Nobody would have thought or dreamt that an industry that employs over 7.3 million people will put the jobs of over 3 million industry workers at stake. Covid-19 pandemic has hit the restaurant business hard with almost 3 million people losing their jobs. Be it McDonald’s, KFC and Domino’s of the world or our very own home-grown biggies like Impresario, Speciality and Massive Restaurants to name a few everyone has had a bitter state of the business during 2020. Not only this, we have seen many restaurant owners shutting shops either due to the rental issues they had with real-estate developers or because the store was under-performing even before the pandemic hit the country and the lockdown coffined it. According to the sources, it is also said that Anurag Katriar, owner of Indigo, who started the concept of fine-dining restaurants in India has also asked his 90% employees to look out for other jobs. Anurag is also the President of National Restaurant Association of India that represents about 6 lacs restaurants in India. This is not the end, the restaurant industry has many such horror tales to share and take a lesson from what could perhaps only be once in century crises but have opened our minds to business anew.
According to an online research conducted by Restaurant India, 52 per cent people who participated in the survey believed that online delivery would emerge as an alternative to dine-in. It also found that 55 percent of people opened a dark-kitchen delivery model to survive the heat faced by the pandemic.
Everything to Lose, Not much to Gain
The pandemic has made restaurant businesses relook at the business model by way of size, structure, venue and pricing. “As we are re-open, we are looking at the bottom line very strongly, keeping in mind that there will be a lot of stress on compliance in the future. So, where ever we are opening, we are working on a new business model, so that in case we face such kind of situations in the future we would be able to settle in better,” shared Anjan Chatterjee, Chairman and MD, Speciality Restaurants who had to close 25 of his restaurants due to the pandemic and also enter into the cloud-kitchen space to get at least some portion of the business.
According to experts, almost 30 percent of the restaurants that were closed during the pandemic would close permanently because of the irreparable loss they had to suffer. Be it a small outlet owner, a QSR chain operator or a fine-dining restaurateur or a club and bar owner everyone had to face the loss with few closing their much hyped restaurants permanently. While for companies that were externally funded and adequately capitalized, survival was still possible however, many restaurant owners had to sell their business assets , others have sold their houses or discounted other businesses investments to save at least what could keep them afloat.
The sour relations between restaurant owners and real-estate developers and failure to come to consensus led to many individual/ stand alone restaurants especially at country’s top locations like Connaught Place and Khan Market in Delhi, BKC in Mumbai, Viman Nagar and Koregaon Park in Pune, Indiranagar in Bengaluru to name a few had to shut shop permanently or either move to a new location altogether. Not to say it’s time to write off innovative foodservice concepts all together, however, Real estate costs will need to come down enough for ambitious restaurant owners, especially in devastated metro markets that are desperate to get that bustling vibe back.
“We have given a 50% rebate to the brands in our mall and also extended the same till December 2020. However, retailers and restaurants who recovered to 70% by Q3, they are either back to the normal or 70% of their rentals,” shared Shashie Kumar, COO- Retail, Brigade Group that has not seen a single restaurant closed at his premises, however, there were few ownership changes in the business.
Sharing his view on the same, Rajneesh Mahajan, CEO, Inorbit Malls commented, “There was a rebate for lockdown period and even after the lockdown was lifted. Luckily, we haven’t seen too many exit from restaurants in our mall, rather 98% restaurants opened up.”
Unemployment in Industry was unlike ever before
Not even the greatest surge in joblessness in over 5 decades is easing the restaurant industry’s years-old labor shortage. In 2020 close to two million professionals faced loss of livelihood due to the pandemic in the country. The industry has faced a lot in 2020 and going forward the effect would be huge. Also, if we look at global data, as per Bureau of Labor Statistics data available for mid-July, only about half of the 6.1 million food-service jobs that the U.S. lost in March and April had returned. Though, a recent report by restaurant reservation platform Dineout says that the restaurant industry is expected to bounce back to its full glory by re-employing approximately 1 million people by 2021 but still we will have more than a million people still unemployed in the sector. As per the Restaurant India survey, 50% who lost their jobs during the pandemic are still looking for a job.
The Saviour Business Model -Cloud-kitchen and Food delivery
There’s no denying that cloud-kitchen has emerged as the biggest winner for 2020 and the food delivery business model emerged victorious during the pandemic. Brands that have survived, either opted for delivery as an option to dine-out or opened their cloud-kitchen offering cuisine that was curated to meet the customers’ demand. With very low capex, this format is also cost efficient requiring less manpower, centralised raw material purchase, and reduced fuel consumption. Owing to the latest developments and technological integrations, especially cloud kitchens, the F&B industry's revenue is expected to show an annual growth rate of 14.4% in the term of 2020-2024, resulting in a projected market volume of US $10,058 million by 2024 end. With over 60% millennials ordering food from cloud kitchens at least once a month, the concept is creating its space in Indian society by every passing day.
“Restaurant dining is an indulgence while food delivery is a convenience. As responsible and innovative food service operators we keep working on ways to make food delivery also experiential by innovative packaging styles, delivery through our own executives, neat labelling and storytelling on the menu card. I feel that restaurants and delivery kitchens will coexist and grow together. Indian market has a great potential for food delivery and cloud kitchens are definitely the answer to a well-planned delivery system,” shared Vineet Manocha of Lite Bite Foods that opened four cloud-kitchens during the pandemic to overcome the coronavirus losses. The group has also closed a couple of food court outlets especially on the highways and two restaurants but these restaurant locations were under performing even pre-covid and thus the decision was not an impact of Covid only.
