Hoteliers weigh F&B hike despite increase in input prices

Written by Mona Mehta | Shweta Bhanot | Mumbai | Updated: May 12 2009, 04:09am hrs
Even as food retail giants recently hiked prices of their food products by 20% to 40% nationally due to rising raw material costs, hospitality majors are in a wait and watch mode before passing on the burden to customers. According to industry experts, this is mainly in the wake of an increase in raw material input costs by 5% to 10%.

Gagandeep Singh, director (F&B), Renaissance Mumbai said, There has been an increase of around 5% to 10% in the cost of raw-material. However, we have yet not passed on the burden to our customers. Hotels have long term contracts with the suppliers and are in a better position to negotiate with them. We are negotiating with our suppliers for better price and have managed to get consensus on getting the prices back to 2008 levels. At times when the demand is low due to the overall economic situation it is important to stabilise the prices instead of increasing them. So the hotel is holding on to 2008 prices, he added.

According to Anil Paranjpe, vice president operations, The Orchid Hotel, As a hotelier, we are not passing on the burden to the customer now. Though our margins will get hurt, we cannot increase prices as the overall demand has slowed. Typically the contract with the suppliers follow calendar year and in some cases financial year and hence when the contract comes for renewal negotiations will be done with the suppliers. Asked if the suppliers are asking for higher price from hoteliers, Paranjpe said there is no pressure from the suppliers who are aware of the market condition. However, if things get abnormal we will stand with our suppliers and support them, he added.

An official with a company into food and hospitality services says, We work on a contract basis and cannot tamper terms with our customer till the contract comes for renewal. We are absorbing the burden currently which is hurting our business. But plan to pass on the price rise to the customers as and when the contracts come in for renewal.

In the last quarter of financial year ending March 31, 2009, the overall hotel industry witnessed a 20% dip in business as compared to the corresponding quarter last year. However, he added that the first quarter of this financial year (FY10) starting April is seeing good pick up.

Since April 2009, fast food retail giant, McDonalds India has hiked prices of salad sandwiches from Rs 26 to Rs 29, McGrill from Rs 25 to Rs 29 apart from McAloo Tikki burger from Rs 20 to Rs 22 across all its restaurants. According to company sources, this is owing to hike in raw material input costs and supply chain transportation cost. As a result, there was no other alternative but to pass on the price burden to consumers. Meanwhile, competitor KFC too has hiked prices of its food products by 15% to 20%.