As the Indian Quick Service Restaurant (QSR) market continues to flourish, the spotlight is now on Tier II cities. With a projected growth rate of 20-25 per cent in FY2024 and an expected market size of USD 32.2 billion by 2028, these cities represent a burgeoning opportunity for homegrown QSR chains. The lower operational costs, especially in terms of rent, coupled with a shifting consumer demographic, make Tier II cities a lucrative target for expansion.
Market Potential In Tier II Cities
Tier II cities offer immense potential due to the relatively untapped market and evolving consumer preferences. Biraja Rout, Founder of Biggies Burger, highlights that the younger population in these cities, influenced by the 'work-from-home' trend, is increasingly leaning towards global food options.
“A younger population aspires to explore global food options due to the influence of demographic changes with many youngsters who are moving from metro cities back to their hometowns due to the new age work-from-home trend retaining their metropolitan food preferences. Rising per capita income, increased disposable income and changing lifestyles have created a strong market for QSRs like Biggies Burger,” says Rout.
Similarly, Dhruv Kohli, Founder of Boba Bhai, notes that the growing affluence and exposure to global trends through digital media in Tier II cities have cultivated a strong appetite for diverse and quality food options.
“The rise in disposable incomes and the exposure to global trends through digital media have cultivated a strong appetite for diverse and quality food options. For our brand, this translates into a significant opportunity to introduce our unique offerings and cater to the evolving tastes of these growing markets,” comments Kohli.
Strategic Expansion Through Cloud Kitchens
One of the key strategies for QSR expansion in Tier II cities is the use of cloud kitchens. According to Rout, cloud kitchens are advantageous due to their lower upfront and operating costs. “They require lower upfront costs (CapEx) and operating expenses (OpEx). Prime real estate and dine-in facilities are unnecessary, reducing expenses like rent, utilities, and maintenance. Additionally, cloud kitchens are quicker to set up, allowing for rapid scaling of operations. This model also allows for rapid scaling of operations.”
Kohli adds that the flexibility of cloud kitchens enables brands like Boba Bhai to experiment with different menu offerings and adapt swiftly to local tastes, ensuring relevance and appeal in these markets.
Leveraging Technology for Optimisation
Technology plays a crucial role in optimising kitchen operations, delivery logistics, and customer engagement. Biggies Burger leverages technology and data analytics to understand consumer behaviour, optimise menus, and streamline operations. This approach leads to efficient inventory management and reduced waste, without compromising quality. Technology also automates crucial aspects like real-time order status updates, enabling staff to manage orders effectively and integrate multiple delivery platforms for seamless order flow.
Kohli emphasises that sophisticated routing algorithms at Boba Bhai guarantee timely deliveries and enhance customer satisfaction. Their robust digital platforms facilitate personalised customer experiences and feedback collection, building a loyal customer base.
Challenges in Tier II Markets
Despite the opportunities, expanding into Tier II cities comes with its own set of challenges. Rout points out that these cities often lack the robust infrastructure seen in metros, with issues like poorer road conditions, unreliable power grids, and limited access to cold storage facilities.
Saarthak Mehrotra, founder of Gourmance Foodworks feels that while Tier II markets are lucrative and great for expansion, yet there are several challenges that new players specially need to face. “There is a constant stress related to delivery delays, spoilage of perishable goods, and higher transportation costs. Logistics can be particularly challenging, with established companies having limited reach or higher costs leaving not much options, necessitating reliance on smaller local players with potentially inconsistent service,” points Mehrotra.
He further adds, “Ensuring quality and food safety protocols can also be difficult due to limited access to skilled personnel. While Tier II cities, especially aspirational ones, offer a great scope for starting and expanding the cloud kitchen business, the lack of professionals at all levels certainly pushes new entrepreneurs back.”
Kohli echoes these concerns, noting, “We are committed to addressing these challenges by developing specific solutions that align with the needs of each market we enter.We plan to expand our network and enhance our presence in these markets. Our strategy involves a deep focus on localising our menu offerings while maintaining the core essence of our brand.”
Future Expansion Plans
The focus on Tier II cities is undeniable as homegrown QSR chains recognize the immense potential in these markets. Rout foresees cloud kitchens playing a key role in this expansion, allowing for rapid scaling with lower investment and operational costs. As infrastructure improves, a growing presence of major QSR chains can be expected, offering Tier II consumers a wider variety of high-quality food options. Kohli is excited about Boba Bhai's growth prospects in Tier II cities, with plans to expand their network and enhance their presence.
The expansion of homegrown QSR chains into Tier II cities is set to transform the dining landscape in these regions. With strategic use of cloud kitchens, advanced technology, and a keen understanding of local market dynamics, brands like Biggies Burger and Boba Bhai are well-positioned to capitalise on the growing opportunities. Despite the challenges, the future looks promising for QSR expansion in Tier II cities, offering consumers innovative and delightful dining experiences.
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