As Indian restaurant industry eyes post-lockdown reopening, introspection aplenty on what it will take to succeed
As the country begins to open up in a staggered manner post-lockdown, the focus for the restaurant business will be on which direction to take in order to survive what is a seismic change to the ecosystem.
“Two months ago, I would never have imagined that I would be wearing a mask and gloves, helping pack hundreds of delivery bags of food from our restaurants because we have been shut as a result of a lockdown to help contain a virus called Covid-19,” says Sameer Seth, Partner at Hunger Inc Hospitality of The Bombay Sweet Shop, O Pedro and The Bombay Canteen fame. Sameer personally handwrites small notes to each of his customers on their delivery bags with good wishes and hopes to get together with them when things get better.
At over 50 days, this complete shutdown of restaurants, (along with businesses across all sectors), is a scenario no one could have imagined. While the lockdown to contain the coronavirus outbreak was announced on 24 March, several restaurants across the country began to see a drop in footfalls as early as the first week of March. Many decided to down shutters much before the official lockdown, in view of the safety of patrons and staff.
A Series of Ups and Downs
The restaurant business is one of the largest in the service sector, accounting for approximately 3 percent of India’s GDP and employing around 7.3 million people. The sector, however, was dealing with several issues even before it was hit by Covid-19.
Perhaps the biggest issue that restaurants have been grappling with is the inability to claim input tax credits under the current GST regime — this, added to the costs of running a restaurant. “It is misnomer that restaurants work on incredible margins. They work with very thin margins and deferred payment models. Because the business works on rolling credit, income is vital,” says Manu Chandra, chef partner, Olive Group. “Taking away GST benefit eats into our bottom line. This is already at about 12 percent to 15 percent if you are a successful business and around 8 percent if you are not so successful. Being unable to claim input tax credits takes away an additional 5 percent to 6 percent of the bottom line. It is great in terms of optics for the customer but the fact is that businesses are not getting any benefit from it,” he adds.
Considering how varied the Indian market is, there are several other issues that the industry has been dealing with. The Bengaluru market for example was hit with the highway ban, which banned alcohol service in establishments within 500 meters of state and national highways in 2017. This was followed by a ban on live music at venues under the Public Entertainment License issue. Both these proved quite the dampener for the restaurant and nightlife business. There have been a lot of environmental issues that the restaurant sector has had to deal with as well. The cost of real estate especially in larger cities being phenomenally high is one of them. The increase in excise due is another.
“We also started to see a dip during the high season time because of Citizenship Amendment Act-related protests towards the end of 2019. People were cancelling trips and events. Since we also cater, it was affecting us considerably. We already were having a tough time for the last 12-18 months and then Covid-19 slammed us,” says Gauri Devidayal, director, Food Matters India Pvt Ltd with seven restaurants/brands to her credit, employing 170 people.
The Olive group of restaurants has 31 outlets and 14 brands, and employs approximately 1,800 people. It was among the first to shut down operations in the country before the official lockdown was announced. “It was a very tough decision but, luckily it allowed many of our employees to get home, which is a source of some comfort to us,” says AD Singh, founder and MD. And like most restaurants, AD says, that they too are struggling to pay wages, with no revenues or reserves and no soft loans being announced from the government yet. “While our unit heads are in touch with their teams and supporting them to apply for the PF withdrawal schemes the government recently announced, what touched me the most was that one of our local partners insisted on paying all our staff in that city personally during the lockdown. And in another instance, one of our department heads in Delhi offered to personally pay his team wherever there was a shortfall during the lockdown”.
This perhaps is a testimony to the camaraderie and optimism that most restaurateurs speak of in a business that is often considered thankless.
When Doors Re-Open
As the country begins to open up in a staggered manner (restaurants are yet to get the green signal), the focus is now on the direction one needs to take in order to succeed in what is a seismic change to the restaurant eco-system.