Commenting on the same Sanjay Vazirani of Foodlink Restaurants pointed, “Both formats have their pros & cons. So exploring both the routes is the strategy that we want to follow. Clearly cloud kitchen business is likely to thrive in the coming years as from the takers point of view it is convenient, better priced and better suited to the needs of socially distanced customers and from the Restaurateurs point of view it greatly minimizes costs, such as rent, payroll, etc.”
Similarly, brands like McDonald’s that was one of the first few QSR-chains in India to enter into the delivery space saw an increase in sales through delivery, takeaway etc which they call convenience channels. “Sales through convenience channels (delivery, drive-thru and On-The-Go) exceeded pre-COVID levels and they are more than 50% of the business,” shared Akshay Jatia of McDonald’s India who has seen 75% of his dine-in business coming back.
“Now most restaurants recognize that it’s ultimately about servicing our consumers - on premise or at doorsteps through delivery” said Rakesh Ranjan of Zomato that has got around 40k restaurants on board in the last 4 months which earlier they used to get in 9-10 months.
M&A’s and distress Brand sales would surge feels Investors
There’s no denying that covid-19 pandemic has crushed the restaurant dine-in business. We have seen many restaurants not even operating after lockdown and few have even seen exits from the investors. In fact few of the distress brands had to join with similar kinds of brands or borrow their locations to sell their products. Like Wow!Momo and London Bubble Company partnering with CCD to sell their products at select CCD locations.
Also, one of the first entrants in the fine-dining segment, deGustibus Hospitality that is invested by India Value Fund, now True North is negotiating a potential management-led buyout to exit its investment in the brand. According to a news report by VcCircle, The PE firm is in talks with multiple buyers to exit its investment in the owners of Indigo and may consider striking a deal with the company’s management, led by CEO and director Anurag Katriar. However, a mail sent to Katriar till the time of publishing the article remains unanswered.
Menu cards have concise
The country-wide shutdown of restaurant dining rooms forced operators to rethink their menus, with some implementing changes they say will endure far beyond the current crisis. Many restaurants are considering a menu mix, few are optimizing selection to boost razor-thin margins. But, we can surely say that most of the restaurants that survived the covid-19 loss worked with their menu firsthand when they re-opened their restaurants. From squeezing their menu to one fourth to adopting a contactless menu they have played well with the menu designing as they were allowed to open and operate with only 50% of the capacity.
“Our biggest takeaway from Covid is reducing our inventories that has given us a huge impact on our working capital. We’ve also focused completely on our best selling products by reducing non moving items which gave us good profits,” shared Vishnu Shankar, Director, Adyar Ananda Bhavan who also believed that this the right time to invest as costs have decreased, the outlet sizes have reduced hence fixed costs have come down.
Customer is the king
There’s no denying that restaurants felt the brunt of the coronavirus pandemic but the ones who have focused on their loyal, comeback customers emerged victorious during the foul play. Gaining customer trust came handy for many restaurant brands. Brands that focused on safety, seating arrangements, contactless dining ensuring customer safety and less interaction were able to attract customers easily.
“Very important learning is to keep focused on quality, quality and only quality. We were always very conscious of our ingredients, hygiene and food safety measures. This I feel has actually helped us gain in the Covid time,” added Manocha who added that this has largely been possible due to the trust they enjoy of their esteemed guests.
Franchised Restaurant brands too are focussing on quality over quantity and have shared that while restaurants are opening up through franchising but at the same time the ones that are opening are seeing better sales because they are not just offering customers good food but also giving safety assurance
Lessons learnt from 2020
“First and foremost, is to lead with humanity - staying connected and transparent with your team especially the ones on the ground and form the heart of the business. It’s important to treat all stakeholders from guests, teams, vendors, franchisees and board members with compassion as all have been affected by the crisis.We have been running a program called - 100 Day Survive-Revive-Thrive Plan to discuss the approach and initiatives to battle the crisis and offer inter-vertical support. One cannot sit around feeling bogged down by the problem when one should be finding ways to recover and drive sales,” added Vazirani who has not seen a single closure during the pandemic.
It is very important to have a very strong financial backup, relationship with everyone you are directly or indirectly associated with, trends so that whenever there is any crisis you are prepared for the worst. The year 2020 was a watershed moment for the food service business in India. The restaurant owners felt tremendous hardships but there is no denying that they have come out stronger and wiser from the crisis.
“Most important learning’s have been around ensuring that we are nimble, adaptive and innovative and have the ability to make quick decisions and react fast to effect change in a scalable manner within a constantly evolving landscape, all while ensuring quality and customer comfort,” pointed Ankit Patel, CEO, Belgian Waffle Co that closed a couple of outlets during the pandemic but has also opened around 28 outlets to emerge even more stronger.
We also see that year 2020 made a number of brands that are either bankrupt or struggling and hence there will be a lot of opportunity for brands that are niche, focus on quality, chef-driven and so on and so forth.