Long Read: How Covid-19 Is Derailing Restaurant And Hotel Industry’s Growth Story

Long Read: How Covid-19 Is Derailing Restaurant And Hotel Industry’s Growth Story

by Tushar Gupta - Tuesday, May 26, 2020 04:09 PM IST
Long Read: How Covid-19 Is Derailing Restaurant And Hotel Industry’s Growth Story Representative image
  • This sector will take much longer to recover, if experts are to be believed.

    With lower disposable incomes in hand, dine-out revenues are likely to be hit hard, and so will leisurely travel, given that hygiene and social distancing are the new mantras.

For India’s restaurants and hotels, the coronavirus outbreak and the consequential lockdown that lasted until last week has been as devastating as the meteorite that wiped out the dinosaurs.

The outbreak has decimated revenue growth, expansion plans, cash flows, and will now take a toll on employment numbers too.

Thus, today, many local eateries and hotels running under various management companies like Oyo are staring at the prospects of shutting shop.

As it is with many other sectors, regular cash flow is integral to these businesses.

With the lockdown, owners of restaurants and hotels were left without any revenue, given the nationwide lockdown that came into force in the second half of March, and thus, had to pay for the salaries and other operating expenses from their own pockets.

The rising number of cases and no prospects of a vaccine early further aggravate the problem for this sector.

As per some reports, the first seven weeks after the lockdown, that is the months of June and July, otherwise good for the industry, will operate at 25-30 per cent of the levels witnessed before the lockdown.

The organised dine-in industry is alone looking at a 40-50 per cent decline in revenues this fiscal given a number of factors.

Firstly, dine-out revenues will be dented. Though restaurants have been allowed to operate their kitchens for online deliveries, even in the red zones, the permission for dining facilities to operate may only come after 31 May, almost 2.5 months after the restaurants were ordered to be shut.

However, even this may not end the woes for hotel owners.

For organised restaurants, the dine out revenues constitutes three-fourth of the earnings from orders.

Alongside, the compulsory norms of social distancing might further add to the decline in revenues as restaurants would be expected to increase the spacing between the tables.

Speaking to Swarajya, Niranjan Gohokar, owner Grub Shub, a prominent restaurant chain with outlets in Pune and Mumbai, emphasised on how social distancing will be a new challenge for owners and the need for the common space outside eateries to be made available to restaurants at a temporary basis by the local administration.

While the above solution could work wonders in specific areas, for instance in shopping malls or food streets in designated commercial spaces like Gurugram’s Cyberhub, it would be difficult to implement for eateries with lesser space in many other cities of India.

Two, the delivery conundrum. The emergence of platforms like Zomato and Swiggy enabled restaurants to tap into new customers.

Delivery fleets managed and maintained by the digital platforms helped restaurants that otherwise could not cater beyond their dine out space or immediate vicinity.

The enabling came at a small cost for the eateries, in the form of a commission, that they share with these digital platforms.

Yet, today, the relationship between the restaurants and these platforms has strained for a number of reasons.

In August 2019, restaurants, led by the NRAI (National Restaurant Association of India), embarked on a ‘logout campaign’, distancing themselves from the Zomato Gold and the Infinity Dining programme, citing it to be an ‘unacceptable proposition’.

However, the problem between the restaurants and Zomato goes beyond the logout campaign.

One, the lack of synergy between the two. In his conversation with Swarajya, Niranjan Gohokar spoke about the trust deficit between the restaurants and Zomato.

‘There are too many schemes in operation by Zomato, and by the time the eatery has settled into one scheme and is drawing tangible revenue, they (Zomato) discontinue the scheme,” he said. Further elaborating on the issue of data-sharing, he said, “The platforms misuse customer data, and there is a conflict on who owns that data. With the data they collect, they can decode an ordering pattern for a region, and then disclose it to a competing restaurant through non-personalised data sets”.

Also, after understanding the order patterns of a specific area in any major city, these platforms set up their own kitchens and sell a limited number of food items that are most ordered, thus further denting the restaurants.

In this case, there is no legal remedy for the restaurants to turn to, he added.

Speaking to Swarajya, Anurag Katriar, president of the National Restaurant Association of India (NRAI), elaborated on the challenges faced by restaurants relying on deliveries alone.

“The narrative about deliveries making up for lost revenues is based on misconceptions. Deliveries can never replace dine-outs, and at best, they can serve as a means for revenue augmentation to a limited extent. For instance, one of the top restaurants in Mumbai, out of a monthly business of Rs. 70-80 lakh, only had Rs. 10-12 lakh coming from deliveries, which further declined to Rs. 3-4 lakh in April”.

He also elaborated on the feud between the restaurants and delivery platforms.

“The restaurants want to take back control of the business. Any e-commerce platform must be neutral, but food aggregators have now become digital landlords, controlling who can be present on the platform and who cannot. They are also deciding the commissions on behalf of the sellers and buyers,” he added.

Citing the problem of data-sharing, Anurag Katriar spoke about how the restaurant industry was planning to reclaim its business from digital aggregators.

“Firstly, we are planning to have our own delivery platform. Discounts, which were otherwise a privilege, have now become a routine, and that is not correct. In our platform, we want restaurants to be able to decide the discounts. With lesser discounts and a flat fee for each order, restaurant owners will have a clearer picture of the business at the end of each day”.

The industry is also planning a shared loyalty programme that would be owned and operated by the NRAI.

Calling it an ‘alliance’ of all members, Anurag Katriar told Swarajya about how users will be able to exhaust points they may have earned in one city in any other part of the country.

