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Budget 2015: Eating out now more expensive, service tax hike to affect food industry

Hike in service tax would negatively impact QSRs as it is an extremely price sensitive market in an increasingly competitive market.

By Deputy Features Editor
Budget 2015: Eating out now more expensive, service tax hike to affect food industry

Two days after the railway budget brought hope to food lovers to get a bite of their favourite pizza and cappuccino in train, the much awaited budget by the BJP led government did not prove to be fruitful to the restaurant, hotel, FMCG or the food and retail industry as a whole.

With increase in the service tax, the government is expecting higher revenues making manufacturing and retail industry more competitive. But there is no good news for the food lovers in the country. With an increase in service tax at the restaurants and cafes where customers will have to pay now approximately 14 per cent in the country , eating out at your favorites brands like Lite Bite Foods, Subway, Pizza Hut, Costa Coffee, Pita Pit will make you pay more for your favorite Zinger Burger or the Falafel roll or the tasty Indian gravies at Zambar.

Hike in service tax would negatively impact QSRs as it is an extremely price sensitive market in an increasingly competitive market.

Commenting on the same, Gaurav Goenka, MD, Mirah Hospitality, believes, “The budget overall has been very positive keeping the growth of nation in mind. The only deterrent according to me is the increase in service tax to 14 per cent.”

“Inflation has always been a big cause of worry, directly affecting raw material costs which cannot be passed on entirely to the consumers. Biggest takeway from this budget is the proposed implementation of GST starting April 2016 which will eventually help curbing inflation along with other planned measures,” says Anun Dhawan, Pita Pit.

On the other hand, the tech-food industry which is seeing a robust growth these days will be badly affected by the budget proposal to levy service taxes for online and mobile advertising which experts believe will adversely affect the industry’s growth.

“Currently, India’s exponential mobile penetration and app consumption patterns are driving the growth of the mobile advertising industry and this development could hamper innovative efforts of the entire ecosystem comprising of mobile development start-ups, food tech start-ups advertisers and publishers. And we would love to have a more future focused policy regarding this particular aspect of the budget,” shares Zafar Rais, CEO, MindShift Interactive.

The upward revision of service tax may be detrimental to the growth of the hospitality industry. Now, consumers will have to spend more on the services which is going to reduce spend on eating out and consequently affecting growth of restaurant and hotel industry.

Meanwhile, the railway budget proposed by Suresh Prabhu is likely to spur growth of food industry. With announcement of tie-ups with brands like CCD, Domino’s, JumboKing and Subway, the travelers would now be able to choose their meal according to their taste without compromising on the quality.

The railway budget is progressive in its outlook and would open opportunities for the growth of the Indian food industry. The association of IRCTC with leading food brands is indicative of the evolving food preferences of the Indian consumers.

Commenting on the same, Harneet Singh Rajpal, Senior VP-Marketing,  Domino's Pizza India, says, “ This is qualitatively a big opportunity and we are very positive about it, but we cannot ascertain it's quantum without a trial of consumer response to this new service and also logistical feasibility of delivering hot and tasty pizzas on train seats. We are doing a limited trial along with IRCTC on 19 trains and 12 stations. We would analyze the results after the trial and then move forward accordingly.”

“This is a win-win situation for all the stake holders, including passengers who would get an interesting and diverse menu to choose from and the partnering brands which will benefit in terms of sales, revenues and consumer outreach,” says, Manpreet Gulri, Country Head, Subway India.

The move will also bolster the perception of Indian railways as being tandem with growing consumer needs for quality and value-laden offerings. But there are still major loop hole that need to be covered up.

“They have made some announcements about the plan, but they don’t have clarity as yet, but if the government brings it in real it will be a very good option for passengers to get more healthy and hygienic food while boarding a train. But there is more refinement required, the supply chain is already there but the space at the station is major problem as the government has nothing concrete to offer,” shares Dheeraj Gupta, Founder and MD, JumboKing.

Thus, we can say that the Budget is positive in general for the corporate sector with government proposal to bring down Corporate tax levels to 25 per cent in four years time.

 

Pic Courtesy: PIB on Twitter

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