Dining out could become costlier by about 5% after customs duty on key ingredients and imported foods was increased, restaurant chains said.
While customs duty on olive, sesame and castor oils has gone up to 35% from 20%, the levy on miscellaneous food preparations is now 50% compared with 30% previously, as announced in last week’s Budget.
“We import 30-35% of ingredients and specially rely on imported ingredients for our Japanese and Thai cuisine,” said Saurabh Khanijo, managing director of the Kylin chain of restaurants. “Even if we absorb the customs duty hike, ultimately, it’s the consumer who will bear the brunt of higher prices and industry can’t do much about it.”
The increase in customs duty follows the scrapping of input tax credit when the Goods & Services Tax on restaurants was slashed to 5% from 18% starting November 15. The removal of input tax credit directly impacts profit margins by about 10%, restaurant operators said.
“We import almost our entire range of sauces from Italy and the hike in customs duty has a significant cost impact on our profitability. Even if we decide to source from India, the challenge will be to match the same quality,” said Deepinder Batth, COO at the Bharti Family Office-run Gourmet Investments, which operates UK chain PizzaExpress.
“While we understand the objective is to promote Indian supplies, it puts pressure on profitability.”
In addition to GST introduced in July, the restaurant sector had to grapple with a temporary ban on the sale of alcohol close to highways last year.
Other factors such as smog and pollution in the National Capital Region and the Kamala Mills Fire in Mumbai further affected dining out sentiment in the October-December quarter.
Impresario Entertainment and Hospitality, which runs Social and Smoke House Deli in New Delhi, Mumbai and Bengaluru, is another large importer of olive oil, pizza flour and some pasta.
“Many of the ingredients we use are not available in India. We can and will take a hit on profitability but only till a point. The higher cost will have to be passed on to consumers,” said Riyaaz Amlani, Impresario Hospitality’s chief executive officer.
Olive oil makers such as Del Monte have already said prices will be hiked across the sector because of the steep increase in customs duty.
The impact on the sector is direct, said Kabir Suri, cofounder of Azure Hospitality, which runs Mamagoto and Rollmaal and imports specific types of oils, pasta, sauces and rice. “The customs duty hike comes right after the removal of the input tax. We are already a sector under pressure and this puts added pressure on profitability.”
Sameer Lamba, director at Kwal’s Group, which operates and manages over two dozen food courts for office complexes and malls and has the franchise rights for US restaurants iHop and Potbelly, said: “Hiking prices is always a consumer-sensitive issue since it can impact numbers. But in a situation when we have no choice, we will have to.”
