Onion price hike impacts 2-5% profitability of restaurants; small hotels increase rates but large ones on wait-and-watch mode

With onion prices shooting up and the next crop to come to the market only in January-February, the usage of the edible bulb is getting frugal at restaurants. Homemakers to hoteliers to the kanda bhaji seller on the street—all have been forced to become not so generous with their servings of onions.

The price of onions shot up to a whopping Rs 200 per kg in Bengaluru due to severe short supply in the market while prices hovered around the Rs 130-150 bandwidth in Mumbai. Onions were sold at Rs 108 per kg in Delhi, Rs 100 in Bhopal, Rs 90-100 in Raipur and Rs 120-165 per kg in Kerala, according to market reports. On e-commerce platforms, the price of onions ranged from Rs 95 to Rs 129 for a kilogram.

Unlike the hike in fuel prices, two years ago, which led to a revision in prices in restaurant menus; usually, restaurants don’t react immediately to ups and downs in commodity prices. The price rise of a commodity does not get factored into the menu immediately as this is expected to be a one-off phenomenon that will stabilise in a short span of time. Currently, restaurants are in a wait-and-watch mode.

 Onion price hike impacts 2-5% profitability of restaurants; small hotels increase rates but large ones on wait-and-watch mode

Representational image. PTI

Onions form a large base of most of our recipes, said Pradeep Shetty, Joint Honorary Secretary,  FHRAI. He said due to the prevailing price hike in onions, most medium and large hotels and restaurants are taking a hit of around 2 percent to 5 percent on profitability. If the current situation continues, most hotels and restaurants will have no option but to revise rates of most items that have onions as an ingredient, he said.

Some restaurants are famous for their onion toppings and signature dish with onions served on the side. Like samosas and onion bhajias in Hotel Gurukrupa in Sion, for instance. The restaurant is still bustling with customers but the latter seems to empathise with the restaurateurs on account of soaring onion prices. That is what restaurant manager Manoj Kumar told Firstpost. “Our regular clientele is aware of the price hike in onions and some of them tell us to serve a few slices less. The menu hasn’t been revised yet and we have no such plans as the prices will come down after a few days,” he said.

On being told that the hike in onion prices may continue till the next crop in January-February, Kumar said that would mean it was time to do a rethink on prevailing prices of items on the hotel’s menu. “That would be an internal decision,” he said.

The decision on price hike is a choice made by restaurants at an individual level. Small restaurants have already hiked their prices but mid-sized and large hotels haven’t done so yet. However, margins have taken a hit up to 15 percent to 20 percent due to the hike in onion prices, said hoteliers. Lasalgaon, the country’s largest wholesale market for onions in Maharashtra, is witnessing a dip in the supply of onions. From a supply in the range of 15,000-20,000 quintals daily, the mandis are now seeing an arrival of a mere 3,000 to 3,500 quintals per day, said Jaydutt Holkar, chairman, Lasalgaon Agriculture Produce Market Committee (APMC). From unseasonal rains due to climatic changes, deficient rainfall leading to delayed sowing and abnormally high rainfall in September have made onions dear for the past few months.

In some speciality restaurants, where the usage of onions is not key to the food that is being served, the soaring prices will not impinge on revenues at all. The price hike in the edible bulb, however, cannot be absorbed by all restaurants especially those where the onion is the important ingredient of many of its food preparation. These are currently impacted as the price hike slices off a portion of its revenues. “The onion is the staple in most Indian food preparations. Fine dining restaurants can absorb it, for instance, but not small restaurants,” pointed out Bharat Malkani, committee member, Federation of Hotel and Restaurant Association of India (FHRAI).

“The hospitality sector has been severely impacted by the Goods and Services Tax (GST). Post-GST, profitability has gone into a tailspin. We have thinning crowds in our restaurants and now with the hike in onion prices, the hospitality sector will have not much choice than to hike prices. Small restaurants have already done it,” Malkani pointed out.

Govt to import onions from Turkey, Afghanistan

The government has been proactive and has initiated a few steps like importing onions from Afghanistan and Turkey. State-owned trading firm MMTC, which is importing onions on behalf of the Centre, has placed an order of 11,000 tonnes of edible bulb from Turkey as part of its efforts to boost domestic supply and ease soaring prices, sources said to PTI.

This is the second import order placed by the MMTC. The public sector firm is already importing 6,090 tonnes from Egypt, the report said.

Last month, the Union Cabinet approved importing 1.2 lakh tonnes of onions to improve the domestic supply and control prices that have skyrocketed to Rs 120-150 per kg across major cities now. The Centre has already banned exports and imposed stock holding limit on wholesalers and retailers for indefinite period.

According to sources, MMTC has contracted 11,000 tonnes of onion imports from Turkey and the consignments are expected in January next year.

The government should have done this earlier, said Gurbaxish Singh Kohli, Vice President- FHRAI. “That crops were spoilt due to unseasonal rains was known. Though we appreciate what the government is doing with regard to imports, we wish they had woken up earlier and taken this step of importing onions earlier. The government lacks vision and wakes up at the eleventh hour,” he said.