Majority Indian restaurants closing down; future grim for hospitality sector post Covid-19

In the wake of the Covid-19 pandemic, revenues of hospitality chains and the F & B outlets have plummeted in the past few months, and many restaurants are on the verge of closure. An interesting observation made by the Federation of Hotel and Restaurant Associations of India (FHRAI) noted that over 70 percent of hotels and restaurants in India were staring at closure within 30 to 45 days of the COVID-19 outbreak.

According to analysts, small standalone dining outlets, cafes and casual dining hotspots are dealing with the ripple effect of the prolonged nationwide lockdown that has hurt profit margins, impacted customer confidence to reflect on reduced unpredictable footfalls lately, despite the lockdown being eased in certain areas.

Impact of Covid-19 induced lockdown on the hospitality sector

Top fine-dining restaurants as Indigo Deli, The Olive Group, and Smoke House Deli, international bakery brands such as Le Pain Quotidien are paying a huge price for the disruption caused by Covid-19.

Landlords further contribute to the trouble by failing to renegotiate on the rentals and the Government on its part has not announced a bailout package yet for the restaurant industry to help them survive through the crisis. According to an earlier report by ET, the eateries that have reopened after a two-month lockdown has reported footfalls of only 5-8% pre-COVID-19 levels.

Anurag Katriar, president of NRAI, who runs DeGustibus Hospitality has announced shutting down four restaurants in Mumbai to include ShoSha in Navi Mumbai, D:oh in Thane and Andheri West, and Indigo Deli in Kurla. Around 25 to 30 outlets of brand Wow! Momo will soon shut down across cities.

Considering business models have to be revamped in the new Covid-19 normal of the future, so there needs to be a change in business models of stakeholders, food aggregators, and landlord rental agreements as well. To cope with financial pressures and liquidity constraints, many restaurant operators are seeking concessions and deferment of rentals.

Mirchi & Mime and Madeira & Mime announced the closure on Instagram saying, "With great sadness, we announce the permanent closures of both our restaurants owing to Covid-19 and subsequent breakdown with our landlord towards amicable lease terms."

In Bangalore, the nation's populated IT hub, many fine-dining restaurants, and casual hangout cafes have been shut down due to Covid-19 induced prolonged lockdown. Mysore's iconic Hotel Southern Star, a popular landmark on Vinobha Road standing tall for over four decades, shut down last month by terminating more than 80 of its employees and staffers.

According to Crisil's research, "Organised restaurants account for 35% of India's restaurant industry, estimated at Rs 4.2 lakh crore in fiscal 2019. Dine-ins are 75% of the organised restaurants, and online delivery/takeaways make up for the remaining 25%."

Rahul Prithiani, Director, CRISIL Research earlier stated, "The organised sector has seen a 90% reduction in sales since the lockdown. Dine-in is not operational and online orders have declined 50-70%. And when the lockdown is lifted, the rebound is expected to be only gradual. This holds especially for Mumbai and Delhi NCR, which make up nearly half of the organised restaurant industry in India."

Given low demand, reduced customer footfalls and social distancing norms followed, Crisil predicted that restaurants will operate at 25-30% of their monthly service levels in the first 45 days after lifting the lockdown, which will jeopardise the financial health of many restaurant operators considering high cost borne for opening up outlets once again and, a 40-50% decline in revenue that could lead to negative operating margins this fiscal.

The decline in restaurant revenues will, in turn, impact horticulture farmers, dairy producers, food processors, suppliers, and logistics and delivery partners. Unorganised food producers, many of which have high exposure to the restaurant sector, will be hit the hardest due to a sharp decline in bulk demand this fiscal.

In hopes to survive and revive

Many restaurants are now counting on takeaways, delivery kits, and packaged food as new revenue-generating opportunities to stay afloat in the business. Post unlock 1.0, initial customer demand for takeaways, home delivery and visits has been slow and tepid, despite standard operating procedure (SOP) advised by the government for smooth operation and workings of the food and beverage (F&B) industry.

Restaurants are dealing with fear psychosis of coronavirus on customers, which now seems to be deep-rooted in the minds of the people, who now observe caution and skepticism in venturing out to socialize over some good food.

While there are myriad reasons why customers choose to stay away from indulgence in dining out, prominent among them are safety and hygiene conditions, absence of a vaccine/antidote in case they contract a virus through food, and reduced disposable income in the hands of customers.

While at one end fear hovers minds of customers, restaurants at the other extreme are dealing with operational issues such as skilled labour shortages, manpower challenges, increased operating costs, and hike in prices of raw material (ingredient) procurement with supply chains being hugely disrupted in the past few months.

Also, operational hours for restaurants have changed across the country with major chains asked to close down by 7 pm, this means dinner is not happening outside and the lunch, breakfast option is anyways not bringing in much revenue. So, quite a few restaurants who opened up post lockdown, have shut down in days due to lack of commercial viability to keep businesses open under the current circumstances.

Restaurant owners are now counting hopes on Unlock 3.0, to restore normal work timings and bounce back on their feet, while it will take some time to revive customer sentiments back, until they feel safe venturing out and indulging in a gastronomic experience with friends and family, like the good old days of the past. While your favourite restaurants prepare to welcome you back, the new Covid-19 normal demands a greater focus on contactless delivery of food and stress-free dining.