Are Five-Star Hotels Justified in Their High Food Prices?

There stands a stall in front of my gym. Every day, post workout, I would go and stand there, and bhaiya would hand me a plate with two boiled eggs. In exchange, I would hand him a 20 and relish the eggs. In contrast to this is a bill below for two boiled eggs for an amount you wouldn’t be able to guess in your wildest dreams.

Recently, Kartik Dhar, founder & CEO of Glitstreet, posted a bill on social media where he had paid ₹1,700 for two eggs at a restaurant in Four Seasons Hotel in Mumbai. His post called to mind the rampant profiteering by Five-star hotels. Similarly, actor Rahul Bose complained that he was billed ₹442 for two bananas at a five-star hotel. Four Seasons, Taj Hotel, and J.W. Marriot all fall into this pricey 5-star hotel category. But how does one justify charging ₹1700 for an item that costs ₹20 and ₹442 that costs ₹6?

This is where he was billed a total amount of ₹6,938 for two eggs, three omelettes and a couple of carbonated drinks. Two eggs on a roadside Dhaba cost ₹20. Maybe, you will have to eat the eggs out in the open without chairs and tables and wait for the staff to get you the eggs, but you save ₹1,680. Eggs retail at ₹6.50 to ₹7.50 at the most. The total cost of two eggs is ₹15 if you buy and cook them at home.

Coming to actor Rahul Bose’s complaint; in the market, you can get three bananas for the price of ₹10 for which he was charged ₹442. These exorbitant food prices charged by five-star hotels seem to have no rationale to them. This invited various comments from netizens like, “this amount is equivalent to my breakfast budget for four seasons,” “It is enough to foot the cost of distributing eggs in my whole locality,” etc.

There were also some Twitter comments like:

Different types of eggs in the basket!

My sister, who is a chef, explained that there are four different grades of eggs ranging from AA to C. AA are the absolutely fresh eggs from the farm where the yolk is dead centre and the eggs are not runny. When you break it, the yolk falls dead centre, and you get a perfect omelette.

The C-grade eggs are the runniest eggs, and when you break them, the yolk and the white of the egg run and mix together. Brown eggs are costlier than white eggs. A chef in a five-star hotel conducts the water test to check whether the eggs float on water or sink to the bottom to test their freshness and then chooses the freshest eggs.

She also added that the hotel adds the cost of the maintenance of the five-star property, allocates a portion of the chef and the wait-staff’s salary, electricity charges of the air-conditioning, lighting, clean, stainless cutlery, the laundered napkins, tablecloth, etc. to boost up the bill. Added to this are the CGST and SGST elements which are 18% of the food served in restaurants owned by five-star hotels as they belong to the luxury category. 

It is also a fact that five-star hotels in India have a very high mark-up on both liquor and food bills. The average food cost as a percentage of sales is less than 35%. According to five-star hotels, you are paying for the expertise, quality of the food and service, the reputation or cachet the five-star hotel enjoys, and the premium locality of the five-star hotel. Your boiled eggs may have been prepared by a Michelin-starred chef. You are not just consuming a humble egg, but you are consuming the whole package in which the egg is wrapped.

Service charges IMPOSED by the hotels.

Hotel bills in restaurants, including those in five-star hotels, add an additional amount as a service charge. Previously there was only a practice of tipping based on your discretion. This is not a mandatory charge, in that the restaurant is supposed to only bill for the food plus government taxes. But by including it in the bill, restaurants make it a compulsory charge even without having the right to do so.

According to the Department of Consumer Affairs, you can refuse to pay the service charge if you are not satisfied with the quality of the service. To this, the National Restaurants Association of India retorted that you are free to not consume food at a restaurant if you do not wish to pay the service charge. A service charge is not a government-imposed tax and restaurants cannot legally enforce it. Typically, service charges are around 10% of the bill amount and are mentioned on the bill itself. 

