Pizza giant, "battle" in the county town

Author: Nei Can Jun

Source: Canqi Boss Nei Can (ID: cylbnc)

Cover image source: Xiaohongshu @American Style No Ice

1

Pizza Hut, Domino’s—and the others

Rush into lower-tier markets

In the annual report just released by Dazhi Shares, there is a set of data that is especially worth noting.

In 2025, Domino’s revenue in non-first-tier cities grew 43.4% year over year, reaching RMB 3.17 billion, accounting for 58.8% of total revenue—higher than 51.2% in 2024. This burst of growth has been driven by 299 newly added stores in lower-tier markets.

Image source: Dazhi Shares annual report

Domino’s momentum in lower-tier markets is strong—so strong that it has already penetrated many county-level markets. For example, in Yixing County-level city in Wuxi, Jiangsu, a few months ago it opened its third Domino’s Pizza store.

Meanwhile, another international giant, Pizza Hut, is also “making a big push” into lower-tier markets. Pizza Hut’s journey into lower-tier areas began years ago. And now, Pizza Hut’s move into lower-tier markets is even faster, combining the “Gemini Star” model with KFC, along with a more affordable “WOW” store format to accelerate store expansion.

Today, in county and town markets such as Huade County in Ulanqab and Shezhu Town in Liyang, Jiangsu, Gemini Star stores of both Pizza Hut and KFC have taken root. KFC and Pizza Hut share one storefront, with two separate storefront signs, entrances, and ordering areas. Customers can choose freely between burgers and fried chicken or pizza pasta based on their preferences.

Yum China CEO Qu Cuirong said directly: “This model has been tested this year in lower-tier markets, and the results are good. The two stores can mutually draw in foot traffic, while the back end significantly improves efficiency through shared operations teams, equipment, and other resources.”

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

In contrast to the breakneck expansion by pizza giants like Pizza Hut and Domino’s in lower-tier markets, another long-established player—Papa John’s—stands out.

On March 11, Irth Capital, an investment fund associated with the Qatari royal family, proposed to acquire Papa John’s International at $47 per share. Since the pandemic, Papa John’s performance has kept sliding and its stock price has steadily fallen, plunging 70% from its peak three years ago.

Now, this old-school pizza giant that holds top-five market share in China has gradually fallen behind in this lower-tier race.

2

Why have lower-tier markets

become the “new battleground” for pizza giants?

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

According to a report by Zhangu Consulting, in 2025, the market size of China’s pizza restaurant sector is about RMB 53.6 billion, and it is expected to reach RMB 88.5 billion by 2029. Among them, the compound annual growth rate for third-tier cities and below will reach 17.1%—the core hinterland with the fastest industry growth and the widest growth room.

In Big Pizza’s IPO prospectus, this trend is also emphasized: China’s lower-tier markets have a large consumer base, but the penetration rate of pizza restaurants is relatively low. As consumer income in third-tier cities and below continues to grow, along with rising acceptance of pizza, consumption in these cities will be promoted.

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

A Meituan Research Institute survey shows that 64.5% of residents in county-level areas expect their income to increase over the next three years; 66.3% say they will increase spending. At the same time, county-level consumers are mostly young people: those aged 21–40 account for 83.3% of county-level consumers, with the 31–40 group making up as much as 47.5%. They are no longer satisfied with “just eating enough”—they’re starting to pursue “eating well,” shifting from survival-based consumption to development- and enjoyment-based consumption.

In recent years, the wave of chain-making in milk tea, coffee, and fresh-baked products has, for the first time, aligned consumer aesthetics between county towns and first-tier cities. And today, it’s pizza’s turn.

3

Challenges in lower-tier markets

When giants move into county towns, the first “roadblock” is probably the local pizza brands entrenched in various places.

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

In addition, when pizza giants enter a new market, they also face tests in areas such as costs and pricing, operations and management, customer segments and store locations. Every one of these items poses significant challenges to a brand’s localization fit and fine-grained operational capabilities.

