Dining out and delivery services are becoming more expensive, as are chocolates. Bills at fast-food joints and upscale restaurants could see a 5-8% increase starting this month due to surges in cocoa, coffee, palm oil, and sugar prices over the last quarter. This marks the first notable increase in about 1.5 years, according to industry executives and restaurateurs.
Cocoa and coffee prices have reached record highs, while palm oil has increased by 10% year-on-year. Executives from several restaurant and café chains have indicated they are considering implementing price increases this month.
Aseem Grover, the owner of the high-end The Big Chill Cafe and dessert chain The Big Chill Cakery, is closely monitoring expenses.
“Commodity prices have sharply risen, and inflation is making it more challenging to maintain profitability,” Grover stated. “We are closely assessing the situation.”
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Cocoa prices have reached a record high of $10,000 per tonne, driven by disappointing harvests in major producing countries like Ghana and Ivory Coast. Cocoa prices have doubled in the January-March quarter compared to the previous quarter.
“Unfortunately, we’re halting production of our milk chocolates and raising prices for our dark chocolates… Because genuine quality comes with a genuine cost,” wrote Shashank Mehta, founder and CEO of The Whole Truth, a packaged health food company, on LinkedIn last week.
He further mentioned that cocoa prices are currently at their highest in 45 years. In just one year, the price of the commodity has surged by over 150%, and cocoa butter has seen a 300% increase.
Describing it as a “devastating season for cocoa farmers,” Mehta remarked, “There is an unprecedented supply shortage. Farmers are voicing their concerns loudly as none of the profits are reaching them. Cocoa futures are in turmoil.”
The surge in commodity prices is causing packaged food prices to rise and jeopardizing pack sizes, as well as leading to potential reductions in portion sizes at restaurants.
Anjan Chatterjee, chairman of Speciality Restaurants, which operates Mainland China and Sigree, stated, “With most commodity prices rising, we are facing higher input costs. As a result, we are evaluating our prices, and if this trend continues, we may have to raise our menu prices.”
Executives indicated that companies are caught in a dilemma: either accepting a hit to profitability or risking the loss of market share by raising prices.
“The market is highly competitive, so we’ve implemented an overall price increase of only 5%, even though the impact on our costs is much greater due to rising input costs,” stated Saurabh Khanijo, managing director of the Kylin restaurant chain.
Manufacturers of chocolates and other sugar-based confectionery are also considering price hikes or reducing pack sizes.
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“The cocoa price hike is significant, so we either have to raise prices or consider reducing pack sizes,” stated Jayen Mehta, managing director of Gujarat Cooperative Milk Marketing Federation (GCMMF), the producer of Amul chocolates and flavored beverages. “We plan to adjust prices in a measured way to minimize the impact on consumers.”
Palm oil prices, a crucial ingredient for the hotel, restaurant, and café (HoReCa) sector, have increased by 10% in the past three months due to decreased supply from Malaysia and Indonesia. “The price hike is expected to continue until early June,” stated Sandeep Bajoria, CEO of the oil trading firm Sunvin Group.
Jubilant FoodWorks, the company behind Domino’s Pizza and Dunkin Donuts, chose not to comment, as did café chains Tata Starbucks and Barista.
Quick service restaurants (QSRs) are considering price hikes, even as listed companies face competition from low-priced offerings by hyperlocal chains. This competition has led many chains to introduce menu items at reduced prices, such as KFC’s INR 149 lunch combos and Pizza Hut’s Melts thin crust pizza starting at INR 169.
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Some are considering more affordable alternatives.
“We’ve received requests from certain café chains to substitute cocoa with less expensive alternatives and to use chocolate flavour instead of actual chocolate,” stated an executive from a leading cocoa supplier who preferred to remain anonymous. “We’re optimistic that this is a temporary situation.”
The cost of coffee is also on the rise. The farmgate price of raw Robusta coffee berries reached a record INR 172 per kg in Kerala last week, compared to INR 115 per kg during the same period the previous year. The spot price of Robusta coffee beans has risen to INR 315 per kg, up from INR 210 in the same period in 2023. According to Motilal Oswal’s latest commodity insight report, due to unseasonal rainfall, a labor shortage, and increased demand, coffee inflation has surged by 15.3% year-on-year (2.5% quarter-on-quarter). Additionally, sugar prices rose by 10.8% in FY24 compared to FY23, with current prices at INR 3,800 per quintal.
However, tea prices have declined due to weak export demand and sluggish rural consumption, dropping by 10.2% year-on-year and 21.1% quarter-on-quarter. Nonetheless, the new season of Darjeeling teas, which have recently entered the market, are commanding high prices due to the production of a premium variety. Recently, a kilogram of Darjeeling tea fetched a price of INR 31,000.
Wheat prices have risen by 2.6% year-on-year due to the government’s increase in the minimum support price, although prices have decreased by 2.4% quarter-on-quarter.