The food industry sees one of the
highest churns compared to other industries. If we take a look at the number of
small and medium eateries that are opening and shutting shop, the numbers will
be simply mind boggling. At an average
of 500,000 INR investment for a small eatery, if in a local area we have 20
such eateries closing down on average between 6-12 months after opening, the
losses are around 10 million INR on capital invested. Add to this the revenue
generated that has gone into maintaining operations we can easily add another
50-75% of the initial invested costs. The point here is why is this happening
and why are entrepreneurs even more eager to open a food business knowing the challenges.
The reason I feel are many but
some of the key ones is the fact that with the coming up of delivery apps, most
businesses are optimistic that they can get the daily customer number rolling
thanks to these apps. With the revenue dependent on deep discounting and
commissions, restaurant owners lose out on the margin that would have otherwise
accrued on their books. However, it becomes tough for them because on one hand
they have to manage their staff, rent and other operational expenses and at the
same time keep offering deep discounts which leads to a stress on their resources.
As a result, if volumes do not show up things go downhill and many of them are
forced to close down. Unfortunate!
In FY21, the restaurant industry
declined by 53 per cent and was estimated to be worth ₹2,00,762 crore compared
to ₹4,23,624 crore in FY20. However, the industry body expects that in FY22,
the sector will see significant resurgence and is expected to reach a size of
₹4,72,285 crore. This is as per National Restaurant Association of India (NRAI)
report. However what is saddening is that the capital that has been wiped out
will never be recovered. There will be fresh investments, fair but the cost
borne by those who had started only to be wiped out is large.
The restaurant industry also saw
a marked decrease in average revenue and profitability across formats due to
Covid-induced restrictions. The average revenue post the first lockdown
witnessed a de-growth of 46 per cent and average profitability saw a de-growth
of 88 per cent compared to pre-Covid times. The most significant reduction was
witnessed by fine-dining restaurants and pubs, bars, cafes and lounges (PBCL)
segments compared to quick service restaurants and casual dining restaurants.
However, post the second lockdown, industry player’s revenue saw a growth of 33
per cent compared to the first lockdown but is still to get back to pre-Covid
levels.
The only way is fresh investments
which I am sure is happening as per the figures provided by NRAI. Some of the
new trends that the food industry is adopting include Direct to Consumer
channels, Hyperlocal targeting and digital ordering. D2C channels such as
websites, social media, and messaging platforms allow restaurateurs to set up their
own digital storefront, customize the guest experience, manage online orders,
and open new revenue streams in addition to third-party networks, ultimately
enabling them to adapt to the new normal of dining.
Hyperlocal targeting means that restaurants and eateries will direct their marketing efforts towards a local area and make their offerings more aligned with the preferences of the local population.
Restaurants in India operate on a
lean margin of 10 to 15% of their earnings before taxes with around 3 weeks of
cash flow and excessive debts. Amid the pandemic, the restaurants had zero cash
flows, so it became very difficult for the restaurant entrepreneurs to sustain
their businesses. As the economy tries to recover, demand recovery will be
unpredictable and slow to return to the pre‐pandemic levels.
Reopening the restaurants comes
with its own set of challenges. After
the reopening of restaurants, many entrepreneurs face a shortage of staff as
the staff members had migrated to their hometowns. Most of the staff working in
the Indian metropolitan cities are migrant workers who migrate from small towns
and rural areas to work in the cities. Hiring and training appropriate staff
members are crucial for service quality in the restaurant industry and this
will continue to remain a challenge.
Also, the restaurants had been
completely shut down for almost 6 months due to which the interiors and
infrastructure in these restaurants required some renovation and maintenance.
This would require more funds, which again is a major problem for the small
entrepreneurs because they were using their savings during the shutdown period
for salary and other utility payments.
Another challenge is to manage
the change in consumer behavior. Consumers have become increasingly conscious
about hygiene and sanitation and averse to the idea of dining out. The
restaurant entrepreneurs might be required to raise consumer awareness through
online exercises or digital mediums to inform the consumers about the
precautions being taken for ensuring their safety at the restaurants.
With so many ifs and buts we have
to see how the restaurant industry comes up in the near future. While there
will be challenges, fresh capital and the entrepreneurship spirit will surely
alleviate some of the pain caused by the pandemic.
If you want to undertake a detailed market
study of the F&B industry in India for opening a restaurant cloud kitchen
or a hotel, please connect with us at info@intelligentq.co.in
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