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

Price-sensitive groups in lower-tier markets are clearly higher than in first-tier cities. They are very sensitive to fluctuations in average ticket size. This leads to a conflict where brands need to control quality while consumers demand low prices. If pricing is too high, it’s hard to capture market share; if pricing is too low, it squeezes operating profit.

And for top brands entering lower-tier markets, whether it’s brand positioning, supply-chain costs, or product quality standards, they are all higher than local brands. Therefore, only when a brand clearly understands the differences in consumer behavior between first-tier and lower-tier markets can it better plan its layout and balance quality with value for money.

Second, there may be a risk of rising operating costs and increasing difficulty in operations management.

As brands expand their national footprint, they face higher requirements for store operations and management capabilities. In today’s era of quality dining, consumers have increasingly higher expectations for food safety, product taste, and service quality—fine-grained operations have become a necessity.

For example, to adapt to the cost and consumption scenarios in lower-tier markets, lightweight small stores have become the mainstream trend for brands to expand into lower-tier areas. Brands reduce rent and renovation investment by focusing on small-area, high-sales-efficiency stores.

Public information shows that during its expansion into lower-tier markets, Zunbao Pizza adopted pure delivery-style small stores of around 30㎡, 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 reaches over 50%.

Even in lower-tier markets, it doesn’t mean there are absolute advantages on the cost side.

For instance, rising labor costs are also an unavoidable reality. According to average annual wages data for employees in urban private units 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%. And as labor costs overall continue to rise, it is expected that labor costs in the catering industry will continue to increase steadily in the future.

Although individual employee salaries in lower-tier markets are lower than those in first- and second-tier cities, stores are scattered and the management radius is long. Brands need to invest additional supervision, training, and other costs, as well as expenses such as cold-chain transportation for ingredients and the building of regional warehouses. As a result, overall operating costs may increase management difficulty due to decentralized operations.

Third, how to develop and tap the core customer segments of the local market—or, in other words, how to choose store locations precisely to achieve high repurchase rates with high customer stickiness.

Top brands come with a built-in traffic halo. When they come to lower-tier markets, county-level shopping centers, commercial complexes, and similar venues also tend to have higher acceptance of top brands, and may even offer policies such as rental fee discounts and recruitment support.

However, the problem is that most county towns have limited geographic space, and prime commercial locations are scarce. Moreover, core consuming customer groups are relatively concentrated, making it extremely important to choose excellent store locations—because they determine the upper limit of store foot traffic.

From the customer-segment structure, pizza’s core customers are mainly young people and student groups, and lower-tier markets are no exception.

For example, around the Caofedian University Town area in Tangshan, Hebei, there are nearly 10 Western-style restaurant stores operating products such as pizza, including some chain brands like Hollenji Pizza. So for brands, besides choosing a golden location, they also need to focus on precisely covering the core customer segments.

For example, for brands that are good at delivering pizza, they need to set up online delivery operations as soon as possible to make up for insufficient on-site dining traffic.

Public information shows that some brands have not opened delivery services in certain lower-tier city stores; delivery revenue accounts for less than 30%. This can easily lead to poor traffic stability due to a single consumption scenario and heavy reliance on in-store customer traffic.

4

Conclusion

The pizza track has entered an even more intense competitive stage.

On one side, international giants like Pizza Hut and Domino’s are putting down their posture and speeding up their entry into lower-tier markets. On the other side, local cross-category power players are also collectively making moves to remodel pizza. Tasting puts “Beijing roast duck” into the pie; Haidilao creates a specialty soup base with Guizhou sour soup to make pizza; Ziguangyuan launches “crisp duck with milk-skin pizza,” showcasing regional flavors. Even long-established restaurant brands like Quanjude and Dadian are also crossing into the market to sell “roast duck pizza,” taking pieces of the pie of the pizza track.

When local and international giants are both going all-in on expanding product categories, mid-tier brands are caught on both sides and have almost fallen into a passive position of “getting taken over from under their noses.”

There isn’t much time left for pizza brands.