The industry is also planning its digital order and bill settlement mechanism, given the need for contactless dining in the aftermath of Covid-19, along with a platform for discovery.

Clearly, this would spell more trouble for the likes of Zomato and Swiggy.

While the two platforms ventured into ration delivery in the days of the lockdown, the coming of Jio Mart would disable any opportunity for these two platforms in that space.

For business owners, delivery of food orders and liquor will be like a band-aid on a bruise inflicted by a sword.

Already, Swiggy has let go of around 1,100 people, shutting down its business of Cloud kitchens.

It’s biggest rival, Zomato, also laid off 13 per cent of its workforce, around 600 employees, while announcing salary cuts as high as 50 per cent for those in the senior roles.

Therefore, going forward, both parties will have even less leverage to negotiate, given eateries would be looking to lessen the commission they have to part with for each order delivered through Zomato and Swiggy.

The online delivery model, a critical mover of urban India food consumption, stares at a turbulent future ahead.

Three, the lack of trust between customers and restaurants.

Until the vaccine arrives, which could be anywhere from late 2020 to 2021, regular consumers would be averse to the idea of eating out.

Trust will be a huge factor here, and trust could supersede discounts and other monetary incentives for customers.

Niranjan Gohokar emphasised on the importance of open kitchens. “I believe that now, we shall see the emergence of open kitchens as that would usher greater transparency. Consumers will get to see what’s being cooked, who’s cooking it and most importantly, the conditions under which it’s being cooked. The new model will also warrant training for the staff,” he added.

Four, the labour challenges. One of the biggest fallout of the Covid-19 pandemic has been the migrant crisis. Cooks, critical for the routine operations of eateries, both small and large, have now departed for their villages with no definite timeline of return.

Given 20-25 per cent restaurants and eateries may run out of business, many of them shall be rendered unemployed.

For the informal workers, like street vendors in many metropolitan areas and cities, the loss cannot yet be quantified.

Therefore, the next few months could witness a serious shortage of staff within the industry, and with supply chains disrupted in crucial states like Maharashtra, import of meat and other raw materials will also suffer.

Five, the restaurants that work within the setup of a hotel. The biggest setback from Covid-19 has been to business and leisurely travel.

Already, the year’s two holiday seasons, that of March-April and June-July have become victims to the outbreak and consequential lockdown.

The impact of this setback will be witnessed greatly in hotels that were being run under various brands, for instance, Oyo.

In an elaborate conversation with Swarajya, Snehal Kulshreshtha, Director at Vinnca Hotels, a leading hotel management company, spoke about the industry’s disappointment with the package.

“If you count the formal sector, we employ 7 million people. Add the informal workers and the number goes to 20 million, and yet, even while being one of the biggest employment generators, we are not viewed as a proper industry by the government”.

“There are a number of players in logistics that rely on our business which employ another 20-30 million people. There is also the question of supply chains and the people employed in that sector, and yet, the help from the government has been insignificant,” he says.

Kulshreshtha also emphasised that the sector was not looking for cash bailouts as many would have thought.

“We wanted to have the option to avail the input tax credit on GST for the restaurants, waiver of duties, and immediate working capital loans, given both the owners and banks had a lack of clarity on how the loans worth Rs. 3 lakh crore announced in the reforms package would be disbursed,” he said.

Speaking about the precarious situation hotels now found themselves in, given the outbreak, he commented that the management of hotels requires a different approach and mindset, as the current business model, backed by the likes of Softbank, relies more on expansion and less on guest experience.

“Owners have suffered due to the outbreak, and they will have to evaluate where they are heading, perhaps opt for rebranding the hotel with more professional companies, and thus salvage their real estate. They must focus on surviving,” he adds.

On what could bring about the sector’s recovery, Kulshreshtha said it would all boil down to when the vaccine arrives.

“Until the vaccine arrives, people will prefer brands noted for their hygiene practices, and how those practices can be communicated to the clientele. The priority would be to create a safe environment for guests while implementing norms of social distancing. Hotels that rely on international travellers will take longer to recover than the ones dependent on domestic travellers,” he added.

The fault lines are already emerging in the Oyo story, once a darling venture of the Softbank vision fund.

Already, Oyo had laid off 3,000-4,000 people before the outbreak, and now, 60 per cent of its workforce in India, close to 5,000 people, have been put on furlough with limited benefits for four months.

Stakeholders in the industry are anticipating Oyo’s expansion to be halted, and a significant reduction in its property bases, further adding to Softbank’s woes after the WeWork crisis last year.

The growth story of India’s restaurant and hotel industry has been that of expansion, employment, and success.

In the last 10 years alone, the industry has grown significantly as new suburban areas in big cities led to new hotels, shopping malls across the country and on highways, ushering a wave of new restaurants.

The reforms announced by the government merely offer intent for this industry, and no tangible solutions.

With a lack of clarity on the MSME loans worth Rs. 3 lakh crore announced by the government, negative growth prospects, dwindling revenues, declining investments, unpredictable and uncertain demand, massive unemployment, and a long restless wait for a vaccine, things will get a lot worse for this sector before they get better.

No more happy hours, for now!

Tushar is a senior-sub-editor at Swarajya. He tweets at @Tushar15_
Join our Telegram channel - no spam or links, only crisp analysis.
Get Swarajya in your inbox everyday. Subscribe here.

An Appeal...

Dear Reader,

As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.

We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

Become A Patron
Become A Subscriber
Comments ↓
Get Swarajya in your inbox everyday. Subscribe here.

Latest Articles

    Artboard 4Created with Sketch.