April 11, 2023
ISLAMABAD – Walking into a popular restaurant on a Thursday night, the first thing I noticed was the lack of people. Imagine this: BarBQ Tonight in the middle of one of the biggest shopping malls in the country, Lucky One, with a grand total of three families seated, that too in the middle of Ramazan. It was as if I had stepped into an alternate universe where everything was identical to ours but with a major difference — people had suddenly stopped going out to eat at restaurants.
Before this realisation could send me into a frenzy, I decided to learn more about the current situation in the country. Has inflation finally managed to keep the middle and upper middle classes out of their favourite food spots? Are people no longer willing to spend Rs1,500 to Rs2,000 or more per head on a meal? If this is the case in Ramazan, the month when restaurant businesses usually boom, then is it reflective of the changes inflation has wrought in people’s lifestyles? With all of these questions in my mind, I began my quest to talk to restaurant owners and young people who go out to eat to figure out what’s going on.
To give context, let’s talk about the elephant in the room — inflation. Worldwide growth in consumer prices has compounded high inflation in Pakistan. It has been caused by the deterioration of our currency, increases in energy tariffs and higher food prices due to Ramazan.
The Pakistan Bureau of Statistics (PBS) released data recently, indicating that inflation, as measured by the Consumer Price Index (CPI), reached an all-time high of 35.37 percent year-on-year (YoY) in March.
This marks the highest CPI increase on record since July 1965, according to the investment firm Arif Habib Corporation.
The majority of the population in the country is now choosing to eat home-cooked meals rather than go out to restaurants, according to a recent Gallup Pakistan survey. A whopping 89 per cent of Pakistanis have decreased eating out with family and friends due to the recent inflation, it reported.
Inflation is killing restaurants
While people’s purchasing power has decreased, prices at restaurants keep increasing. One of the reasons for this is the high cost of gas, which restaurants are now purchasing from the open market in the form of gas cylinders.
“We are unable to prepare cost budgets as we cannot predict anything right now due to the prevailing uncertainty,” said the owner and CEO of Broadway Pizza, Shahbaz Khan. “The biggest challenge we are facing is that we cannot control our menu prices for long.”
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Given how rapidly new economic policies are being introduced and the unstable nature of the current economy, eatery owners like Khan are struggling to keep their prices low.
Food, beverage and transportation prices have all risen more than 45 per cent as the country continues to negotiate with the IMF to unlock its next tranche worth around $1.1 billion as part of a $6.5 billion bailout agreement signed in 2019.
Speaking about high import taxes, Khan highlighted the drastic impacts these policies and regulatory duties have had on their supply chain. “[Our] supply chain has been the most affected. Pakistan is an import-dependent country and as we are facing a lot of issues with imports and devaluation, we are struggling to find raw materials. “
However, all is not doomed. Despite the current hurdles he is facing, he seemed optimistic about the future. “The best part is Pakistani local companies have been set up to come up with alternatives and so far they are working with us very progressively in developing the raw materials with the same imported standards,” said Khan. He also hopes to see a surge in people coming in after the 15th of Ramazan.
The owner of another popular eatery, Pinch & Co, Samar Husain, feels that the switch to local ingredients is a “big positive for the market because it will encourage Pakistan to grow”. However, she noted that the “flourishing of industries depends on sales, the fact that everyone’s income is slashed down and their buying power is reduced means that those industries that are starting out starting struggling”.
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“Customers’ purchasing power has definitely been impacted. We are not able to spend at that rate, just like you and me,” she explained. “I used to order out maybe twice a week, I haven’t ordered out once this month. I am trying to control all my costs. I think that goes across the board. It affects all of us. What’s happening is terrible, in a country where our salaries have not gone up but everything else has.”
Her business is also facing challenges. “Rising costs are causing a lot of problems. We have to renegotiate food, it affects the type of food we can bring in,” Husain said, adding, “I am lucky I don’t have to pay rent for my restaurant, which really is the only reason why I am able to stay open and support the 20 people who work for me and their families and I am very grateful for that.”
To cut costs, she said they are very careful with electricity and staffing. “We have had to, unfortunately, lose staff because we cannot sustain them. We have changed all our ingredients to local ingredients, not all but those that we could. We are exploring the market for good options. Obviously, I am not going to compromise on meat and I have not. We still use fillet, undercut which is the best cut,” said the restauranteer.
“Other ingredients like soya sauces, they are all imported but luckily we have places like Shaan that have brought in Dipitt, and Dipitt is honestly a saviour in this market.”
Unlike Khan, who said that his business’ supply chain is the most affected, Husain said that her restaurant’s supply chain is not actually affected because as a restaurant she had started to ditch a lot of the imported goods as soon the prices started to go up.
Speaking about customers coming in during Ramazan, she noted that before the holy month began, there were very few customers. However, once Ramazan started, people began flocking in. “In Ramazan, customers are just happier and they want to enjoy themselves, more power to them. Deals and offers are really motivating to those whose income has been slashed by inflation. We are struggling as a nation,” Husain said.
“Given the current price hikes and inflation, it’s very hard for restaurants to give these discounts but we have to, otherwise people don’t want to come. Anyone offering discounts, and large ones, is getting a lot of volume [of customers],” she pointed out.
“Now it could also be because I have really worked on the menu and the quantity of the food, reduced the prices, reduced more costs, gone more local with my ingredients so that I can get more customers to come to the restaurant. And it seems to have worked,” added Husain.
