In a soup? What the future holds for restaurants…

The Re-Beginnan | Volume 2 | Issue 7

The pandemic is not showing signs of flattening. The WHO chief, in his speech, stated that many of the countries are moving in the wrong direction and the pandemic might worsen in near future. While almost all businesses have been hit by the pandemic, ‘organized restaurants’ have sustained one of the biggest blows. Same time, last year, the situations were starkly different for the restaurants. The collateral damage of the pandemic has been the worse for restaurant industry.

The lockdown has caused immense loss to many restaurateurs and jarred them, the reason being falling footfalls, declining revenue, flat fixed overheads and limited government support. No special funds or congenial policies were announced for the restaurant sector and the financial relief for MSMEs is of hardly any use as it merely gives a loan of INR 5 lakh, which only would add to the burden that restaurants are already bearing.

Depiction Of Restaurant Operating With Safety & Social Distancing Norms. Image Credit —https://www.freepik.com/free-photos-vectors/people

The blow…

NRAI (National Restaurant Association of India) has estimated a loss of over INR 1 lakh crore. This does not factor small restaurants who’re not a part of the association.

It is estimated that about 30–40% of restaurants may not exist by next year. Estimated job loss of 10–20% (~1.5 million) out of 7.3 million people employed.

Not all states have allowed dine-in restaurants to be operational. While some State Governments allowed dine-in, it was only done at 50% capacity.

Restaurants have realized only 10–30% of business as compared to pre-covid19.

80% of the diners visit restaurants in dinner slot. However, unlock restrictions states curfew from 10:00 pm. In that scenario, considering operational needs, the last meal in restaurant will have to be served by 07:30 pm leaving the staff with time for post-closing operations.

One of the biggest challenges to reopening restaurants is manpower as almost all the staff, waiters and chefs have gone back to their home town due to the pandemic scare, leaving restaurants with almost no staff to operate with.

It all boils down to money: The battle with landlords & high operating costs

In India, 90% restaurants work on lease/rent which is a substantial part of the operating cost of the restaurant, typically ~20%. Many restaurateurs have closed down either because their landlords are not ready to cut on the rent or even if they did, it was only for 3–4 months which again poses a threat to the existence of the restaurant. Some landlords of stand-alone properties have been understanding and are considering a revenue share model which is more lucrative for businesses yet does not take away other fixed costs.

QSRs and restaurants in malls are fighting for their existence too. As of now the restaurateurs are patiently waiting till the lockdown gets over and then will take a decision on if they want to stay in the game or use the ‘Force Majeure Clause’. As of now many malls have also offered the revenue share model instead of fixed rent. But, will customers have the confidence to come out to dine-ins even when the lockdown is further eased? If restaurants commence operations, how long will they be able to sustain? These questions will only be answered with time.

Restaurateurs are working with decreased staff yet high operational costs remains a top concern as revenue (orders) takes a dip, which in turn will bleed the restaurateurs dry and force them to shut shop. Low margins along with less cash in-flows forms a fertile ground for restaurants to shut their doors.

Best chance for survival

Here are some innovative ways in which restaurants are adapting to the pandemic:

Use of UV ray sanitising device for tables, HEPA filters for air, capsules to sanitise vegetables and thermal scanners to take temperature of the staff to gain customer’s confidence resulting in increased dine-ins.

Use of technologies like QR codes instead of menus and mandatory contact-less online payment methods to reduce contact.

Many restaurants have tweaked recipes of dishes by using simple local ingredients which are easily available to make the same dishes to avoid sourcing hassles.

Restaurants are now launching DIY (Do It Yourself) meal kits which provide the customers with ingredients and the method of cooking as future of dine-ins remains uncertain.

Menu sizes have shrunk to ensure chefs don’t have to interact a lot while cooking and proper distance is maintained.

Many restaurateurs have now started to move purely towards cloud kitchens so as to meet operating cost challenges. As of July 2020, the GMV (Gross Merchandise Value) of food delivery aggregators has seen about 60% recovery since March 2020, when it was down by 80% compared to the pre-covid peak.

Need of the hour

Though surface level relaxations have been given by the government, like extension of grace period for license renewal or registration, relaxation on 6 monthly food testing by FBOs (Food Business Operators) or extension of date for mandatory food safety audits of food businesses under FSS (Food Safety Auditing) Regulations 2018, yet no substantial relief measures have been taken for such a capital intensive business. Congenial Government reliefs and policies is what the vibrant restaurant sector needs right now. Reliefs like credit offsets and increased cash support ought to be given.

If yet the restaurant sector is not taken seriously, it will result in closure of more than 50–60% of restaurants by next year, the impact of which will almost be irreversible for a long time post the pandemic.

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