Are 94% of Indian Restaurant Operators Ready to Expand in Tier II-III Cities?

New Delhi, Sep 17 (NationPress) A staggering 94% of restaurant operators in India are gearing up to expand into smaller cities (Tier II-III cities), marking these locations as the next significant growth opportunity for the food services industry, as indicated by a new report released on Wednesday.

Approximately 78% of operators anticipate reaching breakeven within two years—a stark difference compared to the longer payback periods typical in metropolitan areas.

According to the report by Grant Thornton Bharat, in collaboration with the National Restaurant Association of India (NRAI), average monthly incomes in Tier II cities are nearing those of metro areas. Consumers in these regions are increasingly brand-conscious yet price-sensitive, looking for hygienic and aspirational dining experiences at affordable prices.

The report highlights that dining out has become a prevalent habit among Gen Z and millennials in these smaller cities, with branded restaurants emerging as the preferred choice for celebrations, family gatherings, and leisure activities during weekends.

However, nearly 60% of operators are grappling with shortages in both kitchen and service personnel, primarily due to migration to larger cities and a lack of local training facilities.

Attrition rates are particularly high for Tier-I staff working in smaller towns.

As stated by NRAI President Sagar Daryani, 'India’s food and beverage industry is at a crucial turning point, with Tier II and III cities evolving into dynamic consumption centers. The growth of aspirational consumers, combined with increased digital access and enhanced infrastructure, is laying the groundwork for innovation and scalability.'

'Nevertheless, succeeding in these markets requires strategic adjustments in areas such as format, pricing, and supply chain management. Developing the ecosystem, including shared infrastructure and supportive policies, will be essential for fostering sustainable growth,' he added.

The report also notes that while lease costs in these regions are significantly lower than those in metro areas, prime locations are hard to come by, and sourcing ingredients can be inconsistent due to inadequate cold-chain infrastructure and seasonal fluctuations, which can drive up costs and reduce profit margins.

India’s Food and Beverage (F&B) sector has already recorded 83 deals totaling $1.56 billion year-to-date in 2025, marking the strongest performance to date, with investors showing interest in health-oriented, high-end, and technology-driven formats.

This report is based on comprehensive primary research, including 160 responses from over 50 cities, and covers various restaurant formats such as quick service restaurants (QSRs), cafés, casual dining, fine dining, cloud kitchens, and food courts.