Unique Ways by Restaurants to Tame Food Inflation

8/8/2019 Unique Ways by Restaurants to Tame Food Inflation

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Restaurants hit upon uniqueways to tame runaway prices

8 Jul 2010, 1156 hrs IST,Lijee Philip & Kala Vijayraghavan,ET Bureau


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An unrelenting rise in food prices over the pasttwo years has put thousands of hoteliers under

enormous pressure and is killing the nations

appetite.

Food-price inflation may have dropped to an

eight-month low of 12.92%, but it is a marginal

respite. It has hovered over 16% in the past few

weeks and had even touched a peak of 21% inNovember last year.


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Restaurant chains, some of which haveevolved from traditional small-time

establishments into modern formats, often

with outside investors, now have to deal

with greater pressures to protect theirprofitability.

This is perhaps the biggest test yet for the Rs

58,000-crore industry that is growing at over35% annually.


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Five-star hotels such as the Taj or Oberoi they

enjoy higher profit margins may be able to

absorb the increase in costs.

Restaurants catering to the middle class (over 70%

of the market) are struggling. They rely more on

fast turnaround of customers and make do withprofit margins of 4-6%.

If it was the corporate sector that initiated major

cost-cutting in the economic slowdown that endedlast year, it is now the turn of hoteliers small and

big. They are now cooking up several cost-side

innovations.


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-Sanjeev Kapoor is sourcing a new kind of long grain rice. Its yield is 12-13% higher that what

was being used till recently; it has better water absorption, and of course, its price is lower.

- Oh! Calcutta, which used to buy fish fresh from Kolkata every day, is now sourcing it every

alternate day to save on freight costs.- The chef of Mainland China has stopped sourcing a soya sauce calledRiver Pearl from China

and has substituted it with a 30% cheaper Lee Kun Kee sauce.

- Noodles earlier imported from China are being made in-house and chocolate sauce from

Switzerland has been substituted with the good old Cadbury, sourced locally.

- Says Anjan Chatterjee, managing director of Speciality Restaurants, which manages Oh!

Calcutta and Mainland China: We are a volume-driven company, but do not want to

compromise on quality. It has substituted workmen with a dish-washer as a long-term cost-saving solution.

- McDonalds India has resorted to bulk buying and is trying to get into long-term vendor

contracts in order to lock prices at affordable levels. But thats easier said than done. We used

to ink annual contracts for chicken. This year, we struck a six-monthly contract. But in some

cases, suppliers are not willing to commit for more than a month, says Nirulas CEO & MD Samir

Kukreja. Food inflation has been happening for a while. So we have already taken steps to

counter it.- Other food chains are consolidating suppliers, negotiating discounts and changing several

fringe items to offer a more affordable cuisine. They are also looking more closely at staff,

electricity and water costs. We are sourcing better, improving storage and checking portion

sizes, industry sources say. Earlier we could afford to be generous with the potions. Today, we

have to be more watchful.


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-Chefs are also taking existing menu items and interchanging ingredients to cut

costs.

- Saravana Bhavan, which has a strong presence in Chennai apart from places such

as Dubai, London, the US and France, chose to cut its brand spend rather thancompromise on ingredients since its USP is all about offering consistent taste. So

even if the cost of a kg of tomato has soared from Rs 5 to Rs 50 a kg, the exact

quantity of tomatoes required to prepare an item is not compromised upon to

maintain the taste and quality aspects that the chain is famous for, creative in-

charge Kamala Kannan said.

A couple of chefs ET spoke to off record said the rising costs had led to the revival

of the written and measured recipes. Earlier the chefs personal techniques were

encouraged. But over a period of time, changing menus have made it tough to put

a finger on individual costs. But now a written recipe helps to identify the costs of

making a certain dish, helping us to make appropriate decisions. So there is

flexibility in responding to food costs, said a chef in an Udupi chain.

Institutional caterers such as Sodexo have been the worst-hit since they sign yearly

contracts. They have to absorb the higher costs and clients generally do not give a

price increase.


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Amidst all this, McDonalds India, which invested in a modern

supply chain from the very beginning, is now seeing the

benefits. Says Amit Jatia CEO of McDonalds India (west and

south): We spent six years developing our supply chain and

backward linkages to the farm. Now it is a boon as we can

offer the best price to the consumer. McDonalds even took

its farmers to Australia and Thailand to learn ways of

improving farm yields. Now, for every one acre of potato farm,

the yield has improved from 58 kg to 75-80 kg.


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-We are also hiking prices of our fast-moving items such as idli, dosa, vadas and tea

by 10% in a phased manner, says Vikram Kamat, director of Vithal Kamat

Restaurants.

-McDonalds has marginally hiked prices and has introduced extra-value meals to

win over more fine dining customers.

- Saravana Bhavan, south Indias popular vegetarian restaurant chain, is fighting the

food-price inflation battle in the kitchen, on its menu and out in the market. It has

hiked prices by 5%. It has also slashed spends on brand building from 20% of

turnover to just 1%.

- Maharashtras Vithal Kamat fast-food chain has opened a new front in its war on

costs the farmlands. It has started buying directly from farmers cutting out all

intermediaries.

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Unique Ways by Restaurants to Tame Food Inflation