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The restaurants business and inflation

Some have absorbed the price rise, some have passed it on to customers, some are ‘waiting and watching’. But most agree that the urban Indian diner will loosen his pursestrings, HT reports.

india Updated: Apr 20, 2008 00:32 IST

Last week’s foodie buzz had it that Britain’s ‘national dish’ — the

chicken tikka masala

— was being knocked off menus in Indian restaurants there. Reason: spiralling prices of chicken,

ghee

and spices. Media reports are full of estimates that of the 32,000 Indian restaurants and takeaways, 16,000 will have to down their shutters. Not just that, stricter immigration rules and subsequent non-availability of trained chefs from the Indian subcontinent is taking away the fuel from the kitchen fires. But, equally, so have prices.

Food for thought?

That’s what Sunday HT thought — and decided to investigate what’s cooking in the restaurant business in India.

First things first. Even though Saeed Shervani, secretary, Hotel and Restaurant Association, North India, admits that the “last month has been hard”, most restaurateurs seem to agree that it’s better to wait than to hike. Also, it is customary for consumers to whine about over-priced bread while dining on over-the-top priced pasta for obvious conversational and economic reasons.

YOU GO FIRST

Charanjeet Singh, manager of Delhi’s popular patisserie Wenger and Co, says that a 2-3 per cent rise can be adjusted, but anything beyond that will lead to a “proportionate increase in prices”. He says, “But as of now, we’re bearing these increased costs on our own.”

Priyanka Malhotra, owner of Café Turtle, has no qualms admitting that all that price rise of vegetable and fruits is pinching her black and blue. “Coffee after all is a component, in summer we do a lot of juices as well. And we do not use concentrates only fresh produce.” But she too says that she’d rather wait for another six months before shuffling prices.

But what good can possibly come of watching an already boiling market? Shervani explains that it has to

do with the fact that many mass brands get their supply through tenders at fixed prices. “Unless their suppliers want a review, it doesn’t affect the big chains.”

Rini Dutta, head of marketing and product development at coffee chain Barista, offers a more sympathetic reason behind the wait. “Barista has over 200 cafes across India and are addressing the young adult group of consumers. There’s a need to ensure our offering is priced at an affordable level. We are waiting for the situation to stabilise before taking any pricing decisions.”

HIKE KA SIDE-EFFECTS

Meanwhile there are others who have already taken the plunge and lived to tell the tale. A Sehgal, owner of Nathu’s pastry shop in Delhi’s Bengali Market, recently increased prices by 30 per cent after two years. And he has to say that as a result of the move “customers have fallen, and our profit margin already nullified”. But he maintains that it was necessary and if expenses carry on he will have to “reconsider prices again”.

McDonald’s also hiked the price of the Chicken McGrill last month by Rs 10. The company statement read, “The cumulative increase in costs of the ingredients has made this revision inevitable.”

At South Indian chain Sagar the effects of inflation have been kept away from the menu, but general manager Rohit Anand admits that they are not immune to the price pangs. “We have been affected by the rise in most basic products; vegetables, oil and pulses are part of our restaurant’s daily consumption. It affects everything on the menu.”

While price rise seems imminent no restaurateur seems very keen on portion cuts. Asit Sharma, head of operations, Mahima Hospitality Private Limited (that owns Shalom, Italic, Line of No Control and Glow), explains that if a certain brand of cheese is hit by inflation, then the cost of those dishes containing that cheese might be re-priced. But portions cuts he maintains is a “cheap thing to do”.

INNOVATE AND RULE

According to food consultant Marut Sikka, it is the low-priced eateries that will be affected the most. “Elite and even mid-level places have high profit margins,” he lets in. But he also adds that how the side effects will translate remains to be seen.

Reiterates food consultant Manu Mohindra, “No one’s running into losses. Though profits margins are not as high as they were a couple of years back, they are still about 18 per cent for a high-end joint. Bigger players are still not affected. It’s the guy with a smaller establishment, the staff at the restaurant or a new player — who will have to pay high rent — that will be affected by inflation.”

Even so, a high-budget place like south Delhi’s Azzurro is being “forced to look” at a price revision. Says owner Shrivant Rajgarhia, “It’s not only about food, even energy costs are going up. In a power-starved city, we have to use fuel for back-up power. Our food costs are higher than an average restaurant.”

A change in menu is also a tedious process and involves re-printing and re-looking at costs, not to forget the customer’s reaction to a sudden hike. So, for a mid-market corporate chain like Nirula’s “lean methodology, innovation” and “controlling wastage” are the new mantras.

“We need to give choices to our consumer. Someone who can’t afford a pizza for Rs 100, can still go for one for Rs 69 plus taxes,” says Sudipta Sen Gupta, senior vice president, marketing and sales manager. Pizza Hut is also talking of “internal efficiencies”.

While restaurants like Delhi’s Food Talk, that serve everything from pastas to chaat, are banking on “selling more in combos”. Says a spokesperson, “It results in more sales for us and customers get a better deal.”

WHAT INCREASE?

Chances are that increase in prices will elicit some grumbles from customers and no more. Sakshi Ghosh, a Delhi-based mediaperson, who dines out at least once a week says, “Nothing can stop us, as long as the food is good.” Vidyut Narain, a 12th standard student of Modern Barakhamba is not unaware of the price pinch. He says, “I used to pay Rs 22 for a chicken sandwich. I haven’t stopped eating them, but now I pay Rs 30.”

Mohindra explains, “The restaurant business is a want-based business, not a need-based one. if someone wants to eat out, he/she will plan it.”

Foodies in Mumbai say that if you visit Mahesh Lunch Home once, you have to go there again. “We have a repeat clientele of nearly 70 per cent,” says Mahendra Karkera, one of the partners.

A year ago, Mahesh Lunch Home increased prices by 30 per cent. Karkera says that the current steep rise in prices, especially of fish, may force them to go for another increase. How will he tackle customer dissatisfaction? “Well, we will have a chat with regular customers. I feel the customers themselves will do some kind of management.”

Asha Zaveri, who made Swati Snacks one of the most well known eateries in South Mumbai, is not unduly worried either. She says, “At some point, we may be forced to hike the prices by about 15 per cent,” she says. How will she break the news to her regulars? “We will not. When we go to buy stuff from vendors, do they inform us that they have hiked the prices? I am sure the customers will understand,” she says.

At Oh! Calcutta, in Kolkata nothing has changed. Debashish Ghosh, regional business head (eastern region) of Specialty Restaurants Private Limited that owns the brand, “Now, it’s too early to comment as we haven’t registered any change, either in footfall or ordering patterns,” he says.

And in the future too there won’t be any drastic change feels Ghosh. “Even with the inflation, people have money to spend.”