New Delhi, Sep 17 Nearly 94 per cent of restaurant operators in India plan to expand in smaller cities (Tier II-III cities), positioning them as the next big growth frontier for the food services sector, a report said on Wednesday.
Nearly 78 per cent of operators expect breakeven within 2 years — a sharp contrast to longer payback cycles in metro cities.
"With average monthly incomes in Tier-II cities approaching metro levels, consumers are brand-aware but price-sensitive—seeking hygienic, aspirational dining experiences at accessible price points," Grant Thornton Bharat, in collaboration with the National Restaurant Association of India (NRAI), said in a report.
According to the report, eating out has become a mainstream habit for Gen Z and millennials in smaller cities, with branded restaurants now the go-to choice for celebrations, family outings, and weekend leisure.
However, close to 60 per cent of operators face shortages in both kitchen and service staff, driven by migration to metros and limited local training infrastructure.
Attrition is especially high for Tier-I hires posted in smaller cities.
"India’s food and beverage industry is at a pivotal juncture, with Tier II and III cities emerging as vibrant consumption hubs. The rise of aspirational consumers, supported by digital penetration and improving infrastructure, is creating fertile ground for innovation and scale," NRAI President Sagar Daryani said.
"Yet, success in these markets demands strategic adaptation, whether in format, pricing, or supply chain design. Ecosystem development, including shared infrastructure and policy support, will be key to enabling sustainable growth," he added.
As per the report, while leases are significantly cheaper than metros, prime locations remain scarce, and ingredient sourcing is inconsistent due to weak cold-chain infrastructure and seasonal variability, inflating costs and eroding margins.
India’s Food and Beverage (F&B) sector has already witnessed 83 deals and $1.56 billion in YTD 2025, the strongest year on record, with investors backing health-focused, premium, and tech-enabled formats.
The report was prepared based on extensive primary research, including 160 responses from more than 50 cities and covering formats such as quick service restaurants (QSRs), cafés, casual dining, fine dining, cloud kitchens, and food courts.
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