Why fine dining costs so much in Bangalore

Blame the Bangarappa government of 1993, which took a decision to stop issuing more liquor licenses, a decision that still continues today.? According to

themadman

?(who runs the excellent Shiok, currently temproarily closed), the only way one can start a restaurant serving liquor in Bangalore is to buy a permit from someone who is shutting shop. In other words, the number of establishments serving liquor in Bangalore has remained constant for some 15 years now, despite the population growing by a large amount.

Apart from the fact that the supply of licenses is scarce, a bigger problem is in matching buyers and sellers. It is reported that officials in the excise department double up as a clearing house for these licenses, charging usurious commissions up to the tune of 25% of the transaction value. Adding to this the official costs of licensing, transferring license and other sundry costs, a liquor license is estimated to cost approximately about Rs. 30 lakh.

What this means is that existing establishments can continue to overcharge on liquor without the fear of a new competitor who might threaten to lower the prices in the industry. However, given that liquor consumption, especially at restaurants, is highly elastic, there is only so much by which the liquor can be marked up. Thus, for the thousands of entrepreneurs who have started thousands of fine dining restaurants in the last few years, the only way in which they can recover their liquor investment, and make a profit would be to mark up the prices of food items.

Another thing with fine dining is that restaurants that serve liquor vastly outnumber the ones that don’t. This is mainly because of the clientile of these? restaurants, who usually prefer a drink to go with their food. This market (fine dining) is highly elastic to the availability of liquor – restaurants stand to lose considerable business if they don’t serve liquor. What this means is that restaurants serving liquor are dominant in this market, and they are the price setters. So when you have the high-cost players in the industry being the price setters, it is clear as to why prices are on the higher side.

On the other hand, when it comes to fast food, south indian food and south indian – north indian food (north indian food made in south indian style), the presence of restaurants that serve liquor is negligible, almsot non-existent. Hence, the price setters in this market are low-cost players, which explains why they are very reasonable.

Then, in Chennai, the? government has a monopoly over liquor distribution, which means that restaurants aren’t allowed to sell liquor. This makes it okay for a fine dining restaurant to run without serving liquor, and hence the price setters in the market are not high-cost. This probably explains why fine dining is much more reasonable in Chennai compared to Bangalore.

The only missing piece in this puzzle is the Andhra style restaurants – most of them serve liquor and are yet extremely reasonable. Or is it that they serve only beer which has a separate license that is available more freely? Can someone tell my why this is the case?

And interestingly, Bangarappa, who put a freeze on further liquor licenses, belongs to the Idiga community whose traditional occupation is to brew/extract and distribute liquor.