Food has always fascinated me from my childhood. I have memories of going with my father to Nathu’s at Bengali Market to eat chat or Chana Bhatura. My uncle Bhisham who was member of Gaylord Restaurant in CP, used to bring home Ice cream in summer, packed in a tin container. Then there are recollections of Coca Cola or Pepsi and Choco bar being sold for 25 paisa in sixties, Masala Dosa in Moti Bagh market was priced at 30 paisa. Fried Aloo-Kachalu Chat next to liberty cinema was a great delicacy at a throwaway price of 50 paisa.
Earlier, in the fifties, when my father’s was posted in Lucknow, we enjoyed famous Chat Savories which were regarded as local delicacies at Chowdhary Sweet House, then there was Milkshake in Hazratganj, Kulfi made in cigarette tin box and most amazing of all Muter Chat all were priced under one rupee. My dearest friend late Major Vinod Gulati , whenever he used to be in Delhi used to take me for treat to famous CP restaurants like Volga, Standard or Laguna and spend under five rupees to have Cold coffee with Ice cream, Coke with Ice cream or Espresso (Today it is called Cappuccino) with delicious Paneer Pakora and fried veg burger. Memory of those favourite dishes still haunt me and keep the mouth flushed with saliva, it also reminds me of the Golden Era of F&B in the sixties and seventies. CP had over 20 top class restaurants and all were doing well.
Let me not digress any further from the main objective of this blog. We Indians have been great foodies from times immemorial, we love to snack anytime and every time, it’s our never ending song of love. More then lunch or dinner we remain excited about in-between snacks like a samosa or patties, chat, kababs, Pao Bhaji, or Vada Pao and Kulfi Fallooda and so on - the list is endless, and snacking continues, the only difference being, that these snacks have become our meal today.
The Halwai shops that use to sell these snacks - some years back- as a side business, today these very snacks have become the main source of their revenue. Fast Food turnover of Indian food in these restaurants have made them Kings of Fast food in India. I remember in 2002 when I opened Evergreen Fast Food Restaurant for Chopra Brothers in Green Park, New Delhi. Evergreen’s the Sweet business turnover was highest in Delhi. Within just a year, one of the owners’ themselves informed me that the restaurant was doing extremely well, and that income from Mithai business now is nothing as compared to what they were earning from the fast food restaurant. Remarkably, the great thing was that with low selling rates we were able to achieve food cost of less than 35-40%, and in this calculation their genuine gross profitability was over 42% of the turnover. Today I feel that while the Menu card rates of Indian fast food has gone up by almost 110%. Strangely enough I must put these rates against the cost, which has gone up by not more than 50%. It is a very uncomfortable feeling to note that this trend of ad hock increase in the sale price is dictated not only by marginal increase in the food cost but also by marketing trends.Through this blog I am trying to convey my reservations with such bizarre pricing trends and creativity behind this approach and strategy.
The purpose of this blog is only to highlight the fact that such illogical and unplanned hike in selling prices across the categories of food outlets is not the outcome of increased cost of food ingredients’ but because of the competition with the similar outlets. I will try to give reasons that will finally impact the business in times to come.
On the other hand when International Fast Food Industry came to India, fortunately they have continued to follow their preset management standards till date. When McDonald opened in India, their highest selling was Burger Aloo Tikki which was priced at Rs.20 and today after 28 years it sells for Rs.45.00. Even the McChicken Burger which started at Rs. 45 is being sold at Rs.115.00, quite a similar is the situation with Pizza Chains and other international Food chains. These international food chains are very smart, they realized in the very beginning that India is a country where people literally survive on snacks, and that they have to establish themselves simply by providing good quality food that is hygienic and at rock bottom prices, as a result even today their bestselling burger at Rs. 45.00 is cheaper then Vegetable Burger of Haldiram or Bikaner where it is priced at Rs.110.00, and even the Vada Pao is sold at a higher price than McDonald’s Aloo Tikki Burger. This is the reason that the growth and profitability of these successful International Chains is way ahead of their Indian competitors.
