Upgrading the Festival Shop is related to and depends on the level of the Cooking Festival.

When you access the Festival Shop, it is level 1 and you have 2 trays of goods open. There are a total of 5 trays available to you, but the remaining 3 need to be unlocked.

To do this, you need to participate in the Cooking Festival.
Open the festival window and complete orders from citizens. For completing the entire order, each citizen will give you a Like sticker. along with tips. Collect stickers to unlock trays in the Festival Shop. 

When you collect 1 sticker, the third tray will unlock.
When you collect 3 stickers, the fourth tray will unlock.
When you collect 6 stickers, the last, fifth tray will unlock. 

Level 2
To upgrade the Festival Shop to level 2, you need to first upgrade the Cooking Festival to level 2. 

 After upgrading the Cooking Festival, you can proceed to upgrading the Festival Shop. 

At Festival Shop level 2, you still have the same number of available trays at the start of the festival (2 trays), but the overall number of trays increases. There are 6 of them. 

Use the side arrow in the shop window to see all six trays.

To unlock the third, fourth, fifth and sixth trays, you need to complete orders at the Cooking Festival and collect Like stickers. 

Level 3
To upgrade the Festival Shop to level 3, you need to first upgrade the Cooking Festival to level 3.  

At this level, the number of open trays at the start changes. There are 3 of them. The total number of available trays remains 6.

Level 4
To upgrade the Festival Shop to level 4, you need to first upgrade the Cooking Festival to level 4.   

This level increases the total number of available trays to 7. However, initially there are 3 trays available to you, just like at level 3.

Table showing Festival Shop levels