The Indian restaurant industry began 2024 on uncertain footing, grappling with challenges from rising food inflation. After a short-lived boom of “revenge dining” following the pandemic, restaurants saw a significant dip in customer footfall. High food prices, particularly for essentials like vegetables, cereals, and pulses, combined with a cautionary approach to spending by consumers, led to reduced profitability across the sector. The first quarter of the year, typically a promising period for restaurants, became a difficult landscape for both fine dining and casual outlets.

Inflation had a particularly acute effect on the restaurant business. For example, food inflation surged to over 10% in June 2024, significantly raising input costs for restaurateurs. Items that form the backbone of Indian cuisine, such as tomatoes, onions, and grains, became more expensive, making it hard for restaurants to maintain profit margins without raising prices on their menus. However, given that customers were already reducing their discretionary spending, this further reduced traffic, creating a cycle of diminished returns.

Teja Chekuri, Founder of Full Stack Ventures, highlights the impact of this price surge, “The surge in food prices in the first part of the year did pose a significant challenge to the restaurant industry, as most of us grappled with the complexities of either absorbing the increased costs and letting it impact our margins or passing it on to customers and bracing for an adverse impact. These problems obviously would come to pass, as the strain was caused by significant natural calamities, geopolitics and socio-economic factors that led to supply chain disruptions.”

The competition from cheaper, unorganised players also exacerbated the issue. Many small-scale eateries and street food vendors, who operate at a lower cost, became more appealing to price-conscious consumers. Quick-service restaurants (QSRs) and organised dining chains faced stiff competition, particularly as they were hit harder by inflation due to higher operational costs.

Economic Optimism and the Promise of Recovery

Despite these hurdles, industry leaders are optimistic about a turnaround. Speciality Restaurants Ltd, which owns popular brands like Mainland China and Sweet Bengal, believes that the challenges are temporary. Anjan Chatterjee, CMD of Speciality Restaurants, noted that food inflation is a short-term phenomenon and expressed confidence in India’s economic fundamentals. As inflation begins to ease, he anticipates a resurgence in dining out.

There are reasons for this optimism. By July 2024, food inflation had fallen to 3.45%, a significant drop from June’s over 10% rate. This easing inflation, coupled with strong economic fundamentals such as improved employment rates and rising disposable incomes, provides the industry with a more stable environment. As wages rise and employment generation improves, consumers are likely to return to restaurants, further buoying the sector.

“However, with that behind us, we are extremely optimistic that the turnaround is in process and that’s primarily due to investor confidence in the Indian growth story, and the demonstrated resilience of India’s economy in the face of global uncertainties. India’s steady GDP growth, falling fiscal deficit, favourable policies for MSMEs and a burgeoning middle class, has been a marker of this optimistic view we hold,” Chekuri added.

Industry analysts point out that India’s robust economic growth could support a strong rebound. The IMF has projected India’s economy to grow by 6% in 2024, one of the highest rates among major global economies. This growth is likely to increase consumer spending, which will benefit sectors like dining and hospitality.

Key Trends Driving the Industry’s Revival

One of the main drivers behind the recovery is the growing demand for food delivery services. The pandemic fundamentally changed consumer behaviour, pushing more people to order food online. Even as restrictions eased, this trend continued, with the food delivery market growing by 52% since the pandemic began. This demand is expected to persist, growing by 10.3% annually between 2023 and 2030.

Restaurants are capitalising on this shift by expanding their delivery options and investing in cloud kitchens. These “ghost kitchens” focus exclusively on online orders, significantly reducing overhead costs like rent and front-of-house staff. By eliminating the need for physical dining spaces, restaurants can increase their profit margins while meeting the growing demand for convenient, at-home dining experiences. “The growth in food delivery services has been a lifeline for us and will continue to fuel recovery. Similarly, automation and cloud kitchens have helped reduce costs and improve operational efficiency,” said Nishit Rajvanshi the founder of Mumbai-based Chango Wings. 

Technological innovations are also transforming the industry. From AI to robotics, restaurants are increasingly adopting advanced technologies to improve operational efficiencies. In cities like Mumbai, fine dining establishments are leading the way by incorporating automated systems that enhance customer service and streamline operations. This push toward innovation is helping restaurants reduce costs and improve profitability, even as they navigate inflationary pressures.

Moreover, digital marketing is becoming a cornerstone of restaurant strategies. With 88% of consumers trusting online reviews over personal recommendations and 75% using social media to decide on a restaurant, a strong online presence is now essential. Restaurants are leveraging social media platforms and digital advertising to engage customers, build loyalty, and drive footfall.

The Resilience of Fine Dining and Casual Dining

The fine dining segment, in particular, has shown resilience amid economic challenges. A report by the National Restaurant Association of India (NRAI) highlights that consumers are increasingly drawn to premium dining experiences. While inflation has raised food prices, it has also led to a shift in consumer preferences toward quality over quantity. More consumers are seeking out memorable dining experiences and are willing to spend more on premium ingredients, ambiance, and service.

This shift has encouraged fine dining restaurants to innovate with their menus, offering niche culinary experiences that cater to evolving consumer tastes. The concept of “farm-to-table” dining, which promotes locally sourced and sustainable ingredients, has gained popularity. By integrating seasonal produce and fresh ingredients, restaurants can not only mitigate the effects of inflation but also align with consumer preferences for healthy, sustainable dining options.

Future Outlook and Challenges Ahead

While the industry is poised for recovery, challenges remain. Inflationary pressures, particularly on labour and food costs, will likely persist, making it critical for restaurants to innovate continuously. The rise of food delivery, contactless payments, and technology-driven operations will shape the industry in the years to come, but staying profitable in a high-cost environment will require careful planning and execution.

Sharing optimistic perspective on the future, Chekuri commented, “With eventual easing conditions, and India’s demographic advantage and growth trajectory, we are bound to see an economic upturn in the restaurant industry, which if backed by policy support from the government, will grow from strength to strength.” 

Restaurants will need to balance pricing strategies with consumer expectations, ensuring that they do not alienate their customer base by passing on too many costs. Additionally, the push for sustainability and local sourcing, while beneficial in the long term, could drive up costs in the short term.

However, the long-term prospects remain bright. With annual growth in the food services sector projected at 8.1% between 2024 and 2028, driven by urbanisation and technological advancements, the restaurant industry is expected to flourish once inflation stabilises. The combination of a growing middle class, increasing disposable incomes, and a shift toward quality dining experiences will fuel the industry’s recovery and growth in the coming years.