India’s restaurant industry is staring at a forced pricing reset as a sharp surge in commercial LPG costs pushes operators from absorbing losses to preparing menu hikes, even as demand remains uneven.
Over the past two months, LPG prices have risen steeply, with a 10% increase followed by a 50% jump, translating into an effective 60% rise since March. For an industry that runs on thin margins, that shift is proving difficult to absorb.
“Quite a bummer to be honest. The prices went up by 10% about a month ago when LPG availability was a crisis. Now 50% more. So that’s technically a 60% jump from the base in March,” Sagar Daryani, founder of Wow! Momo and president of National Restaurant Association of India (NRAI) told Fortune India.
The immediate impact is on cost structures. LPG, which typically accounted for about 10% of food costs, is now expected to rise to 12% to 15%. “Such high inflation on the fuel cost will lead to increase in food cost and now we’ve been pushed against the wall where there is no other option but to take up a price raise,” Daryani said.
The industry had so far resisted raising prices, especially during a period marked by weak demand and a shift towards food delivery. Higher commissions, marketing spends and discounting have already compressed margins.
“This is definitely not a good start to the new financial year,” Daryani said. “Margins are anyways low and this added burden of fuel cost will only have a negative impact on the profitability and sustainability of the sector. It seems imperative and a matter of time before prices go up”.
Price revisions typically take a few weeks to implement, which means many operators may continue to run on negative gross margins in the near term. “For the next two to three weeks, the industry will work on negative gross margins,” Daryani noted, adding that price hikes could begin to reflect by mid to late May.
The pressure is compounded with the onset of summer. Summer months tend to see softer dine-in demand, while delivery-led growth comes at a cost. “With convenience selling so much and deals and discounting driving volumes, this fuel cost increase is a double whammy,” he said.