FNB News - “The business is cyclical and bound to bounce back”

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INTERVIEW

“The business is cyclical and bound to bounce back”

Monday, 03 February, 2014, 08 : 00 AM [IST]

Premier Inn is the UK’s biggest hotel chain with more than 688 hotels and 53,000 rooms across the UK, Ireland, South Asia, Arabian Gulf and Asia Pacific. Premier Inn India opened its first hotel at Whitefield in Bangalore, in November 2009. Though present in India for a couple of years now, the company has been making efforts to fight the effects of food inflation and is optimistic about the future. In an email interview with Manjushree Naik, Shwetank Singh, regional vice-president, south Asia, Premier Inn Hotels, shares details. Excerpts:

How has been food inflation affecting the hospitality segment?
Food inflation has always had a very negative impact on the overall sector. As the input cost for various F&B items goes up, hoteliers are forced to revise the menu price or cut down on the quality/quantity of ingredients. The slowdown in the economy and overall high inflation has also impacted consumers’ discretionary spending and consumption. This further puts pressures on the overall sales as the propensity of eating out reduces and operators are under constant pressure to keep the prices at the right level.

The F&B sector has suffered badly because of the spiralling food Inflation in terms of rise in prices of major ingredients such as onions and tomatoes in the recent past. How has it affected your segment?
The impact of increased prices is no different in the mid-market segment as compared to others. Where it becomes more difficult for this segment is that the price rise, if passed on to the end-consumer (read guests) comes to a tipping point very quickly i.e. the place where the guests decide reduce their frequency of eating out. In the higher category price escalation does not impact the guests to the same degree.

In fact, food Inflation, devaluation of rupee, recession and so on have adversely affected the segment, it is said. Comment.

The hotel industry in general, and restaurant segment, in particular, come under insurmountable pressure every time food and vegetable costs increase. While marginal fluctuations in input cost can be absorbed, a huge increase, and that too for a longer term, cannot be absorbed by any business. As compared with last year, overall input cost after inflation increased between 12 per cent and 25 per cent. Heavy import duty added to the misery, directly impacting the hotel industry, forcing them to think about alternatives to keep the business stable. In a normal market situation, industry stakeholders can easily transfer the burden to consumers. However, the market situation today, is quite fragile. The spectre of market slowdown and resultant lowering of demand make such a move impractical and may prove suicidal in a highly competitive market.

What are the measures that the segment is taking to fight these issues as well as stay afloat?
There is very little that can be done in such a difficult situation. The only alternative is to continue doing the basics right and provide value-for-money propositions in order to lure the customers to keep coming back. This is something we have espoused with vigour at Premier Inn.

We have not compromised with the quality of our food ingredients, portion sizes and we continue to remain heavily focussed on health and safety standards. We have also designed attractive packages to provide our guests with value-for-money offerings, which never go out of fashion.

It is said that many places are finding it difficult to maintain a balance and closing down. Comment.
These are indeed difficult times and not all businesses have deep enough pockets to ride the trough. We at Premier Inn are strategically invested in the business for a long haul and are experienced enough to realise that the business is cyclical and bound to bounce back.

How, according to you, can the issue of food inflation be solved?
Today the world economy is one big market place. The government needs to find ways and means to have access to the cheapest markets in the world and be open to trade. Finding the markets, which have importable surplus for key ingredients in real-time is the cornerstone for arriving at a long-term solution for this perennial issue.

What are the long-term effects of food inflation?
In the long run, the hospitalty industry will start to pass on the burden to the end-consumer resulting in an overall reduction in demand and a detrimental effect on the long-term health of the industry itself.

How can the hospitality and F&B segments remain immune to such problems?
In our opinion it is impossible to fight the market forces. At Premier Inn in the UK as we have the scale we are able to lower the input costs by driving bargains on food items with large suppliers. Though it gives us a cost advantage over our competitiors overall increase in prices impact this route as well eventually.