The need to think out of the proverbial box is the need of the hour. At Hunger Inc., the approach has always been to look at customer behaviour closely. Being their own ‘focus group’ of sorts, the team felt that while customers are looking for comfort, they are missing out on excitement. “So we pared down our menus — a bit from O Pedro and some from The Bombay Canteen. What we are known for and what we love doing is changing menus, and so we recently launched the brunch at home where everything from Bloody Mary mixes to roast duck, things you normally get at brunches, is home delivered. Customer behaviour is a building block that doesn’t change. What the pandemic has done is fundamentally change behaviour and the view of going out, to the way people eat, think of hygiene, safety, transport etc. This is both internally, for team members to feel safe enough to come to work; and externally, for guests and how they feel about their food,” explains Seth.
Several restaurants, including those within star hotels, have taken to home delivery models, innovative options like non-alcoholic mixtures, vouchers redeemable for experiences, discounts and more once business resumes. Such innovation is to help tide over current cash flow crunches and to retain a relationship with customers.
A lot depends on what the government mandates for restaurants once they open — in terms of social distancing and hygiene measures etc. Dubai, for example, stipulates that only 30 percent of a restaurant can be occupied at any time. Should this be implemented in India, social distancing is managed. “Restaurants will grow into what is required of them parallely while opening up and prepping for the new diner. Just like how metal detectors and bag screening became par for the course after 26/11 and people took to the new measures, so too they will take to steps such as temperature screening (if introduced) in public spaces,” believes Gauri. Her bigger concern though is for staff members who have to commute in public transport, work in close quarters in kitchens and interact with external vendors regularly. Protecting them is a bigger concern and Devidayal admits she does not have the solution for this right now.
A number of solutions have been suggested and are being considered for the diner — from online reservations and payments, to electronic or disposable paper menus, contactless dining, the ability to watch food being cooked in kitchens and more to improve customer sentiment.
“While it’s impossible to gauge the depth of the fundamental levels at which this virus can be tackled, all these suggestions assure a certain level of safety. If the lockdown wasn’t in place the spread would have been far greater. While you cannot negate the danger completely, you can minimise it,” says Manu, who also adds that he is banking on the pharmaceutical sector to come up with a solution. Between these two, he believes, consumer trust deficit can be managed to an extent.
Restaurateurs agree that economically, what would help is a curbing of their expense cycle. Low or no rent for the closure period, a re-engagement on payment of rentals going forward, soft loans for longer periods at lowered rates of interest, a relook at excise fees which varies with each state as well as a revisit on the GST and inputs credits issue at this time would be appreciated.
Help in the form of rental and wages coverage (the Danish government for example has promised to cover 75 to 95 percent of salaries if businesses do not lay off their employees; Singapore is covering salaries up to 75 percent; Canada has announced rent relief for small businesses) is what the industry is hoping for. For example, AD Singh explains, “We have been contributing, as have our employees to the Employee State Insurance fund (ESIC) month after month for years. That corpus has grown to Rs 94,000 crore now. Some of it is needed to run their hospitals but, most of it could be distributed back to the employees who have contributed, to help them and their families at this very difficult time”.
How many restaurants may close is speculative right now. For those that were not doing so well before the lockdown, this may be the last nail in the coffin. The general consensus is that those with strong branding and loyalty factor will be able to survive. In some cases though loyalty and success alone may not be enough. Age old spaces that fundamentally work on the idea of sharing tables with strangers (and there are plenty such restaurants) may struggle with what may be considered the new normal.
The restaurant industry constantly evolves. It is not what it was a decade ago. Covid-19 has proved to be a model changer, almost overnight. Businesses will have to adapt and the need for that is currently accelerated. Of course, there will be some level of paranoia from diners for a while to come, but the hope is that with medical breakthroughs in vaccines and cures, the current phase, with multiple safety measures, possibly taking away from the social experience of dining, is a temporary one. AD Singh concludes, “People are social beings and that should help. As they feel more and more secure the industry will start to get back to normal. Remember that in India we need to weather different kinds of storms all the time so we have developed resilience.”
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