F&B to boost cinema theatres’ profitability

The joke for a few years now around has been that, if the movie of a top actor fails to impress, then the viewers atleast get to enjoy delicious snacks, popcorn and colas at cinemas, especially multiplexes.

Post-pandemic, the Indian movie industry has been witnessing a huge stress, in terms of attracting footfalls. This predominantly includes students and youngsters during the week and family outings over weekends. The peaking of OTT platform viewership, coupled with binge watching – continuously being hooked on to the platforms watching movies and web series back to back for long hours, has been on the rise, with the first ever nationwide lockdown since Mar. 2020 onwards.

International players such as Netflix and Amazon Prime along with Indian operators such as Zee5, SonyLiv as well as regional players such as Voot, Aha, etc. have been feeding this ever growing slew of consumers, with attractive subscription offers coupled with interesting and hooked content, making the platforms’ stickiness appeal to individuals as well as the extended families.

Adding to their woes, the cinema exhibition industry, on the other hand has seen its worst ever flops over the past 24 months. Save for regional films released pan-India such as PS-1 & 2, RRR and KGF-2, there have been very few films such as Shah Rukh Khan’s Pathaan which had a national level box office impact.

So, poor patronage to mediocore movie content, as well as fewer takers for casual entertainment, has snowballed in to a major crisis for the industry.

There were an estimated 11,500+ screens in India before the Covid-19 pandemic began. As on 1 April 2023, there are a little less than 9,000 screens in India, of which over half are part of multiplex chains. The PVR+Inox chain together command over 15% of the total, or 1,700+ or so. For these screens, a significant contribtion to profits were from food and beverage revenues.

There was just one catch. The GST department equated the food sold within the theatre premises to restaurants, thereby attracting 18% tax on the food sold. There have been many litigations pending between theatre owners and State Governments as the matter has been put across to the Hon’be Courts.

However, the GST Committee in its 50th sitting since its inception, held early July ’23 ceded to the long-pending requests of the cinema exhibitors and reduced the GST rate to 5% from 18%.

“It has been clarified today by the (GST) Council that food and beverages that one consumes in cinema halls shall have 5 per cent GST, not 18 per cent,” said Sanjay Malhotra, Revenue Secretary, Finance Ministry of India.

Nitin Sood, Chief Financial Officer, PVR INOX Ltd said: “The entire cinema industry welcomes the clarification issued by the GST Council today that food and beverages sold at the cinemas will get covered under the definition of ‘restaurant service’ and would be liable to GST @5 per cent (without availment of input tax credit).”

Therefore, a combo pack of Popcorn + Cola costing Rs. 300, which included Rs. 54 worth taxes, should now cost Rs. 260 approximately while being purchased at the theatres. This is great news to movie watches as much as theatre owners. Although, combos bought along with tickets while booking online, would still attract the older rate, as it is said to include what was formerly known as “Service Tax”.

Multiplex ticket pices hover around Rs. 220 – Rs. 300 per unit on an average across India. However, the  ticket prices are capped around Rs. 200 in states like Tamil Nadu and Andhra Pradesh. These two states produce over 400 films a year between them, of the total 2,000+ movies that are produced in India annually. An estimated 800+ films are produced in Hindi language annually. Standalone theatre tickets still cost between Rs. 100 – Rs. 200 pan-India.

Post pandemic, due to spiralling household costs, lower internet rates and the convenience of watching on their preferred devices, has made Indians stick to OTT platforms over theatre releases. So much so, that the earlier gap of 10-12 weeks between theatrical and OTT release for films, has now narrowed down to as low as 4-6 weeks from theatres to OTT. This is across all languanges and a national phenomenon right now.

Will the lowering of food prices in theatres improve theatre operator’s profits is anyone’s guess. However, whether this would drive more footfalls to theatres looks more promising than ever. With the upcoming festival season presenting over a dozen films in top languages, and investments nearing Rs. 2,000 Cr among them, it is going to be testing times for multiplex operators, especially.