The industry is growing nearly twice the pace of tier I players, according to a CRISIL report.
Tier II players are rising fast in F&B segment and are expected to control 40 per cent of the FMCG segment by 2019, rating agency Crisil said to PTI.
In the last six years, tier II FMCG players have increased their share in the domestic F&B market to 30 per cent from the earlier 20 per cent. The industry is growing nearly twice the pace of tier I players, according to a CRISIL report.
"We have analysed about 125 FMCG players in F&B, including over 100 who make up two-thirds of the tier II bucket. Based on this study, we forecast that the bucket will sustain strong growth in the next five years, leading to a further increase in their share to 40 per cent," it said.
F&B is over 50 per cent of the FMCG market at Rs 1.2 trillion. The smaller, mostly regional, players have outgrown the FMCG biggies, including Nestle, ITC and Britannia.
However, even if the positive catalyst will continue for the tier II cities on the business side, the main challenge will be the funding. "We estimate they will require at least Rs 160-180 billion more for achieving this target," it said.
Another reason is that consumers are becoming brand and health conscious.