Synopsis

Restaurants will likely avoid menu price increases this holiday season. Rising input costs and inflation have already impacted the food service sector. However, strong consumer spending and high demand are expected to continue. Businesses are absorbing some cost pressures to maintain customer flow. The industry faces challenges but anticipates a robust revenue quarter.

Cafes, restaurants, pubs and bars are unlikely to raise menu prices further in the October-December quarter, the busiest season for the hospitality industry, after the Centre said UPI-driven transactions above Rs 2,000 would attract a 0.4% merchant discount rate (MDR) levy from next month,

“There are supply chain challenges, but consumption has never been so high, and people are going out so much,” said Burma Burma co-founder Chirag Chhajer. “These are exciting times, and we are foreseeing the best ever October-December quarter in terms of revenues for the chain and we won’t be hiking our prices due to the MDR levy.”

Roshan Banan, MD of Sagar Ratna Restaurants, said the chain has raised prices by about 5% after two years due to higher input costs and won’t look at further hikes.

Also read: Explainer -- India's UPI MDR shake-up: What changes and why it matters

Food and beverage services recorded inflation of 8.4% year-on-year in August, compared with 7.8% in July and 2.9% in January, reflecting the impact of the West Asia crisis on commercial liquefied petroleum gas. Spending at restaurants has increased, reflected in a 22.2% rise in UPI transactions, which reached 21.8 billion in the first eight months of the year, up from 17.8 billion in the same period last year.

Rahul Singh, founder of The Beer Café, said he expects the October–December quarter to be ‘really healthy’ for eating out.

“Inflation will make consumers more discerning, but I don’t see it taking them away from going and eating out. They may spend more carefully, but the social and experiential nature of eating out remains strong,” he said. “On UPI MDR, restaurants are already operating with wafer-thin margins. You can’t keep passing every cost increase to the consumer as at some point, the consumer pushes back. Some of that pressure will inevitably have to be absorbed by the industry.”

Saurabh Khanijo, managing director of the Kylin chain of restaurants, also ruled out price hikes in the upcoming quarter despite shrinking margins, as that could dent demand.

“The 8.4% inflation in food and beverage services is certainly significant, and the industry continues to face pressure across ingredients, manpower and rentals,” said Zorawar Kalra, managing director of Massive Restaurants, which operates restaurant brands such as Farzi Cafe and Sly Granny. “But eating out in India has increasingly become an experience-led discretionary spend, and we continue to see resilience, particularly in the organised and premium segments.”

Rising food prices have been adding to the pressure the industry faces. Food inflation increased to 6% year-on-year in August compared with 5.5% in July, while overall retail inflation rose to 4.8% from 4.5%.

Sakshi Gupta, principal economist at HDFC Bank said food and beverage services is one of the categories where consumers saw the first increase at the retail level in terms of a pass-through.

“With a combination of input cost pass-throughs and climbing seasonal demand, it is anticipated that this particular category continues to be elevated,” she added.

Singh said the next quarter will be about earning the share of consumer wallet and trust by delivering a ‘compelling’ combination of value and experience, rather than simply raising prices.

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