Inflation forces F&B companies to cut corners, skimp on costs

Illustration by Suneesh K.

The last time you ordered in pizza or even idli at home, did you find your seasonings or chutneys missing? If yes, you are not alone.  

As inflation bites, restaurant and cloud kitchen owners are cutting corners. They are redesigning packaging and reducing or doing away with seasonings to save on costs. Some have increased prices, others are thinking about doing so. 

Even so, some in the food and beverage industry are finding the commissions charged by food delivery platforms like Swiggy and Zomato, and discounts, adding to their costs on a monthly basis.  

“Inflation has hit us of course so we are looking at streamlining our procurements, redesigning our products so we can cut costs and we are also increasing our item costs by 10-12%,” said Biraja Rout, founder of the Biggies Burger brand.  

He is now looking to scale up operations in the hope that an increase in sales volumes will help him lower costs, Rout added. 

Industry trend  

A number of are considering similar measures. For instance, Vedant Pasari, who runs cloud kitchen E-dabba, said he will be increasing prices and is lowering discounts.  

Pasari is also stopping the use of carry bags because he needs to move to paper bags, which will double the cost, after a ban on single-use plastic. 

“Right now, we send the parcels in a box, similar to McDonald’s or Domino’s. We have stopped using carry bags,” he said. 

Earlier this year, Moneycontrol reported that a number of F&B brands were looking to increase their prices bcause of inflationary pressure. Additionally, many of these businesses are also seeing an increase in expenses with the ban on single-use plastic.  

Experts tracking the F&B industry say big and small brands alike are trimming costs by doing away with seasonings, seeking to make their operations more efficient.  

Cutting wastage 

"Samosa Party has always been a lean organisation with a strong focus on unit economics. With the ongoing inflation, we have further tightened our focus on managing all kinds of costs,” said Diksha Pande co-founder of Samosa Party. 

“Across the system, we are cutting wastages and there's a company-wide program which incentivises everyone including frontline team members for improving efficiencies. We have implemented a daily dashboard to track and optimise critical costs on a day-to-day basis,” Pande added.  

India's headline retail inflation rate, as measured by the Consumer Price Index (CPI), stayed largely unchanged at a high of 7.01 percent in June against 7.04 percent in May. Food prices, overall, rose in June, with the Consumer Food Price Index rising 1.0 percent month-on-month. 

“They (F&B brands) cannot compromise on quality because consumers easily understand that. So, they need to find a way to cut their costs,” said one person tracking the market. 

Orders drop  

A few brands have also witnessed a dip of around 10-15% over the last one month in their order volumes. 

“For a month or so, discount-sharing, which means marketplace and brand would share the discount, has been stopped. This, along with the shortage of riders in certain cities, has led to a dip,” said one person aware of the matter.  

These brands allege that the 25-30% commission charged by food delivery platforms on each order has started to add to their cash burn. 

In an interview with CNBC on July 12, Deepinder Goyal, co-founder of Zomato, said that the company will not be reducing commissions. Discounting on Zomato is currently at around ~12%.  

Zomato did not respond to e-mailed queries. 

Private labels 

These brands also allege that marketplaces opening their own private labels has emerged as a major challenge. 

“I open a cloud kitchen and it takes me years to understand what the consumer likes or does not. They, on the other hand, get it on Day 1 of launching it. How’s that fair,” asked a cloud kitchen owner.  

Responding to this, Swiggy said: “Swiggy’s private brands have access to the exact same data that the restaurant partners have access to, through their own dashboard. As a policy, no PII data is shared with any of these brands.” 

PII is short for personally identifiable information. 

Last week, Moneycontrol reported that Swiggy was piloting new private labels for its food business named Soul Rasa and Stuffed, mostly in southern cities including Bengaluru and Chennai.  

Experts have warned that the growth for the online food market was plateauing, and that’s true for even the marketplaces. However, Goyal said Zomato could easily be adding 7 million customers each year for the next decade.  

While that remains to be seen, inflation is now very much on the platter -- of the F&B industry, food delivery platforms and customers.