Why it is right time to expand to tier 2 cities for restaurants

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With the business potential of tier-2 cities getting huge as much as that of big cities, turning investments into profits are way easier due to lower overheads.
  • Sakshi Singh

When Hoppipola, part of Speciality Restaurants Limited opened doors in Ranchi, it was a great delight for the local residents. After all, it was the first restropub the city was getting introduced to. Similarly, the launch of Flying Saucer in Lucknow or Mocha in Raipur has indicated the fact that away from the hustle, moving to smaller cities has gradually given more opportunities to the owners. 

Riyaaz Amlani led Impresario Handmade Restaurants recently announced its expansion plans where more of the company’s outlets are expected to come up in Lucknow, Mangalore, Goa, Nagpur and Guwahati as the group is aiming to capitalise on the consumer appetite for chained outlets in non-metros.

Today, tier 2 cities are on every f&b company’s expansion card. With the business potential of tier-2 cities getting huge as much as that of big cities, turning investments into profits are way easier due to lower overheads.  

Increased aspirational mindset

Believing tier 2 cities as the hotbed of opportunities,  Debashish Yadav, CEO, Licorne Hospitality commented that higher disposable income, limited entertainment options, emerging job opportunities, and the aspirational mindset of the people in these cities are a big plus for any business. 

His venture plans to launch the cloud kitchen brands such as Lattu Biryani, The Rollery and Reve Pizzeria in tier 2 cities with a focus on Ludhiana, Chandigarh, Jaipur, Patna, Lucknow, and Dehradun. Yadav firmly believes that these cities offer a critical mass of consumers, familiarity with urban lifestyle among the population.

One of the major advantages is the low rentals. When compared with the tier 1 or metro cities, smaller towns have a way lesser rental which may be less up to 50 percent of what a restaurant may be paying in bigger towns.  

Less competition

“Major foreign brands in F&B have forayed in India. They have introduced their platter to tier 1 cities, but tier 2 and tier 3 cities are yet to be tapped. We do understand that from a population perspective, tier 2 and tier 3 cities form a big number. Hence, in terms of scope, one can imagine the size of the untapped market,” Farman Beig, CO-Founder and CEO of Wat-a-Burger commented. 

The burger QSR chain has many outlets in cities like Jhansi, Ranchi and Gorakhpur. According to Beig, post lockdown, a lot of chains are trying to make pre-covid numbers by targeting tier 2 and tier 3. “It is all about, who recovers early. And this might just be the most feasible way,” he added. 

While talking about competition in a smaller market, with a lesser number of competitors present, it becomes feasible and more viable to survive. Observing the opportunity, Thailand-based CP Avant Pvt Ltd which owns Five Star Chicken has targeted tier 2 cities for opening up their QSR outlets. 

Since its only competitor, KFC is mostly present in metros and larger cities, expanding into tier 2 cities has given the company a first-mover advantage. “ Also, the cost of manpower in tier 2 cities are lower in comparison to metros. Additionally, tier 2 cities houses more number of our target audience as our menu is designed such to be affordable and light on the pocket,” Kasinn Khaowprasert, Director of CP Avant, Pvt. Ltd stated. 

Taking cues from aggregators

In most of the small-town restaurant editions, it has generally been observed that 20 to 35% of the menu is customised to local palates. Not just it attracts more guests as it’s suitable to their taste buds, but restaurants on the other hand get a chance to lower down their procurement cost. 

In the recent past, food delivery apps like Swiggy and Zomato are increasingly taking over small towns. After establishing themselves in the metros as the go-to apps for food ordering and delivery, the companies have begun pitching battles to win over the country’s newest internet users residing in tier-II cities like Cuttack, Asansol, Kota and Kolhapur.

According to a report, in 2019 alone, Swiggy and Zomato have launched operations in 185 and 300 towns and cities, respectively. For Swiggy, the new cities form 15 percent of their business, while for Zomato non-metros contribute 40 percent of the order volume. This clearly indicates the increasing expenditure from smaller cities. 

Well, if you are scratching your head to choose the right strategic location, it is the right time for tapping the smaller markets. 

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