An increasing number of quick-service restaurant (QSR) brands are shifting their focus to mid-sized markets, establishing more stores to capitalise on their growing potential as key centres of growth.
According to industry players, the shift is driven by rising disposable incomes in these regions, lower rental costs compared to tier-1 cities, and growing saturation along with high operational expenses in metropolitan areas.
Brands like Biggies Burger and Lenexis Foodworks, the parent company of Chinese Wok, are making significant strides in tier-2 and tier-3 cities. For Biggies, 60 per cent of their store locations are now in these markets, with the remaining 40 per cent in tier-1 cities.
Key regions
Founder Biraja Rout identified Karnataka and Tamil Nadu as key regions for expansion, with the brand establishing a strong presence in smaller cities like Salem, Coimbatore, and Hosur.
“Tier-2 and tier-3 cities have become epicentres of growth for the next 5 to 6 years for Biggies,” Rout noted, citing evolving consumer behaviour, increased social media integration, shifting buying patterns, and improved purchasing power parity as key drivers.
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Similarly, Lenexis Foodworks is planning an aggressive expansion in these regions, with a target of opening 100 new Chinese Wok outlets within the next year.
Resonating with Rout’s perspective, Bengaluru-based coffee brand Third Wave Coffee’s co-founder Ayush Bathwal underscores the brand’s focus on opportunities beyond metro markets and highlights the growing demand for speciality coffee experiences in tier-2 and tier-3 cities.
Bathwal shared intentions of Third Wave Coffee to venture into new markets such as Mysuru and Mangaluru while targeting the launch of 80 to 100 coffee stores annually starting in 2025.
“Along with low rental costs, these cities offer significant opportunities due to their growing consumption behaviour and untapped customer bases,” says Pranav Rungta, Vice President of the National Restaurant Association of India (NRAI). Post-pandemic, tier-1 cities have reached a saturation point with intense competition, prompting brands to explore newer markets, he observed.
He further emphasised that the cost of doing business in these cities is much lower, making them a viable option for expansion.
Moreover, customers in tier-2 and tier-3 cities are more willing to spend time visiting brands compared to those in tier-1 metros, noted Mohit Khattar, CEO of Graviss Foods Pvt Ltd, Baskin Robbins.