Month of austerity: Eateries forced to tighten belts during Ramazan

Higher costs of supplies, increased competition eat into industry profits.

Farooq Baloch August 01, 2012


Ramazan is often a cash cow for restaurants and food businesses, as their sales benefit from droves of fasting faithful seeking to break their fast in the evenings, after abstinence from food and drink from dawn till sundown.

But industry sources believe this year will mark changing trends for eateries. They say that consumers will benefit from increased dining options and possible competitive cuts in prices, but restaurant managers will face increasing pressure to find efficient ways to sustain profit margins.

During Ramazan, every year, restaurants and food outlets come up with special offers such as ‘buffet iftars’ and dinners, and advertise heavily for this purpose: this year will be no exception. However, it will be challenging for eateries to manage operational costs and sustain profits this Ramazan, say industry sources; citing high raw material costs and neck-and-neck competition from a growing number of rival businesses.

Food businesses have mushroomed recently, resulting in increased competition. “Since last Ramazan, more than 50 A-level [decent] restaurants have opened in Karachi alone, and another 60 to 70 will be operational over the next two months,” reveals Nauman Mirza, who runs an online portal that covers 2,600 restaurants in 15 cities.

“The consumer market, however, hasn’t grown as much,” Mirza says. “The competition has therefore increased,” he concludes.

Mirza has recently been on visits to leading restaurant chains in Karachi, Lahore and Islamabad. He tells The Express Tribune that most managers – especially those with lower financial capital – expressed fears about skyrocketing prices of supplies, which have considerably squeezed profit margins. “They cannot simply increase meal prices anymore, because of increased competition,” he explains.

“Many renowned restaurant chains have already finalised buffet deals and are going with last year’s prices,” Mirza informs us. “If they increase prices, customers will go to restaurants offering cheaper, but quality meals.”

To offset the impact of increasing raw material costs, restaurants are trying to differentiate their products, optimise supplies and improve human resources. “Even this needs financial capital, and only established restaurants will be able to do that,” Mirza says.

“Some restaurants have differentiated themselves by maintaining dedicated sections, such as a cigar lounge, a restaurant area, a sheesha lounge, and a corporate members lounge, to name a few. They are giving customers not only a restaurant experience, but an overall experience – a strategy that will save them from reducing profit margins, and yet receive business.”

On the other hand, Haroon Leghari of the Restaurants Association Group of Pakistan – an umbrella body of 35 restaurants based in Karachi – finds comfort in the fact that: “High costs of raw material will not really affect high-end restaurants, because they operate on higher profit margins. Small-scale restaurants, however, will be affected.”

This is not especially problematic for Amir Asghar, operations manager of the Lahore-based Tabaq Goup, who believes that: “Every restaurant has to do their homework, and that might mean having to reduce profit margins. We have worked along the same lines.”

“The rising cost of supplies has affected the industry, but our company had done the costing well in advance, and even included advertising margins.”

“At the end of the day, the reality is that people – especially Lahoris – won’t just stop eating,” Asghar maintains. “Those offering the best prices and better quality – even on reduced profit margins –will attract customers, regardless of how fierce the competition is.”

Published in The Express Tribune, August 2nd, 2012.