India is eating out more. Spending at restaurants and eateries shows a 34% rise in Unified Payments Interface (UPI) transactions to 14 billion in the first half of FY26, up from 10.4 billion a year ago. The value of these payments rose to Rs 1.9 lakh crore from Rs 1.5 lakh crore in the same period. On average, Indians spent Rs 1,056 crore daily on eating out in H1FY26, compared with Rs 810 crore in the same period a year ago.
And, small towns are equally caught up in this phenomenon. Restaurants are responding by moving their expansion beyond saturated metros into the heart of Tier-II and Tier-III cities. The once-overlooked markets like Indore, Kasauli, Meerut are now brimming with opportunity for the restaurant industry, driven by rising incomes, digital penetration, and an aspirational consumer base.
Cost-Efficiency and Aspirational Consumers Drive the Shift
A recent report by the National Restaurant Association of India and Grant Thornton Bharat, titled “Course Beyond Metros: Recipe for Growth” reveals that 94% of restaurant operators are actively planning to expand into smaller cities. The shift is not just a trend, it’s a strategic business imperative. “India’s F&B growth story is shifting decisively beyond metros. Tier-II and Tier-III cities offer lower costs, faster breakeven, and digitally savvy consumers,” said Naveen Malpani, partner & consumer industry leader at Grant Thornton Bharat.
The appeal of Tier-II and III markets lies in cost-efficiency, faster returns, and a young, brand-aware population.
As per the report, 78% of operators expect to break even within two years, a timeline significantly shorter than what’s typically seen in metro markets. These cities are emerging as vibrant consumption hubs too.
As per Sagar Daryani, president, NRAI, “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. These cities will play a defining role in shaping the future of India’s F&B landscape.”
India’s food service market is expected to cross $120 billion by 2030 with the organised segment expected to double (CAGR of 12-14%) from the unorganised segment (5-7%), says a Kearney and Swiggy report on The Ever-Evolving Food Space in India released this week. Emerging cities such as Jalandhar, Amritsar, Kanpur, Patna, Rajkot, Bhubaneshwar, Mysore, Thrissur show 2x dining out growth and 7x growth of prebooked tables as compared to walk-ins. Trends show that consumers are developing appetite for eating out due to several factors such as emergence of IT hubs in Thiruvananthapuram; tourism-driven growth in Mysore, Dehradun, and Kannur; expansion of industrial and corporate hubs in Visakhapatnam, Vijayawada, and Ludhiana and rise of educational hubs in Jalandhar, Kanpur, and Lucknow.
The opportunity in these markets is compelling because the economics look very different compared to metros. For instance, while commercial leases in prime metro zones often cross Rs 1,800 per sq ft, tier-II markets typically offer rentals at much lower rates. This allows operators to experiment with formats such as larger dining spaces, hybrid cloud kitchen models, or immersive QSR footprints.
“Operations in terms of cost of goods sold and salaries are more or less same apart from minimum wage variations. What is often lower is the rental charges that could be 15-20% below metro rates, coupled with faster break-even, makes expansion highly attractive,” says Zorawar Kalra, founder & MD of Massive Restaurants with brands like Farzi Café, Made In Punjab, Pa Pa Ya and others.
For Kalra, Farzi Café in Indore has yielded promising results. “Rising disposable incomes, exposure to global dining trends through digital platforms, and a curious, experimental consumer base have made these cities the new frontier. We have taken select brands into tier-II markets as we strongly believe that the demand for high-quality dining experiences is not restricted to metros anymore. The consumer in these cities is just as discerning, in fact, often more curious and open to experimentation,” added Kalra.
The reception for brands like Café Delhi Heights, which has opened outlets in cities such as Meerut, Amritsar, Patiala and Srinagar has been overwhelmingly positive. “Our brand has gained visibility, and we’ve been approached by several cities inviting us to open outlets,” said Café Delhi Heights co-founder Vikrant Batra.
Riyaaz Amlani, MD & founder of Impresario Entertainment & Hospitality, which owns brands like SOCIAL, Smoke House Deli, Salt Water Cafe, Flea Bazaar Café, and Mocha, finds tier-II and tier-III cities no longer emerging markets, but thriving cultural hubs that represent the real heartbeat of India. Amlani says, “We’ve taken SOCIAL to cities like Lucknow, Chandigarh, Dehradun, and Faridabad, and each one has its own pulse. Our approach has always been hyperlocal, every SOCIAL draws from the pincode it sits in, reflecting the textures of India’s social spaces, from chai tapris to college canteens. Even our offerings evolve with the city. For example, we have the Local Heroes menu in Lucknow, which celebrates local flavours of the city with a SOCIAL twist. These audiences are young, connected, and proud of where they come from, and we want every outlet to feel like it truly belongs to them.”
As micro-markets like Gomti Nagar (Lucknow) or Indore’s Super Corridor are hotspots driven by IT parks, industrial corridors, and connectivity upgrades, the restaurants that succeed here focus on precision, choosing the right format for the right micro-market instead of adopting a blanket expansion approach. This is also combined with tailored menu offerings.
For instance, Kalra has tailored offerings in subtle ways – not by diluting the concept but by curating menus, pricing, and engagement to resonate with local sensibilities while staying true to the brand DNA. “A Farzi Café in Indore may carry the same theatricality and progressive Indian food philosophy as one in Mumbai, but with an added layer of accessibility that speaks to its audience. That’s because these cities are aspirational, and hungry for world-class food and beverage experiences,” he added.
Chef Prateek Sadhu, formerly of Masque in Mumbai and Per Sein New York, has opened his first destination restaurant in Kasauli in Himachal called Naar. While it offers a multi-course tasting menu, based on the six seasons of the Himalayas, using local, lesser-known ingredients, it is estimated that this 16-seater Himalayan-focused restaurant served over 800 customers in December 2024 alone.
Navigating the New Frontier
Despite the enthusiasm, expansion into smaller markets comes with its own set of operational challenges. One of the most pressing is the shortage of trained talent. The NRAI report highlights that nearly 60% of operators struggle with hiring and retaining kitchen and service staff, especially as many trained professionals migrate to metros for better opportunities.
“Talent shortages and fragmented supply chains are major hurdles. Success in these markets requires agility and innovation, particularly in building resilient operations,” said Malpani of Grant Thornton Bharat.
Supply chain inefficiencies are another pain point. Inconsistent ingredient sourcing, seasonal availability, and weak cold-chain infrastructure often disrupt operations and affect margins. To address these challenges, restaurant operators like Batra of Café Delhi Heights are tailoring offerings to suit regional tastes without diluting their core identity.
“In Srinagar, we offer more non-vegetarian options; in Hyderabad, we use local spices. We retain our signature dishes but ensure they resonate with local palates. Also, footfall naturally varies across locations, with peaks during festivals and special occasions,” said Batra.
As per Vedant Newatia, founder & head chef, Atelier V, Indore’s casual fine dining and cocktail restaurant, who also runs Masala Code in the same city, feels a tier-2 city deserves the same depth, technique, and respect for ingredients as any metro. “The Indore audience is confident, experimental, and well-travelled and they respond to storytelling, design, and quality,” said Newatia.