Restaurants face a host of challenges this festive season
This festive season, Indian dining-out chains are encountering significant profitability challenges due to the sharp rise in food costs, particularly for essential items like edible oils, vegetables, and wheat. Despite the expected surge in demand during the October-December quarter, restaurants are reluctant to raise menu prices. Executives from major chains, such as Mainland China and Farzi Cafe, emphasize that increasing prices at this time is not an option, given the competitive nature of the market and the desire to attract more customers during the festive season. Instead, many restaurants are absorbing the increased costs and renegotiating contracts with suppliers, especially small vendors, to manage the financial burden. For example, Zorawar Kalra of Massive Restaurants explained how his company is temporarily shouldering some of the cost hikes to support smaller suppliers.
The price surge is being driven by a combination of factors, including supply chain disruptions caused by heavy rains, a nearly 36% jump in vegetable prices in September, and a 20 percentage point increase in import duties on edible oils. This has pushed India’s retail inflation to a nine-month high of 5.5%. Large restaurant chains typically have long-term supplier contracts, which provide some buffer against sudden inflation. However, restaurant executives acknowledge that the restaurant business operates on thin margins, and every percentage point increase in costs significantly impacts their bottom line. With customers shifting more toward food delivery services and dine-in sales under pressure, restaurants are also focusing on leveraging backend synergies and bulk deals with suppliers to maintain profitability without increasing prices. The road ahead for restaurants will be challenging, but many are confident in finding innovative ways to navigate these economic headwinds.
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Keywords: festive season challenges, restaurant profitability, rising food costs, dining-out chains, inflation in restaurants, menu price management