Rise in input cost making restaurants crawl

Short Description
Prices at limited-service restaurants, meaning fast food and fast-casual, rose 7.1 percent compared to last October, according to new data released by the Bureau of Labor Statistics.
  • Sakshi Singh
Input Cost

The recent hike in the price of the commercial cooking gas cylinders has given a jolt to the restaurant industry, especially small eateries, desperately trying to stay afloat following the Covid-19 outbreak. Since the start of the year, the price has been raised by INR 1,000. The biggest hike of around INR 250 kicked in last month.

The restaurant industry is facing the pressure of inflated input costs. The pressure is coming from all sides. Beverage makers are facing a jump in expenses for packaging like aluminum. Meat prices are on the rise as the cost for grain to feed animals climbs. A surge in freight, transportation and manufacturing costs, as well as pandemic related expenses, also are weighing on producers. These come on top of the continuous price hike of LPG.

With the increase in the price of LPG cylinders, petrol, vegetables and an increase in labour cost, it is being anticipated that restaurants may increase the prices on their menu by up to 20 percent in the coming days. 

Food prices have risen at a faster average rate since the onset of the pandemic than they did over the prior decade. Since April 2020, food prices (raw materials) have increased an average of 3.6 percent for food bought for at-home consumption and 3.9 percent for food away from home on a monthly year-over-year basis. 

Changes in meat prices have a large influence on the price indices because consumers spend a relatively high share of their food budget on these items. Indeed, prices for some meat items have reached the highest levels recorded even after adjusting for overall inflation. 

Prices at limited-service restaurants, meaning fast food and fast-casual, rose 7.1 percent compared to last October, according to new data released by the Bureau of Labor Statistics. Prices at full-service restaurants rose 5.9 percent. Both were the highest increases since the BLS has recorded these numbers.

“We have not increased the price of the food and beverage served in our cafes. However, keeping in mind the current scenario we tend to keep the offers and discounts on weekdays and on weekends, we tend to give minimal offers so that the company does not face losses. Moreover, we tend to organize events that are more cost effective to ensure that we do not go overboard in terms of expenditure,” Kunal Joshi, Director Operations, Hard Rock Cafe India commented.

Additionally, the rising cost is putting pressure on the brand's top line and pre-tax profit margin. “We are witnessing broad-based inflation across many commodities. Every organised player in the industry has increased prices by 8 to 10 percent in the last 15 to 20 months. But we try to focus on managing cost management in other areas aggressively so that it doesn't pinch our patron's purse,” Sharath Rice, Co founder and Director, VRO Hospitality added.

Vanita Bajoria, Director, Lord of the Drinks, Kolkata informed that after the rise in the wholesale rate of food items, the team had already reduced staff. “We don’t want to lose our customers. Hence we cannot increase the menu prices of the food items. However, the higher the fuel prices would force us to sell food prices at higher rates,” she said.

The important choice has thus become to reduce expenses. The rising input cost is probably the greatest test which the field of business is facing since it's actual dynamic. Yet, every eatery should go with some degree of value climb, contingent upon their monetary circumstance. 

“We are trusting that the inventory network circumstance will improve. Assuming we don't see things pivoting, we will have no choice except to climb costs following a month. Cafés costs are expanding quicker than they have in a very long time as work and fixings become more costly,” Arun Mugam, General Manager, Local Gurugram shared. 

Raising a very important concern, Aaditya Bharadwaj, Owner of Baris restaurant in GK Delhi, stated that with so much pollution already there, it makes restaurants in Delhi not to use charcoal or wood in clay ovens and grills, which lead to using a lot of LPG. 

Krispy Kreme, Wendy's, and other chains shared news about rising prices in earnings calls.

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