India's smaller towns and cities are a potential lucrative and largely untapped market for branded food retailers, food giants Nestle and Cargill have said.

Aseem Soni, director for consumer sales for Cargill in the country told the 7th Food and Grocery Forum India in Mumbai, the locations represent an opportunity provided retailers design and sell products that are attractive to such provincial consumers

Cargill, whose focus in India is processing, refining and marketing edible oils, wants to add 750 towns to its distribution network in the country by the end of the year. These locations are so-called smaller tier two and tier three urban areas, outside the major metropolises.  

"All my growth has come from these towns and not from premium products in large cities," Soni told a seminar on 'Semi-Urbs - The New Consumption Hubs' at the conference last week.

Speaking at the summit, Nestle said growing social aspirations and prosperity in semi-urban India is driving sales of products as diverse as dairy foods and automobiles.

A S Chadha, vice president for sales for the organised trade at Nestle highlighted the need for more foreign direct investment (FDI) in retail to boost infrastructure, notably in cold chains. Chadha said delivering quality perishable products to small towns can be challenging.

Referring to the town of Bhimavaram in Andhra Pradesh, a town of 137,000 that until now would have been overlooked by major food chains, Chadha said the Aditya Birla chain More is now planning to open a second outlet there. "Ten years ago, the (modern retail) story was about big cities; now it is about small towns."

Retailers are also being attracted by lower operating costs. "In tier II cities, our profitability is not eroded by the high property rentals of metros [major cities]," said Manish Behl, business head for foods, Sahara Q Shop.