In my opinion, the Restaurant Industry in India, is in dire straits. Every year we open thousands of restaurants with all kind of cuisines and also close nearly same number of restaurant due to failure, the reasons for such failures are as follows;
A.
High rentals,
B.
Sub-standard food,
C. Mediocre services and high Food and Beverage Rates.
The fact remains that in places like Cyber Hub and Ambience mall, Gurugram, Defence Colony- New Delhi and including other prominent Malls of Delhi, we come across 40 to 50 per cent of the restaurants frequently change names, ownership and cuisine every year. I opened my own Restaurant of good standard called Cafe California in Connaught Place, New Delhi in 2003, serving Multi Cuisine. Even today many food and beverage menu items are popular even today and are part of the menu of some of the most happening restaurants. On other hand their selling prices are at least 7 to 12 times more than in 2003, whereas the cost of food and ingredients has not gone up in the same proportion. In some ways I feel while food standards and services are deteriorating, the selling prices are going up every day- well almost. In last 15-20 years there are very few restaurants which still exist even today and majority of the survivors have kept their rates reasonable for e.g. Big Chill, Kwality Restaurant-CP, Karim’s, Embassy, Moti Mahal-GK, Narula's Ice cream Parlors to name a few. All these Restaurants are surviving not just because they are popular but also because their prices are highly competitive. All of them have a reputation of providing good value for money and satiety. On other hand new concepts are rather expensive and are devoid of any effort by promoters to provide value for their pricing. Menu research and engineering is rather negligible.
Before I talk about the status of F&B, I need to mention the approach to F&B costing especially in the hotels. Food cost of the Hotel menus are planned on actual costing of 10% to 14% of selling price. Primary observation tells me one basic criterion i.e. Bigger the Hotel Higher the Rates - with no connection to the actual food cost. It is quite shocking to note that due to the unplanned and nonchalant attitude of the big players in the Hotel Industry, where every hotel on an average, loose over 15% to 20% of F&B income, due to pilferage and wastage, which could have actually been their profit. Interestingly, most of the Hotels, despite having the relevant software, do not use it effectively to their benefit, strangely enough even the International Chains shy away from using it in India. Reason being that it is cumbersome and manpower intensive, to start with. Can you imagine if McDonald or Burger King were not to follow the inventory management software to manage cost control, with each restaurant will be showing negligible or no profit. This is because their profit margins are comparatively very low; this is just a problem of blindly following the trends without bothering about their impact on the revenue. If the Hoteliers do not create food recipe, how do they arrive at / or finalize the rates on the menu card? A small case study- I recall when I was working in 1974 in Akbar hotel, which was considered best Hotel in Delhi and was in direct competition with Oberoi Inter Continental, I was given task to review the rates and recommend enhancement for Coffee Shop and their Specialty Restaurant. I worked on the costing of all recipes and recommended the enhanced rates keeping the food cost of each item at 30 % and took it to GM K.K. Mahalotra along with the menu rates of Ashoka and Oberoi, he reviewed and adjusted the price, in some cases little lower and in some cases higher. Altogether their was 5 to 10 percent higher. That’s how the menus were finalized back then, but today it is different, no original recipes, no cost analysis/working, simply enough rates of competition are reviewed and outlet increase the rates accordingly, at will. This trend was started in 1976-77, when Oberoi decided to increase their rates on ad hoc basis, they came up with totally different strategy of pricing themselves over and above the market (in some cases even doubled the selling prices) to establish themselves as a Hotel only for the Elite Class. I still remember Espresso (Today's Cappuccino) was available for Rs.2.50 in all the good hotels, they decided to sell same Espresso for more than double the rates. Their strategy was to position themselves higher than the competition and their strategy worked so well that, we all visited the hotel just for having their expensive coffee. Slowly other Hotels started following their strategy, today all Hotels started blindly copying the tactics of Oberois – this over a period of time became the main reason for the decline in sales of restaurants operating within the Hotel premises. This is also the reason that today you get cappuccino or tea at Rs.750.00 plus taxes at Oberoi / Taj /ITC, whereas the cost to hotel remains under Rs.10.00 apiece. This trend slowly and steadily gave birth to a Free Standing Restaurant Market in elite areas of all major metros including New Delhi, where areas like Defence colony, Pandara Road, Vasant Vihar Market saw the mushrooming of many good standalone restaurants. There was time when nearly all the Hotels use to open with minimum two speciality restaurants, one coffee shop, a bar, a discotheque and a banquet hall, but all that has now changed. Today majority of new Hotels have All Day Dinning and a Bar only and by chance if they have just one restaurant, it is either not doing well or it is being used for some other purposes. The main reason for this, is high selling prices and high taxation. Scary part is that even those large Flagship Hotels in major metros, who boast of three to four restaurants; unfortunately only their All Day Dining is doing well and if they are lucky their one Speciality Restaurant doing reasonably well. Remaining outlets keep suffering from a decline in business.
