Pizza giant, "battle" in the county town

Total No. 4548

Author | Restaurant Business Insider Insider Jun

Pizza Hut and Domino’s

Rush Into Tier-Lower Markets

In the annual report of Dasai (Dass Shares) just released, a set of figures is especially worth noting.

In 2025, Domino’s revenue in non-first-tier cities grew year over year by 43.4%—reaching RMB 3.17 billion, accounting for 58.8% of total revenue, up from 51.2% in 2024. This burst of growth was driven by a net increase of 299 stores in tier-lower markets.

◎Image source: Dasai annual report

Domino’s momentum in tier-lower markets is very strong; it has even penetrated many county-level markets. For example, in Yixing County town in Wuxi, Jiangsu, a few months ago the third Domino’s Pizza outlet was already opened.

At the same time, another international giant, Pizza Hut, is also “making a big push” into tier-lower markets. Pizza Hut’s route into tier-lower markets began years ago. And now, Pizza Hut’s push into tier-lower markets is also accelerating store expansion by combining the “Twin Stars” model with KFC, as well as the more affordable “WOW” store format.

Today, in county and township markets such as Huade County in Ulanqab and Shezhu Township in Liyang, Jiangsu, Twin Stars stores of Pizza Hut and KFC have landed. KFC and Pizza Hut share one storefront, with two separate brand signboards, entrances, and ordering areas. Customers can freely choose hamburgers and fried chicken or pizza pasta based on their preferences.

Yum China CEO Qu Cuirong said directly: “This model was tested in tier-lower markets this year, and results were good. Two stores can pull traffic to each other, while the back end greatly improves efficiency by sharing operational teams, equipment, and other resources.”

Pizza Hut’s WOW format is even more precisely tailored to tier-lower markets. The average ticket price is pushed down to around RMB 40. Investment per store is reduced by nearly 50% to 65–850k. Among the new cities Pizza Hut entered in 2025, about half used this format.

In contrast to the pizza giants—Pizza Hut, Domino’s, and others—charging forward at full speed in tier-lower markets is another longtime player: Papa John’s.

On March 11, Irth Capital, an investment fund linked to the Qatar royal family, proposed acquiring Papa John’s International at $47 per share. Since the pandemic, Papa John’s performance has continued to slide and its share price has kept falling; it has plunged 70% from the peak three years ago.

Today, this longtime pizza giant holds top-five market share in China, but it has gradually started to fall behind in this tier-lower-market race.

Tier-lower markets—

Why have they become pizza giants’ “new battleground”?

China’s pizza industry growth curve is shifting toward tier-lower markets.

Data from Zhishang Consulting shows that in 2025, the market size of China’s pizza restaurant segment is about RMB 53.6 billion, and it is expected to reach RMB 88.5 billion by 2029. Of that, the annual compound growth rate for third-tier cities and below will reach 17.1%—the industry’s fastest-growing rate and the core hinterland with the broadest room for growth.

In its IPO prospectus, Big Pizza also emphasizes this trend: China’s tier-lower markets have a large consumer base, but the penetration rate of pizza restaurants is relatively low. As the steady growth of consumers’ incomes in third-tier cities and below improves their acceptance of pizza, it will promote pizza consumption in these cities.

The “collective move down into tier-lower markets” by international pizza brands is also riding the wave of upgraded quality consumption in tier-lower markets.

A survey by Meituan Research Institute shows that 64.5% of county residents expect their income to grow over the next three years, and 66.3% say they will increase their spending. At the same time, county consumers are mostly young people: the 21–40 age group accounts for 83.3% of total county consumers, and the 31–40 group makes up as much as 47.5%. They are no longer satisfied with “just eating enough,” but have begun pursuing “eating better,” shifting from survival-oriented consumption to development- and enjoyment-oriented consumption.

In recent years, the chain-wave of milk tea, coffee, and freshly made bakery products first aligned consumption tastes between county towns and first-tier cities. And today, it’s pizza’s turn.

Challenges in tier-lower markets

When giants move into county towns, the first “obstacle” is likely the local pizza brands already entrenched across different regions.

Local chain brands such as Zunbao Pizza, S-pizza Pizza Delivery, Supreme Pizza, and others precisely capture the demand for high value for money in tier-lower markets, locking the core average ticket price into the RMB 20–30 range. This price is far lower than that of leading brands like Pizza Hut and Domino’s, perfectly matching the consumption ability and habits in tier-lower markets.

In addition, when entering a new market, pizza giants also face tests in cost and pricing, operations and management, target customer segments and store locations, and so on—each of these presents major challenges to a brand’s localization fit and fine-grained operational capability.

