Food Inflation Grip on the Restaurant Sector

Food Inflation has been killing Indians over the last few years. It has hurt the local masses very badly; from 2008 to 2012 the price inflation was estimated at an average rate of 7.5 percent.

According to the report published in TOI: The reason for food inflation in India, coupled with econometric analysis, reveals that three factors stand out in this regard, Uncontrollable fiscal deficit, rising farm wages, and transmission of the global food inflation; the agricultural prices respond much more to an increase in money supply compared to the manufactured goods where prices tend to be stickier due to some prevalence of long term contracts.

Mr. Suchit Garg, Chef, Spice It, Ibis, Gurgaon says, “If there is inflation, the spending power of the customer goes down. Suppose earlier if a person used to spend 10X amounts on a food, now he will be spending 10 times of the amount.”

"There is nothing called shortage in demand when there is much demand in the market, there would be greater supply by the food industry, " Mr. Garg further adds.  To keep a balance between price inflation and driving customer it is essential to give best quality at lower cost, that’s what our restaurant aimed at.

While talking to FIHL, he also briefed that despite the fact that food price is rising the restaurant is gaining more and more customers. It is because now everybody prefers variety and quality. Another reason is that people want to spend some spare time with their family and friends.  Eating out and dining has also become a culture.

Making a strong pitch for unshackling the sector from the license and tax regime, the National Restaurant Association of India said the Government could increase its revenues by tweaking the taxation structures.

According to a report published by NRAI, the impediments in the growth of the industry included high real estate and labour costs, fragmented supply chain and lack of quality warehousing space. The industry is projected to grow to Rs 4,08,040 crore by 2018 from the present Rs 2,47,680 crore.

Let us now look at the food prices of some of the commodities through the table underneath:

According to the research made by Franchise India it shows that the price of the essential commodities like Rice has increased from Rs 22 in 2009 to Rs 35 in 2013. The price of other commodities like Sugar, Onion and Tomato has also increased from Rs 50, 24 and 40 to Rs 60, 70 and 40 respectively in the last four years.

Manaswi, a student of Advertising and Corporate Communication, YMCA, has decreased the frequency of visiting restaurants. Prices at Kentucky Fried Chicken (KFC) and Pizza Hut, her favourite restaurants, have risen over the past two years. A meal at KFC that would have cost around Rs.130 has gone up to Rs 165.

While on the other side, a TVS Capital spokesperson who has invested in Om Pizza and Eats Pvt. Ltd, which runs Papa Johns Pizza, said, “We continue to look for investments in the food and agri space. The fund is now in the midst of closing its new Rs 500 crore fund.”

While pointing out that sectors such as consumer packaged food are still resilient and showing robust growth, Amit Burman, Chairman, Lite Bite Foods Pvt Ltd, and Vice Chairman, Dabur India Ltd, admits that the opportunity is large.