Salman Naqi, the owner of Chop Chop Wok, said sales have more or less remained the same, despite inflation. When asked whether he thinks there has been a decrease in footfall, he said, “I don’t think so. I guess slightly, yes, but we make up for it through our catering orders and our customised sushi platters. But yes, the sales are more or less the same as last year. The prices have increased so I am assuming the volume has slightly decreased, but it’s not [much].
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“With restaurants or retail brands, brand elasticity matters a lot. Yes, the economy is down. Yes, things are not looking good at all, and people’s income [is stagnant]. Apart from our costs increasing, just over the past couple of weeks, the cost of imported stuff has increased by 11 per cent because of the recent increase in sales tax. Sales tax on imported goods is now 25 per cent. At the same time, people’s income has stopped increasing.”
Last month, the government raised sales tax from 17 per cent to 25 per cent on 33 categories of goods covering 860 tariff lines, high-end mobile phones, imported food, decoration items, and other luxury goods.
Businesses like Naqi’s that rely heavily on imported ingredients are especially facing difficulties due to additional taxes on imports and the devaluation of the rupee. “We used to import most of our ingredients. The cost of getting that stuff has really increased. The cost of [international] trade has increased because some of the stuff we get, we get it by air. For example, salmon we get from Norway. The fare charges have also increased a lot for us,” he explained.
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Ingredients are not the only cause of his restaurant’s problems right now. “Apart from these, there is an increase in the cost of electricity and our basic utilities. Water, gas — we purchase everything ourselves, so on the cost side, inflation has really killed us.”
To counter these challenges, he increases their prices frequently but minutely every now and then. “We do pass on a fair chunk of the price [increase] onto the consumer but the challenge is you can’t do it all the time and you can’t do it completely. Because that would drive people away. So part of the cost has been absorbed by us as well every time. So that reduces our profitability,” he added.
Naqi stated that the profitability of the food and the restaurant industry is greatly affected by inflation, despite having consistent sales. “It’s not as lucrative of a business as it used to be a few years ago [even though] you’re still getting the numbers in terms of sales.”
To cut costs, he is also working on new dishes, “which are a little easier on the pocket” for them to make and for the customer to buy.
People who go out
Safina Azeem, 25, works at an NGO as a researcher. She goes out to eat with her friends every two to three weeks in Karachi. With her family, she eats at restaurants once a week. This number has been significantly impacted by inflation, especially her outings with friends. “I would go out more earlier, now I try to make plans that don’t require me to spend too much money because I am trying to save,” said Azeem.
She also noted that this Ramazan, she has not been going out for iftar as frequently as before. “Usually, yes, I would go out in Ramazan a lot more than I did this Ramazan.
“The crowd is really the same. The times that I have been out, the places have been full. I went out with my family to Burnes Road for Waheed Kabab. It was around the time for iftar and we had to wait for tables to get free so we could be seated. So for sure, the crowd is the same. People are still going out and eating,” added Azeem.
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Eman Ahmed, 25, who works as an engineer at one of the country’s top gas companies, also stated that outings with her family have decreased over the last few years. However, she linked that with Covid-19. “Before Covid-19, we would go out every two to three weeks to eat but after Covid-19 it has gotten very less.”
But that doesn’t mean that inflation has had no impact on her choices. “You know how you get memories on Snapchat and Instagram? The ones from last year or the year before that, I see how often I would post on my story that ‘oh we are at Xanders’ or ‘we are at XYZ restaurant’. For no reason, we would just be out and eating. But now I was joking with a friend that we should just go out and have McDonald’s Happy Meal,” she laughed.
“Earlier we would look at the menu with the purpose of deciding what want to eat, but now it’s mainly to check prices before ordering because everywhere has gotten super expensive.
“I have started ordering in more. It’s easier and you can also use coupons and discounts,” she said, adding that even that number has decreased due to inflation. “My sister and I love Wafflix. It is a start-up for waffles. Just five to six months back, my sister used to order it two to three times every week. If someone would be coming to our house, she would ask them to bring it. They were actually really good and super affordable. After the mini-budget, even they [Wafflix] increased their prices. Now my sister told me she’s thinking of ordering less. And this is someone who was addicted to their waffles!” said Ahmed.
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“Now, when I am ordering on Foodpanda and a deal costs Rs500 to Rs600 and then with added taxes and everything it goes up to Rs1,000 when I check the total amount, my first instinct is ‘let’s just eat whatever is cooked at home’,” she said.
Alishba Adnan, a 24-year-old MBBS student, goes to eat out once every few weeks. “It is so expensive to go out now. Honestly, because of the traffic conditions and the roads overall and the quality of the food has deteriorated as well so I don’t like investing that much,” she said.
She has become conscious of when she goes out to eat because she doesn’t want to spend money unnecessarily now. “The last few times I went out were because of special occasions, otherwise I would rather just stay home and eat what’s cooked at home.”
Speaking about the three times she’s gone out for iftar this Ramazan, she noted that the places were “pretty packed”. She went to Arena for a dawat and found the place filled with people. “Oh my god, we had to wait so much…there was no space to even place your feet in Rangoli,” said Adnan.
But she added that it could be also because of a corporate event taking place there that day.
Generally, she tends to order in more. But she has found recently that the food portions have reduced. “Earlier, I would order so much. Even for snacking during the day, I would order something. But now it’s all so expensive, I don’t anymore. It doesn’t even fill your appetite and you also spend so much money on it. It’s better to just make something at home,” she said.
“People are still going out despite the inflation. That day at Maharaja, it was Rs2,000 per head but still, people were going there,” she pointed out.
Inflation may not be enough to shut down the restaurant business just yet, but coupled with high costs and reduced salaries, it’s definitely making it difficult for restaurants to get by.