It must also be remembered that five-star hotels receive input tax credit benefits when the GST charged is 18% of the billed amount. None of this input tax credit benefit is passed on to the ultimate consumer, who is essentially paying the GST on his bill. In the ideal situation, where government GST is passed on to the consumer, the input tax credit benefits received should also be enjoyed by the ultimate consumer.

Five-star restaurants engage in profiteering, but their stock reply to any complaints about the high costs is don’t consume our services if you can’t afford it.

The facade and the tricks

 Five-star hotels source ingredients from around the world, making their dishes very expensive. They also serve minuscule portions with excellent plating in order to reduce the cost of the food. The dishes are tasty, the plating is superb, and you only have to order more to satisfy your appetite. They subscribe to the psychology that expensive food is good food.

No doubt there are meals that are a gastronomic delight, prepared by chefs of a five-star hotel restaurant which justify some overcharging for the amazing taste and the style of presentation. But a boiled egg is a boiled egg is a boiled egg is a boiled egg. You may or may not salt it while boiling it. Michelin star chefs would not be involved in such a process. Or serving a banana on crockery. This is not rocket science and does not call for culinary expertise. How can five-star hotels blatantly overcharge and expect to get away with it?

Funde ka Anda!

Now, if they charge such exorbitant prices, can you guess their profit percentage? Zero, zilch, nada, ANDA! Yes, that’s right. Contrary to popular belief, 5-star hotels incur bhari losses. They have low occupancy rates. But most expenses like keeping a huge wait staff for peak seasons, outsourced services like hiring security, loans, taxes etc., are fixed. Initial tariffs of these hotels are higher to keep up with the operational costs. So, it becomes difficult to keep a balance. This, I believe everyone knows. Now, let Insider tell you the insides of the hotel biz that not everyone knows about. 
 
Suppose I have a hotel with 100 functional rooms. So, I have to sell 100 rooms per day. That number adds up to 36,500 room nights every year to sell. But here is the thing; if my hotel does not run on 100% occupancy every day, I lose the revenue of the unoccupied rooms for forever. Because, for a hotel, the night ain’t young; it’s perishable.
 
If I owned a business of soap bars and had to sell 36,500 bars in a year, it wouldn’t matter if I didn’t sell any bars for 3 days and sold 400 on the fourth. The hotel industry does not have that leisure, so they have to be slicing each other's throats for bookings. And when they have bookings, they need to employ infrastructure that can sustain people in those 100 rooms! 
 
Now, suppose each room has at least one person; they would have to install a geyser of very higher watts compared to what they would have used for 50 people. They will have to build a seating space to accommodate 100 people for breakfast, a wait-staff that could serve them and cutlery sets in hugeeeee quantity. 
 
This is where they incur losses- by employing huge resources just for rare occasions.

Key Takeaways

Are any changes likely to be made in the billing practices of five-star hotels, especially after the hue and cry on social media platforms? This is doubtful as they subscribe to the philosophy that if you can’t afford the prices, don’t venture into a five-star hotel. I have tasted food in Jigg’s Kalra’s restaurant, Masala Library, where I was charged Rs 500 for a vada pav. This was a vada pav with a difference where a small pav was placed inside the vada. Yep, you read that right! But charging such high prices for eggs or bananas where there is no value addition to the dish itself seems unwarranted.

You even pay a higher GST of 18% when you eat in restaurants in five-star hotels because the government believes they are in the luxury category and charge more than Rs 7,500 per room for one night. You are paying for the real estate and the service you receive in these properties. But, the question arises, aren’t these sunk costs? The 5-star hotel had invested in real estate long before you even contemplated visiting the hotel. Some of them have been in existence for a very long period of time. So, the hotel should have realised the value of the property. So, every rupee you pay to the hotel when you eat in a 5-star hotel restaurant should be pure profit. We should expect the trend of high prices to continue in five-star hotels, as there are no authorities to oversee or regulate these prices.