Your favorite restaurant in town could close due to rising food and fuel costs
Ankita Fernandes, who runs Francis Fernandes’ family business Fresh Catch in Mumbai, is furious. And it’s not because of the heavy blow of the sweltering summer. The prices of commercial LPG cylinders were increased by Rs 102 to touch Rs 2355.50 on May 1, and she is not amused.
“We’ve been using commercial LPG cylinders for over 25 years, and the biggest rate change is its price hike,” Ankita complained. “10 years ago, the rate was around Rs 1100 to Rs 1200. During the pandemic, this increased almost five times. The cost per cylinder was around Rs 2200 a few weeks ago, and now it exceeded the obnoxiously high rate of Rs 2307!”
Dr R Ravichandar, CMD of Nandhana Group, which runs a chain of 15 multi-cuisine casual dining establishments in Bengaluru and Chennai, has been watching closely the northward rise in the price of LPG cylinders. Citing the figures, he said: “The overall increase in LPG prices was 70% from 2020 to 2022. Cylinder prices increased by 40% between 2020 and 2021 and 30% between 2021 and 2022.”
Debaditya Chaudhary – MD of Chowman, Oudh 1590 and Chapter 2 – is also concerned about these rapid increases in LPG and CNG gas prices over the past two months. He claimed this had significantly affected food costs.
“Since Chowman delivered on its promise to sell food at an affordable price, the price change has been a major blow to our unchanged menu prices. Fuel prices need to come down, otherwise it may be difficult for us to continue our activities at such low and affordable prices,” he lamented.
Uncle’s Kitchen, a popular Chinese cuisine restaurant in suburban Mumbai, has been open since 1987. However, its owner, Ronnie D’Souza, does not recall seeing such an increase in fuel costs in the past three decades.
“We have a piped gas connection, and the increase in fuel prices has been phenomenal since the start of the pandemic. The worst thing is that there has never been a turn back,” said he lamented.
A bitter taste
Restaurants have been hardest hit during the pandemic as strict shutdowns have brought their business to a halt. With fewer customers at the restaurant, many have opted for a delivery-only model to survive.
With the easing of closures, restaurateurs have been eagerly waiting to recover lost business, but rising fuel prices have thrown another hurdle to recovery. On this, Mihir Desai – Founder of Corum Hospitality (which owns brands like The Bar Stock Exchange, The Big Bang Bar and Café, Soi Kitchen and Masala Zone), said: “There is an average increase of 30% in LPG prices each In addition, the GST on gasoline prices is an additional burden.
Since he prefers not to increase menu prices by a corresponding percentage, the company accepts some losses and passes some of them on to the consumer. “As a result of rising fuel prices, headline inflation also peaked, leading to skyrocketing product and raw material costs. We increased prices slightly, but we did not pass on the the entire burden on the consumer, because we don’t want attendance to drop and become unaffordable for consumers,” he explained.
Retail inflation in India jumped to 7.79% on an annual basis in April, due to higher prices for edible oils and fuel, according to data shared by the Ministry of Statistics and Development. implementation of programs on May 12. Headline inflation is now at its highest level since 8.33% in May 2014.
Due to this inflation, restaurant operating costs have increased, resulting in higher finished product costs and lower gross and net operating income. Pankaj Barot, who runs Revival Restaurant in Mumbai, said the high cost of food inputs as a raw material, followed by wages, fuel including electricity and LPG gas cylinders, is the third cost of input in the food and beverage (F&B) industry. . “A 1% increase in any of these has a cascading effect on our profit. Food inflation, labor shortages, increased payroll and increased cost of fuel have eaten away at our summary margins, which is quite a negative after the two years of unprecedented lockdown vagaries. Since our menu prices cannot be increased due to the prevailing competition, our bottom line is taking a hit!” he lamented.
