Seven million jobs are on the line, losses piling up, restaurants stare into lockdown abyss

Coronavirus (COVID-19): An estimated 7.3 million jobs are on the line as the restaurant industry braces to be battered by the second phase of the national lockdown, set to now span at least 40 days. Counting its losses each hour, its challenges are sweeping: from supplies to labour, skilled and semi-skilled, real estate to credit, overheads and utilities, delivery commissions and rental contracts.

More so, when urban centres that fuelled this sector's rapid growth are the worst hit. In fact, just six cities — Mumbai, Pune, Delhi, Indore, Ahmedabad, and Hyderabad — together account for over 65 per cent of all COVID-19 deaths. Also, Delhi has 33 containment zones, Mumbai more than 300 — most unlikely to reopen anytime soon.

Some half-a-million restaurants across the country are hoping the Centre and the state governments announce quick relief measures — otherwise, many fear they could be forced out of business altogether.

From chefs to captains, servers to utility staff including cleaners, the restaurant industry draws workers from across the country. This distress is, therefore, amplified across households back in their homes as well.

Salaries in this business segment vary between 15 per cent and 25 per cent of total costs, and most restaurants had paid employees in full for March. With zero revenue in the lockdown, most restaurateurs aren't sure if they can afford to pay April wages.

This distress cuts across the value chain — from suppliers and vendors to farmers. A senior official at National Dairy Development Board said hotels and restaurants account for nearly 12 per cent of the total milk consumption. Industry body FICCI estimates hotels and restaurants buy almost 1 per cent of farmers' total fruits and vegetables output.

On April 9, the National Restaurant Association of India (NRAI) sent an SOS to the Union Ministry of Finance and the NITI Aayog. Pointing out how restaurants are integral to tourism, retail and trade, the NRAI called for urgent measures to address marginal employees (see box) in the form of unemployment pay cover, 50 per cent salary, and extra rations.

Over the last decade or so, restaurants have evolved into a sophisticated business, with focus on quality as well as returns, as private equity and venture capitalists found value to invest in them.

Many big restaurants today are structured as companies, with their own corporate team which includes personnel for marketing, supply and operations, finance, and human resource. They also have a Corporate Chef. When the on-site restaurant is shut, the corporate team is most probably working from home. Having said that, the industry is unique in that though unorganised, it has a high quality of employees and also suffers from high attrition.

On Tuesday, Anurag Katriar, Executive Director and CEO, deGustibus Hospitality Pvt Ltd, which runs the restaurants Indigo, Tote on the Turf, and Dakshin Rasoi, and is also NRAI president, said that while the industry supported the extension of the lockdown, it has further diminished its ability to bounce back apart from intensifying the risk of massive job losses in the sector.

"One thing is for sure, the industry will take a lot of time to get back on its feet. Many companies will never recover from the losses of the lockdown period," he told The Indian Express. This, ironically, in an industry which was growing in double digits, despite a palpable economic slowdown over the last two years.

Said Nikesh Lamba, who runs a dozen restaurants in Delhi, Chennai, Kochi and Pune, under the brand names Soy Soi, Bharat Bistro, Savya Rasa and Double Roti: "Two months of revenues have already been wiped out. It won't be back to normal anytime soon even when everything opens up. Since all sectors have been hit, people won't have much disposable income to splurge on eating out. Also, there will be inhibitions regarding social distancing at public places."

Zorawar Kalra, Managing Director, Massive Restaurants, that operates 25 restaurants such as Farzi Café, Masala Library, Made In Punjab and Pa Pa Ya, in nine cities, said they are thinking of food deliveries from some outlets. "For premium restaurants, it will take a long time to get back clientele since foreign travellers form a major chunk of their diners. .As a company, if we have to sustain, we have to move towards delivery.," he said.

But deliveries can hardly help restaurants stay afloat, said Vidur Kanodia, partner at South Indian restaurant Padmanabhan on New Delhi's Janpath.

Said Katriar of deGustibus Hospitality: "Deliveries help us recover not more than 5-10 per cent of our costs. Here, aggregators play a critical role, and despite COVID, they continue to charge exorbitant commissions (over 30 per cent in many cases) and none of them has declared any new policy vis-a-vis delivery.

"On the other hand, Door-Dash in the US has slashed commissions by 50 per cent, while in San Francisco, an emergency order has been passed to temporarily limit commissions. No one can expect to profiteer at someone else's cost."

The other big cost for restaurants is rental, accounting, on an average, for about 20 per cent of the total expenditure. A pure landlord-tenant arrangement works against the restaurant's interests especially in times like these when revenues are nil. With no stake in the business, a landlord will demand his rent.

"The revenue share model between the tenant (restaurant owner) and the landlord is the model to take forward in the post-COVID world. If there is no revenue, I can't give you money from my pocket, if I am doing roaring business, you also get your share," Katriar said.

At times, restaurant owners agree to a revenue share on top of a minimum guarantee. "In several cases, the owner is willing to waive the minimum guarantee in times like these. But restaurants in prime spaces may have to agree to pay the minimum guarantee," said Pankaj Kapoor, Founder and Managing Director, Liases Foras. He, however, said the current scenario makes a case for tenants invoking the force majeure clause.

The government is yet to act on the NRAI's wishlist. Some countries have already announced specific packages for the food and beverage sector. For instance, UK Chancellor Rishi Sunak announced a state-backed scheme to allow businesses that cannot operate to furlough staff. Northern Ireland's Economy Minister Diane Dodds is launching a grants programme for hospitality businesses.

Said Digbijoy Bhowmik, Sector Lead – Urban Transformation Infrastructure, Government & Healthcare, KPMG: "Municipal corporations in Mumbai, Pune, and Delhi can offer relief on property tax to landlords, which can be transferred to restaurants."

He said that in a particular geographical area, the tax incidence for a commercial unit can be 75 times that of a residential unit, and the entire tax burden is transferred by the property owner to the restaurant operator. "If they don't waive this, states could allow them to readjust the tax burden over the next three to five years instead of asking them to pay it this year itself," Bhowmik said.

Restaurateur Nikesh Lamba said: "While some malls have announced partial waivers, most landlords are quiet. We would request some easing of property tax so that landlords do not hesitate in passing off some of this benefit to us in terms of rental waivers."

Restaurants also pay 18 per cent GST on rent. "The Finance Ministry can restore input tax credit for restaurants," said Amit Bagga of Daryaganj, which has four restaurants in Delhi and had to shut its newest one in Gurgaon within four days of its opening on March 14.

On their part, states can reduce fees like the liquor licence by up to 50 per cent. "At present, we are shelling out Rs 12 lakh a year," he said.

Amid the swirl of uncertainty, one thing is sure, the industry will not be the same again — and it will be a while before it gets back on its feet. "If it manages to get back on its feet at all," said Katriar.

(Inputs and image from theinidianexpress.com)