Course beyond metros: 94% of Restaurant Operators Eye Expansion in Tier-II and III Cities – NRAI & Grant Thornton Bharat Report

Grant Thornton Bharat, in collaboration with the National Restaurant Association of India (NRAI), today unveiled a report titled Course Beyond Metros: Recipe for Growth at the National Restaurant Summit 2025 in Goa. The study decodes the next wave of growth opportunities for India’s restaurant industry in Tier-II and Tier-III cities, drawing on insights from a nationwide survey of over 160 restaurant operators across 50+ cities, spanning formats such as QSRs, cafés, casual and fine dining, cloud kitchens, and food courts. It is further enriched by in-depth interviews with 10 national and regional industry leaders, providing a nuanced view of the operational realities, consumer shifts, and strategic choices shaping non-metro expansion. Among its headline findings: nearly 94% of restaurant operators plan to expand in smaller cities, positioning them as the next big growth frontier for the food services sector.

India’s F&B growth story is shifting decisively beyond metros. Tier-II and Tier-III cities are emerging as the new horizon, by offering lower costs, faster breakeven, and digitally savvy consumers. But scaling here is not without challenges: fragmented supply chains, talent shortages, and regulatory complexities demand agility and innovation. The real differentiator will be how operators leverage technology and AI to drive consistency and resilience at scale. Our report is a practical playbook for navigating these opportunities and challenges, and we believe it will help both restaurant operators and investors unlock sustainable growth in India’s next wave of consumption.

Naveen Malpani, Partner and Consumer Industry Leader
Grant Thornton Bharat

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. 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. These cities will play a defining role in shaping the future of India’s F&B landscape. At NRAI, we remain committed to fostering this growth.

Sagar Daryani
President, NRAI

Key findings from the survey:

1. Small cities, big expansion: Nearly 94% of operators plan to expand in Tier-II and III markets, with nearly 78% expecting breakeven within 2 years — a sharp contrast to longer payback cycles in metros.
   
   
2. Dining as a lifestyle: 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.
   
   
3. Consumer aspirations meet affordability: 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.
   
   
4. Talent bottleneck: Close to 60% 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.
   
   
5. Supply chain and real estate hurdles: 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.
   
   
6. Investor confidence at record highs: India’s F&B sector has already witnessed 83 deals and USD 1.56 billion in YTD 2025, the strongest year on record, with investors backing health-focused, premium, and tech-enabled formats.

Expanding into Tier-II and III cities requires more than replicating a Tier-I playbook. Brands need to embrace a calibrated, context-aware approach that balances ambition with adaptability. Operators must adopt cluster-based expansion strategies, experiment with compact, cost-efficient formats, and invest in local talent development, scalable supply chains, and centralised digital systems. Success also hinges on building consumer loyalty through local resonance and brand aspiration, while leveraging AI for operational intelligence and advocating for stronger ecosystem support. Ultimately, the opportunity is vast, but capturing it demands patience, adaptability, and ecosystem collaboration to unlock sustainable growth in India’s next wave of consumption.