In a conversation with Restaurant India, Mihir Mehta, Senior Vice President at Ashika Capital Ltd talked about what hospitality industry is grappling with, what are his financial suggestions to revive the businesses and why he thinks that the effects of this pandemic will last longer than expected.
After this pandemic gets over, do you think restaurants will be able to get back to their normal routine immediately?
In my humble opinion, even when the declaration of a pandemic is withdrawn by the WHO, the effects of COVID-19 will stay. In the interest of brevity, let me candidly mention that while the outbreak of Coronavirus is bound to heavily alter economic, political and inter-personal equations across the globe in the long-run, the short-term impact of this pandemic will be very high. With respect to restaurants, our estimation is that the demand will be tepid for the next 4-6 months, assuming that the number of infections in the country either gets stagnant or start decelerating. Consumer behavior with respect to aspects like spending patterns, food quality skepticism, dependency on home-cooked meals, etc will be pivotal and therefore, time will be required by consumers to come to normalcy.
What financial suggestions would you like to give to the f&b chains to get out of their losses?
Some suggestions from my end that take operational and humanitarian grounds into account would be to focus on alternative revenue generation models as per feasibility. For instance, content generation and distribution could be a sustainable, growth-oriented revenue stream and would ensure customer engagement and traction. Be ROI driven approach - More often than not, consumer-facing businesses build overheads without paying a lot of attention to ROI. Whether it be marketing or promotions, team-level expenses, rentals, etc., it is crucial that businesses are accountable for ROI and limit overheads as much as feasible.
Lastly, I would suggest following the 80:20 Principle - As is the case with most businesses, even for F&B businesses (any format), 80 percent of business’s revenues come from 20 percent of their products, which are basically the sales leaders. In a time where demand is tepid, the idea is always to stick to basics and yes, that may shrink the size of the menu but also allow you to drive better sales (by focusing marketing spends on limited products), maximize gross margins and make efficient use of organization’s bandwidth.
According to you what is the future of the f&b industry?
Though it is an extremely difficult time to predict the future of any industry at this given point in time, my belief is that the F&B industry will definitely recover strongly after this reset. Being a basic human need, the inherent nature of this industry is that though there may be a hiatus, there is a certainty that with time, revival is guaranteed.
My observation is that this sudden outbreak has definitely impacted the growth trajectory of some small and mid-sized F&B businesses and in the near future, we shall see a wave of consolidation in the industry.
Also, the outbreak of Coronavirus has also revealed some gaping loopholes in the country's food supply chain. Again, it is my humble opinion that once the dust settles, we may see efforts driven to upgrade our back end infrastructure and supply chain to ensure staunch preparedness for any such crisis in the future. This obviously will enable the F&B industry to expand their market even to the remotest parts of the country and be affordable from a cost-benefit perspective.
Sustainable ingredients, food choices, patterns from the consumer side as well as sustainable enterprise growth strategies from the business side. What we will see in the future is the dawn of sustainability-focused strategies, products, marketing, etc. so as to ensure that businesses are built with a strong foundation and focus on profitability and not just to chase rapid growth.
What business strategies should an f&b brand incorporate to revive its business after this pandemic?
In order to aim for quicker revival, some of the business strategies that could be adopted by businesses could be to be 100 percent transparent - Transparency of operations and acute focus on food ingredients and quality. Communication will be the key as consumers will demand high awareness.
Focus on 80:20 - Focus on strengths and ensure that sales leaders are pushed rather than spreading too thin. The sales leaders will ensure a robust cash flow position and high customer engagement.
Focus on markets that are less competitive and have higher potential- In order to ensure that revival is swift and also doesn’t result in extensive cash outflow, it is imperative that F&B businesses are meticulous and prudent when it comes to the right target market selection and execution. Most F&B businesses burn a reasonable chunk of capital in their go-to-market strategy and hence, it is absolutely necessary that this aspect is focused upon.