Smaller portions, shorter menus, 25% higher costs: Restaurants pass rising costs to consumers

A kebab platter with fewer pieces, a menu without dishes that have become too expensive to serve, or a higher bill for the same meal. Rising food, LPG and labour costs are squeezing restaurant margins, leaving operators with little choice but to now pass on some of the burden to customers. The pressure comes amid a sharp rise in food prices. Retail food inflation accelerated to 7.74 percent in September from 5.97 percent in August, essentially meaning a sequential rise in prices and eating out becoming costlier, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI). Inflation in food and beverage serving services stood at 9.39 percent, while onion prices more than doubled year-on-year. Several restaurant owners Moneycontrol spoke with said they were preparing to raise menu prices or change their menus after months of absorbing higher costs. The decisions come ahead of the festive season, when restaurants count on stronger sales to drive business. "We have had to reduce portion sizes since June. A quarter portion of kebabs, which earlier had four pieces, now has three, while a half portion has been cut from eight pieces to six. We cannot keep increasing prices to offset rising costs," said Gagandeep Singh Sapra, founder of Glisco Kitchens, which operates restaurants like Tadka Rani and Meal Combo Box Company. "Our average order value has also declined even as order volumes have increased, indicating that customers are spending less per order. After growing around 20 percent month-on-month in June and July, growth has slowed to less than one percent since August due to cost pressures," Sapra added. Input costs jump sharply Restaurant operators are reporting input cost increases of 15-25 percent in recent months, driven by higher ingredient, packaging, utility and labour expenses. "Our input costs have gone up by at least 25 percent in the last quarter. This includes raw materials, packaging, utilities and other operating expenses. We have been absorbing these increases for the past six to seven months, but there is only so long a business can continue doing that without it affecting margins," said Kabir Suri, co-founder and director of Azure Hospitality, which operates Mamagoto, Dhaba and Sly Granny. On the ingredient side, onion prices have more than doubled year-on-year, while restaurants are also facing higher costs for rice, cooking oil, pulses and vegetables. Moneycontrol had earlier reported how the Israel-Iran war disrupted commercial LPG supplies and pushed up cylinder prices, adding to the cost burden. For Bengaluru-based By2Coffee, operating costs have risen 15-20 percent, driven by higher prices of LPG, food and packaging, along with labour costs. The chain has, however, held menu prices steady so far. "We have not made any changes to our menu prices so far, despite the rising costs. Going forward, we will have to pass on at least part of the increased costs to customers through menu price revisions," said Raghavendra Padukone, founder of By2Coffee. After absorbing higher costs for months, restaurants are now preparing to revise prices. "I think most food and beverage brands across India will decide to revise their pricing, with changes likely to come into effect from Diwali onwards," Suri said. Menus get a rethink Restaurants are reviewing menus and procurement to manage rising ingredient costs, buying staples in bulk where possible and dropping dishes that have become too expensive to serve at competitive prices. "We are buying non-perishable items such as rice, oil, sugar, atta and maida in bulk because prices are expected to remain volatile. This will help us manage procurement costs rather than repeatedly passing on increases to consumers," said Shakir Haq, CEO of NKP Empire Ventures, which operates Empire Restaurant and other food brands. The company is also removing dishes that have become difficult to price competitively as ingredient costs rise. "If an item cannot be sustained at a competitive price, we take it off the menu because otherwise it can have a longer-term ripple effect across the entire value chain," Haq said. Raising prices, however, has its limits, particularly for restaurants that depend on food aggregators such as Zomato and Swiggy. Frequent price increases can affect their competitiveness on these platforms, making it difficult to pass on the full burden of higher costs to customers. With input costs continuing to rise, restaurants are being forced to find savings through bulk procurement and menu changes, while absorbing part of the increase or passing it on selectively through price revisions.