Amidst the coronavirus pandemic and the resultant lockdown, the restaurant sector is one of the worst-hit.
Over two million (20 lakh) people directly employed in the sector may be rendered jobless, according to the National Restaurant Association of India (NRAI) that represents over 500,000 restaurants across the country.
The restaurant industry provides direct employment to 7.3 million Indians, and it is estimated that an equivalent number are engaged in ancillary activities.
“A modest 30 percent job loss could mean over two million people directly employed in the sector, being rendered jobless. This may lead to larger societal problems,” says NRAI President Anurag Katriar.
Jaipur-based entrepreneur Dushyant Singh who runs three restaurants (OTH, Rustic by OTH, and The LAMA) in the pink city points out that the restaurant business involves a lot of overhead expenses which look like a “dead elephant” when business is at a standstill.
Loss of revenue and cost-cutting
“After the lockdown opens up, the first thing that every eatery would do to cut down on existing expenses is fire employees which would create a lot of unemployment in the sector. It would be difficult to start again with the same workforce,” says Dushyant.
The overall size of the food service industry is pegged at around Rs 4.25 lakh crore, with the formal or organised sector accounting for Rs 1.75 lakh crore of this.
“If we just look at the organised sector, our daily revenue loss is in the region of Rs 480 crore, and if we further assume that only a modest 40 percent of our revenues go towards fixed expenses, our losses stand at roughly Rs 192 crore a day,” according to Anurag.
Also the CEO at deGustibus, which operates eight restaurants including INDIGO, INDIGO DELI, D:OH! across 27 outlets, Anurag believes that the restaurant sector will be one of the last to get permissions to restart. “Let us say we get permission after three months, then we are staring at a revenue loss of Rs 43,150 crore and business/cash loss of Rs 17,260 crore. These numbers could cripple a very solvent sector and ours is barely solvent. No company in the sector will come out unscathed in the aftermath of this lockdown,” he warns.
He is among several other restaurateurs disappointed at the government’s inaction to help the sector.
“With each passing day of lockdown and no support coming our way, our ability to bounce back and remain alive gets further diminished,” he says.
Sudden death for many
The NRAI has already made multiple representations to the government seeking financial support so that restaurants can sustain themselves. “There is not much one can do under these unprecedented days. However, it must be clearly understood that despite our best intentions, we cannot support our expenses for long with our meagre resources. The aid must come now. Providing a ventilator post-death will be of no use,” Anurag appeals.
Several restaurateurs fear that many restaurants will not survive the pandemic. Kolkata-based entrepreneur Shiladitya Chaudhury, who runs 21 dine-in restaurants with brands Chowman, Oudh 1590, Chapter 2, and Quick Service Restaurant (QSR) chain Master Dimsum, believes that a large number of outlets will not be able to sustain beyond two-three months if they are not allowed to open.
“This will eventually lead to non-payment of salary to staff and huge cuts in jobs. Brands with organised infrastructure and a bit of deep pocket will still be able to survive with major restructuring processes, while many outlets will have to shut shop,” he says.
Fellow Kolkatan and Co-founder of Wow! Momo Foods, which operates two QSR brands Wow! Momo and Wow! China across India through 345 outlets, Sagar Daryani says,
“It is possible you will never be able to visit many of your favourite restaurants in a post COVID-19 world because they will not be able to recover from this and will shut shop.”
Wow Momo! which has been profitable from the start, is suffering losses for the first time in 11 years due to the pandemic. However, it says it has cash reserves for the next six to nine months and is further tightening expenses through salary cuts and not paying rents during the lockdown. “Wow! Momo will come to close in three months if we pay rentals and salaries,” Sagar says.
While several restaurants continue to operate partially and are doing home deliveries through foodtech startups like Zomato and Swiggy including Wow! Momo, Sagar points out that business is down to one-tenth of what it was.
NRAI’s Anurag says, “As bad as it may sound, many companies may never recover from this shock and will die a quiet death while the lockdown continues. 2020-2021 is already a washout.”
A vulnerable model
According to Sulagna Ghosh, who runs Sienna Cafe (two outlets) in Kolkata, the coronavirus pandemic has shown how vulnerable the restaurant industry really is.
“It’s a business model that works on a steady churn of liquidity and low margins, especially for smaller eateries and cafes like ours or standalones without bars. And to add to that, so much of the F&B (Food and Beverage) industry is fuelled by passion first, good business values second. I think this will make a lot of businesses reevaluate their financial practices and priorities,” she says.
The restaurant industry largely feeds on discretionary expenses, and widespread job and salary cuts will only prove to be a double whammy for the already bleeding sector.
“Add to this, the new social distancing norms; suddenly certain parts of the sector like banquets, night-clubs, and discotheques become hugely unviable and the seating capacities of restaurants also go down by half. This will have a very massive and adverse impact on the investment environment into the sector,” says Anurag.
How can the government help
According to NRAI, the government can help the sector in three stages.
At the first stage, the government needs to immediately use the coffers of ESIC (Employees’ State Insurance Corporation) or unclaimed deposits of PF (Provident Fund) or any other social security program to cover the salaries for the sector.
It must also make a public announcement that this situation automatically allows invocation of force majeure (a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs), for all contracts and their resultant liabilities. Tenure of all operating and trade licenses must also be extended for another year without any additional fee.
“This will be like ventilator support to keep us alive,” says Anurag.
Secondly, the government needs to come up with adequate working capital for the sector with very low interest, low collaterals, and moratorium.
“We will need this to kickstart the business when the lockdown ends. We will not be able to restart without this,” Anurag emphasises.
Lastly, the government also needs to come up with policy support for the trade. “Two primary ones are the restoration of Input Tax Credit on GST and creation of a robust, fair and equitable e-commerce policy for the sector.”
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