All over the world the Hotel room rates are related to the quality of Hotel, its classification and the services they offer, but their F&B rates are at par with the similar outlets in other hotel or standalone market restaurants. Now coming back to India - This might be the only country where the rates of F&B outlets operating within the Hotel premixes are on an average double or even more than those in a free standing restaurants. Today, the main reason, why so many free standing restaurants and restaurants in Hotels are not doing well is because of high rates. Fact is that they themselves are responsible for pricing themselves way above and out of the market. It is a common sight that the Hotel coffee shops are overcrowded at breakfast simply because it is a part of the room tariff and free lunches and dinners are currently unheard of. I am very sure, that if all of them work on 30/35 per cent food cost formula; we will be a witness to the revival of food and beverage business in Hotels.
Learning from experience, majority of new Hotels today are designed with one All day dinning, Bar and Banquet Hall. Some of the chains have accepted the reality that food & beverage in Hotels sales will continue to post declining trends. Sad to see Hotel industry in place of fighting for revival of past F&B glory, they are silently accepting their defeat. They are again trying to copy European and US trend, whereas we are ignoring the trends of South East Asia, where some Hoteliers are redesigning their strategy by allowing well established Restaurant brands to open their hotels- indeed a smart move.
In last three/four years we have seen the banqueting business flourish like never before. The rates have doubled after the COVID 19 scenario. Today the average wedding rates are anywhere between Rs.3500 to Rs. 6500 per head in five star Hotels, even more then the best restaurants in India, plus add decoration charges, flower charges and entertainment charges and still business is booming. For me it is a bubble, it will continue as long as country’s economy is doing well, but it will burst at the slightest hint of recession.
Food and Beverage was and still is the most important aspect of Hospitality Industry, well managed food and beverage operation improves all aspects of the Hotel profitability, still it is worrisome that even after so many years of operation our F&B operation has not professionalized by the management including top hotel Indian and international Hotel chain. It is shocking to note that in nearly all hotels have no effective F&B control systems. Their saving grace is large banquet revenue (Large Banquet party costing is always less than 10 %) and thanks to banquet’s contribution, this reduces their costing to under 25%., same is the situation with most of the industry.
Today it is boom time, how long? Maybe next two years. Reality is, at the peak of this boom, hospitality status is, compromised management of Hotels or restaurants, service standard below average, Food quality in most of the cases repetitive, still we are continuously complacent because revenues are coming. If no effective action is taken correct, it matter of time it might become irreversible.
On other hand the International Restaurants / Fast food chains due to their smart planning, are capturing bigger market share with competitive pricing strategies.
Today it is the boom time, but for how long? Maybe next two years. Reality is, that in the peak of hospitality boom we have lot of poorly managed Hotels and even restaurants, where the service standards are poor or below average, Food quality in most of the cases remains average and hotel services continue to decline - and still we are complacent because revenues are coming. While on other hand slowly and stealthily the International Restaurants/ Fast Food chains are happily capturing a bigger chunk of the market share with their competitive and strategic price line..
Written by : Anil Chak & Virat Varma
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