Restaurants running out of room to absorb costs, says NRAI President; Wow! Momo sees uneven impact

India’s restaurant industry is staring at a forced pricing reset as a sharp surge in commercial LPG costs pushes operators from absorbing losses to preparing menu hikes, even as demand remains uneven.

Over the past two months, LPG prices have risen steeply, with a 10% increase followed by a 50% jump, translating into an effective 60% rise since March. For an industry that runs on thin margins, that shift is proving difficult to absorb.

“Quite a bummer to be honest. The prices went up by 10% about a month ago when LPG availability was a crisis. Now 50% more. So that’s technically a 60% jump from the base in March,” Sagar Daryani, founder of Wow! Momo and president of National Restaurant Association of India (NRAI) told Fortune India.

The immediate impact is on cost structures. LPG, which typically accounted for about 10% of food costs, is now expected to rise to 12% to 15%. “Such high inflation on the fuel cost will lead to increase in food cost and now we’ve been pushed against the wall where there is no other option but to take up a price raise,” Daryani said.

The industry had so far resisted raising prices, especially during a period marked by weak demand and a shift towards food delivery. Higher commissions, marketing spends and discounting have already compressed margins. 

“This is definitely not a good start to the new financial year,” Daryani said. “Margins are anyways low and this added burden of fuel cost will only have a negative impact on the profitability and sustainability of the sector. It seems imperative and a matter of time before prices go up”

Price revisions typically take a few weeks to implement, which means many operators may continue to run on negative gross margins in the near term. “For the next two to three weeks, the industry will work on negative gross margins,” Daryani noted, adding that price hikes could begin to reflect by mid to late May.

The pressure is compounded with the onset of summer. Summer months tend to see softer dine-in demand, while delivery-led growth comes at a cost. “With convenience selling so much and deals and discounting driving volumes, this fuel cost increase is a double whammy,” he said.

Wow’s hybrid pivot cushions impact, but costs rise

At Wow! Momo, the impact has varied across brands. The core Wow Momo business, with around 600 stores largely running on electricity, saw little disruption and even reported about 25% same-store sales growth. However, sister brands Wow China and Wow Chicken, with about 250 outlets, had to shift partially to electric operations or reduce hours, resulting in a negative impact of around 15% to 16%.

The company also incurred additional capital expenditure of nearly ₹1 crore to convert these outlets to a hybrid model. “It was more about survival and being future ready,” Daryani said.

Despite the stress in parts of the business, at an overall level, the group managed to avoid a hit to profitability in April due to the stronger performance of its core brand, though Daryani acknowledged that margins are under pressure and gross margins will decline. 

“Everyone is first looking at survival. Profits become a luxury in a crisis,” Daryani said, adding that while the sector is trying to protect jobs, sustained cost pressures could eventually lead to cuts if demand does not improve. India’s restaurant industry is among the country’s largest job creators, employing close to 10 million people. 

For now, operators are hoping the spike is temporary. “I’m hoping this 50% increase comes down by at least 25%,” he said. But until there is clarity, the industry appears headed towards a phase where higher menu prices and lower margins will coexist.