First, in tier-lower markets, consumers’ relatively strong price sensitivity creates a contradiction with high average-ticket levels.

The price-sensitive groups in tier-lower markets are clearly higher than in first-tier cities. They are extremely sensitive to fluctuations in average ticket price. This leads to the contradiction between brands wanting to control quality and consumers wanting lower prices: pricing too high makes it hard to capture market share, while pricing too low squeezes operating profit.

And when leading brands move down into tier-lower markets, regardless of brand positioning, supply-chain costs, or quality control standards, they are all higher than local brands. Therefore, only if the brand clearly understands the differences in consumer behavior between first-tier and tier-lower markets can it better plan its layout and balance quality and value for money.

Second, there may be increased risk that operating costs continue to rise and operational management difficulty could worsen.

As brands expand their national footprint, they face higher requirements for store operation and management capabilities. In the current era of quality dining, consumers’ requirements for food safety, product taste, and service quality are getting higher and higher, making refined operations a must-have.

For example, to adapt to cost structures and consumption scenarios in tier-lower markets, lightweight small stores have become the mainstream trend for brands to move down. By focusing on stores with smaller footprints and higher revenue per unit area, brands can reduce both rent and renovation investment.

Public information shows that during its expansion into tier-lower markets, Zunbao Pizza adopted pure delivery-only small stores of around 30 sq m, penetrating third- and fourth-tier cities and county-level markets. Among its more than 2,800 stores nationwide, the cumulative share of stores in second- to fifth-tier cities exceeds 50%.

Even in tier-lower markets, it does not mean there is an absolute cost advantage.

For instance, the continuous rise in labor costs is also an unavoidable reality. According to average annual wage data for employees at urban private-sector entities in China’s catering industry, salaries increased from RMB 42,424 in 2019 to RMB 54,042 in 2024, with a CAGR of 5.0%. With the overall increase in labor costs, catering industry labor costs are expected to continue rising steadily in the future.

Although individual wages in tier-lower markets are lower than in first- and second-tier cities, store locations are more dispersed and management radius is longer. Brands therefore need to invest additional costs in supervision, training, and more; expenses such as cold-chain transport of ingredients and building regional warehouses may increase overall operating costs, and distributed operations can raise the difficulty of cost control.

Third, how to develop and tap core local customer segments—or, in other words, how to select store locations accurately—to achieve high repeat purchases with strong customer stickiness.

Leading brands come with traffic advantages. When they enter tier-lower markets, county shopping malls and commercial complexes also show higher acceptance toward leading brands, and they may even offer favorable policies such as reduced rent and promotion support for tenant recruitment. However, the issue is that most counties have limited spatial capacity, core commercial locations are scarce, and core consumer segments are relatively concentrated. Choosing an excellent store location is therefore very important, because it determines the upper limit of store foot traffic.

From the customer segment structure, pizza’s core customers mainly consist of young people and students; tier-lower markets are no exception. For example, around the Cao Feidian University Town area in Tangshan, Hebei, there are nearly 10 Western restaurant outlets operating pizza and other products, including chain brands like Hoorenge Pizza. So for brands, besides selecting prime locations, it is also necessary to focus on precise coverage of the core customer segment.

For example, for brands that are good at operating pizza delivery, they need to build online delivery operations as soon as possible, to make up for insufficient dine-in customers at the store. Public information shows that some brands have not opened delivery services at certain lower-tier city stores; in those cases, delivery business accounts for less than 30%, making them prone to unstable traffic due to relatively single consumption scenarios and heavy reliance on in-store customers.

Conclusion

The pizza track has entered a more intense competition stage.

On one side, international giants like Pizza Hut and Domino’s have lowered themselves, accelerating their entry into tier-lower markets; on the other side, local cross-category heavyweights are also collectively moving to reinvent pizza. Tasting makes “Beijing roast duck” go into the pie; Haidilao creates a specialty soup-bottom pizza with Guizhou sour soup; Ziguangyuan launches “milk-skin roast duck pizza,” showcasing regional flavors. Even long-established catering brands such as Quanjude and Dadong are all crossing over to sell “roast duck pizza,” taking slices of the cake in the pizza track.

When local and international giants are all expanding across categories in a frenzy, mid-tier brands on the brink find themselves besieged from both sides and almost fall into a passive situation of “having their turf stolen.”

There isn’t much time left for pizza brands.

Rotating Editor-in-Chief | Sun Yu

Visuals, Illustrations | Zhang Jingying

Operations | Xuegao