Various restaurants handle these challenges differently. To combat rising raw material prices, Nandhana Group pays close attention to inventory data to ensure better accuracy and reduce waste. “We are establishing repeatable and actionable end-to-end visibility into spend by cost category, cutting consumption to the optimum and minimizing our menu,” Dr. Ravichandar added.
As a seafood restaurant, Fresh Catch has low margins. This is largely because the products, like fresh fish, are expensive and there are various aspects of supply and demand, including the quality of the fish and the breeding season, etc.
“Rates are also catch-based, which makes pricing extremely crucial for seafood restaurants. and will opt for more affordable restaurants. They are relatively more money-aware than they were before the pandemic. And for good reason!” Ankita said.
Since Fresh Catch restarted operations just a month ago, there are no plans to increase menu prices, especially given the competitive nature of the market. Instead, the siblings who run the establishment do their best to cut other outgoing expenses so their profits aren’t gobbled up.
The Balancing Act
Parvez Khan, chef and co-founder, Wakai managed the rise in the balance sheet, while the rise was gradual. Things came to a head when LPG prices rose significantly over the past two months. This, he said, disrupted the balance that most restaurateurs had managed to achieve. “All restaurants revise their menus on a semi-annual or annual basis, including price revision and redesign of dishes. Menu prices cannot continue to fluctuate with changes in the market because it becomes difficult to justify this to customers. customers,” he explained.
Ishaan Bahl, founder of 145 Mumbai, also has no intention of raising prices at this laid-back all-day resto-bar in Kamala Mills, which has several F&B outlets within a kilometer radius. While admitting that this is not an ideal situation as a restaurateur, he added that we cannot continue to change prices because it is unfair to customers. “At this time, we want our customers to have the best possible experience with us. We will try to fix the price gouging issues on the backend and try not to make any changes on the frontend,” he said. he adds. It’s often an understatement to say that it’s the best way to retain customers at a time when brand loyalty is heavily dependent on the cost of a release on the wallet.
Why is help not available?
The other big challenge facing F&B establishments is the lack of manpower. According to Mihir, following massive layoffs during the pandemic, the industry is seeing a 25% shortage of qualified personnel. Ishaan agreed with him. “The labor shortage is currently the most pressing issue facing our industry. Workers have moved away from restaurants and hotels for other options as the hospitality industry has been severely impacted during both waves of COVID “, he said, adding that recruiting good people is now a daunting task.
The industry is pinning its hopes on the government to give it a break from the double whammy of inflation and rising fuel prices. The Federation of Hotel and Restaurant Associations of India (FHRAI) had recently made representation to the GST Board, suggesting a reduction of the GST on LPG used in hotels and restaurants from 18 to 5 percent .
The trade body said the move would reduce operational costs, which would benefit customers. In addition, he called for either the removal of the GST on rent payments or the authorization of an input credit on rent payments to cushion the blow of rising inflation.
Mihir hoped authorities would grant the industry waivers of electricity tariff, property tax, license fees and various compliance fees applicable to running a restaurant. He expected the central government to support our industry by allowing an input credit for GST on the lines of what is currently allowed to other sectors.
“Government should develop a portal that acts as an aggregator between restaurant owner and staff so that the needy can find jobs and we get talent,” he added. “It will lower unemployment numbers overall since we are a labor intensive industry.”
Ronnie also said the sector had been hoping for a lifeline from authorities since the start of the pandemic. “We were hoping they would revise taxes and license fees in addition to offering electricity and gas subsidies to our industry. It’s the least they could do,” he said. .
A little consideration and support is all Pervez expects from the administration. “Restaurants are in a situation where they cannot randomly increase prices to make up cost differences. That certainly challenges one of the main reasons for our existence, and that is hospitality,” he said. he declares.
Pankaj noted that businesses around the world have received various relief packages from their respective governments during the pandemic, but Indian organizations have not been so lucky. “Excise duty approvals are at the level of arguments in various forums, but we have been advocating for ages for infrastructure status with the central government and for the rationalization of GST rates,” he said. This will make the business more viable and help the industry overcome the crisis of the past two years.