiprocket, Quickshift, and Nimbuspost and last-mile delivery companies like Delhivery, Ecom Express, and Ekart are also stepping up, prepping for increased demand well in advance.

Prodipto Roy, co-founder of e-commerce business shipping service and a 3PL warehouse provider Quickshift said that stocks from clients started flowing in as early as the first week of September, and now, every logistics or warehouse company is fully stocked.

“We’ve been instructed to ensure quick stock intake, and the inventory situation reflects that—no stock-outs. We’re also preparing for a surge in demand, with some clients expecting a 1.5x to 4x increase. We have our manpower ready for that,” added Roy.

After sorting inventory, the next critical focus is manpower—ensuring enough delivery personnel are available to meet tight deadlines. Many last-mile delivery companies are also ramping up staffing efforts. One such last-mile delivery service provider Shipyaari is focusing on ground operations and vehicle readiness for the festive season.

Shipyaari is adopting a different approach to manage the influx of orders. Instead of hiring a massive temporary workforce, they are encouraging gig workers to extend their hours and offering them a substantial pay increase. They have also strengthened its core team by 15-18%, prioritising loyalty and expertise.

“We have upped the gig worker pay scale by 24-29% based on metrics like hours worked and availability. We pay for effort but prioritise results. This keeps gig workers from needing side gigs and rewards them for their commitment, especially during peak times. Experienced workers are also more efficient, reducing the need for training new hires,” Nayaan Ratandhayara, CEO of Shipyaari told The Core.

Once manpower is sorted, the focus shifts to ensuring smooth warehouse pickups and last-mile deliveries.

“We have streamlined operations to ensure marketplace orders—whether from Flipkart or Amazon—are processed within cutoff times, typically around noon. We push Shopify and D2C brand orders to leave room for these marketplace orders, so nothing gets missed or delayed. Every incoming and outgoing order is closely monitored to ensure stock is available the next day,” Roy of Quikcshift added.

Companies are also investing heavily in optimising logistics, learning customer preferences, and fine-tuning delivery time slots to meet same-day and next-day expectations.

“We have three key pickups: one between 6-7 am, another between 9:30-11 am, and a third at 1 pm. This structure is crucial for same-day deliveries. For example, if someone orders at noon and the parcel is in Bhiwandi, we need that third pickup wave by 1:30 pm to ensure it arrives by the end of the day. We recently revamped our middle- and last-mile processes to support these rapid deliveries,” Ratandhayara explained.

The surge in online spending from Tier 2 and 3 cities offers a breather to businesses amidst reports of weakened consumer demand. As Diwali preparations intensify, bustling markets in Delhi and across India are gearing up for a festive shopping spree. The Confederation of All India Traders (CAIT) has projected a turnover of Rs 4.25 lakh crore across India during this period. It remains to be seen whether these forward-looking estimates from various bodies will hold true.