Casual dining sector faces 'cloud landlord' and other mounting cost challenges

livemint.com:

Mint said there is a need for a dedicated ministry to address the sector's unique needs, which contributes a substantial ₹5.69 trillion to India's gross domestic product. The sector, which gave patrons or consumers of restaurants a GST rate reduced from 18% to 5% in 2017, now struggles with rising costs and shrinking profit margins. Suri said calling for the restoration of input tax credit and support for operational expenditures such as rentals and delivery commissions for restaurants, especially an input on rentals which contribute 20% of operational costs would be a game changer.

The GST reduction move was originally hailed as customer friendly, but may have now backfired as the industry is unable to cope with mounting taxes and inflation. As a result, over the years, menu prices in the organised restaurant industry have shot up dramatically. The largest impact of the GST regime is on the profit margins and how they have shrunk.

Costs like heating, air conditioning, commissions from delivery platforms, all have an input GST cost which can range anywhere between 18-28% which they have passed on to diners by way of price increase. A restaurant's cost of goods can range anywhere between 25-40%. The sector contributed ₹33,908 crore by way of taxes in FY24 and is expected to contribute ₹55,594 crore by FY28.

"We have to procure goods and services in our restaurants in order to provide food. But we have all had to increase our pricing in order for us to cover the gap of the lack of input tax credit not coming to us because our operating costs have shot up. Today, a restaurant patron has to pay a 5% GST on their consumption.