Eating out? Be prepared to shell out more as restaurants hike rates

High food inflation forces restaurants to hike prices; ban on service charge will likely lead to further increases in the prices of dishes on the menu

The steep rise in food prices has left a bad taste in the mouth of restaurant owners. To deal with the high cost of inputs, many have already increased the prices on their menus, while others are planning to do the same in the coming weeks, forcing customers to fork out much more when they dine out.

“On an average, there has been a 10-15 per cent increase in the prices of dishes on the menu. While some have already implemented the higher prices, others are in the process of doing so,” says Pradeep Shetty, joint honorary secretary, Federation of Hotel and Restaurant Associations of India (FHRAI).

Whether it is farm produce or packaged food stuff or cooking fuel — high food inflation has made everything more expensive in recent months. Hence, an upward revision in the prices of items on the menu was inevitable, adds Shetty.

The prices of all inputs have gone up by at least 25 per cent, says M Venkadasubbu, managing director at Vellore-based Hotel Darling Residency. “But though there has been a multi-fold jump in costs, we cannot increase prices by more than 10 -15 per cent,” he says.

 

To be sure, these price revisions have happened over the last nine months and since the restaurants resumed operations after the second wave of the Covid-19 pandemic. Having suffered huge losses over the last couple of years due to lockdowns, many restaurant owners were reluctant to hike prices for fear that it would derail the recovery process. So initially, most of them absorbed the high costs. However, with the restaurant business springing back to pre-Covid levels, they have decided to raise their prices, says Shetty.

However, like Venkadasubbu, others, too, say that price increases on the menu are not commensurate with the escalation in costs and only marginally cover the overheads. “Prices of food items, salaries and electricity account for over a third of the total costs for a restaurant. This has gone up by 20-30 per cent over the last one year,” points out Gurbax Singh Kohli, vice president, FHRAI, and joint managing director at the Mumbai-based Pritam Group of Hotels.
 

In fact, industry insiders say that restaurants have been able to pass on only about half the increase in the input costs to customers and have been forced to absorb the rest. “As it is, we operate on a thin margin of 15-20 per cent. It will now take a further hit,” Kohli laments.

Among all the overheads, the cost of refined oil and commercial LPG cylinders has burnt the biggest hole in the pockets of restaurant owners. Kohli points out that while refined oil prices have gone up by 100 per cent since the Russia-Ukraine war broke out, commercial LPG prices have risen by 70 per cent in the last 2 years — 30 per cent in 2020-21 and another 40 per cent in 2021-22.

What’s more, the July 4 directive by the Central Consumer Protection Authority (CCPA) prohibiting hotels and restaurants from adding a service charge (ranging from 5 per cent to 18 per cent) to food bills without the customer's consent, has also dealt a blow to restaurant owners. This, too, will force them to increase prices, they said.

The CCPA has written to all the states to ensure strict implementation of the order, while empowering consumers to lodge a complaint in case of any violation.

 

The FHRAI maintains that there is “nothing illegal” about such charges and that service charges are levied to reward the staff, including those who may not serve the customers directly. Since the beginning of the pandemic, restaurateurs have been grappling with staff shortages. Banning the levy of service charge will force them to do away with bonuses and other incentives paid to the staff, and will add to the already high attrition rate, they point out.

Kohli says that the hotels and restaurants association will seek legal opinion on the matter. The amount added as a service charge is discretionary and no hotel or restaurant is forcing consumers to pay the charges, he claims.

According to Kohli, one should compare their service charge with the convenience fee being levied by many other service providers. “How is it that nobody questions when an IRCTC or online travel companies levy a convenience fee on bookings?” he asks.