For five years, along with his longtime friend, Zachariah Jacob, Thomas Fenn thrived on the challenges of running Mahabelly, one of Delhi’s most popular restaurants. But the COVID-19 lockdown has made it harder to go on. “For now, we’re not going anywhere. We’ll be there even after this ends. But if I have to walk away, I will. That’s a reality I have made my peace with,” Fenn says.
India’s restaurant industry is facing what is possibly its worst existential crisis. While the COVID-19 lockdown reduces risk of transmission, it has also meant that revenues dropped to zero, with businesses struggling to find the cash to pay their employees and make rent.
Perhaps the pandemic is merely exposing the cracks that already existed. Around the world, restaurants have been forced out of business. In New York City, for example, local institutions like Manhattan’s Paris Bar and Soho’s Lucky Strike have closed for good. In France, 18 top chefs published an open letter to president Emmanuel Macron stating that the country’s famed cafe and restaurant culture was in danger of “dying” if they weren’t allowed to function as normal. Closer home, in Mumbai, dessert chef Pooja Dhingra shut down her popular Le15 Cafe. The general sentiment about restaurants, in fact, is so bleak that a week ago, when rumours about the permanent closure of the beloved Olive chain of restaurants began to circulate, it was all too easy to believe them.
According to the National Restaurant Association of India’s (NRAI) Food Services Report 2019, the hospitality sector had a compounded annual growth rate (CAGR) of 11 per cent between 2015-16 and 2018-19. The organised segment, which is 35 per cent of this sector, had a CAGR of 13 per cent during the same period, its market share growing from Rs 1,01,475 crore to Rs 1,48,353 crore. This segment was projected to grow at a CAGR of 15 per cent to reach a market size of Rs 2,57,907 crore by 2022-23. Clearly, the outlook was positive.
And yet, the NRAI, in a recent press release, has called the current crisis “a battle to retain our mere existence.” It stated that the restaurant industry in India has an annual turnover of approximately Rs 4 lakh crore and employs over seven million people, but all of this is at risk because, “as an industry, our business model is such that the proportion of fixed operating expenses is very high, which is a very high-risk model.”
Riyaaz Amlani, CEO of Impresario Entertainment and Hospitality says that one of the reasons for this business model being so high risk is real estate costs. “Some properties in India are more expensive than in Mayfair, London. At the same time, we don’t pay a lot for a meal,” he says. Most landlords demand a fixed monthly rent which, along with manpower, consumes 40-50 per cent of a restaurant’s revenues. Some restaurants have worked out a revenue-share model with their landlords but Amlani says that with the uncertainties exposed by the pandemic, the model for the future would be profit sharing. “It is no longer reasonable to expect a fixed rent or a revenue-share model,” he says.
Another major challenge that restaurants have faced recently is from food services aggregators (FSA) such as Zomato and Swiggy. As more people used these aggregators, restaurants had to sign up to connect with them. In doing so, they had to either accept all the terms laid out to them – including deep discounts – or, they allege, risk being made invisible to customers. These terms include 25 to 30 per cent commission, a practice that has led to Fenn dubbing them “digital landlords”. In August 2019, the conflict came to a head with the #Logout Movement started by the NRAI, with 300 restaurants choosing to leave the FSAs. In January 2020, the Department of Promotion of Industry and Internal Trade (DPIIT) tried to mediate between the various parties, but a satisfactory resolution is still awaited.
The current crisis, according to Anurag Katriar, president of NRAI, presents the opportunity for the industry to “address the big concerns of the larger food service fraternity and work towards their long-term wellbeing.” This includes developing “alternative digital platforms that will level the playing field between restaurants and food delivery platforms”. This is a solution that is being seriously considered in other parts of the world as well, such as in Dubai. An Indian alternative to FSAs was discussed during the first ever town hall-style meeting convened online by NRAI on May 6. Fenn says that the alternative aggregator would help restaurants reclaim their business by owning their customer data and being free to choose their delivery vendors, once they’ve signed up. By taking commissions out of the equation, it would also lower delivery costs.
It will be a while before these fundamental changes can be implemented, and even longer before they show effect. In the meantime, restaurants have the more urgent task of rebuilding confidence. They are examining how hygiene and social distancing protocols can be implemented. For example, businesses will rely far more on home delivery than before. But innovative thinking will be needed. “Restaurants will need to invest in contactless deliveries and develop delivery-specific menus. They will also need to think about packaging more innovatively, since most of the time, packaging for home delivery is just an after-thought,” says Sneh Jain, co-founder and managing director of the artisanal bakery chain The Baker’s Dozen.
However, in the hospitality business you can’t take human interaction out of the equation, says Priyank Sukhija, MD and CEO of First Fiddle F&B Pvt. Ltd. “Unlike the IT industry, we cannot work from home. And if you leave aside delivery and cloud kitchen services, social distancing cannot be practiced in restaurants,” he says.
Moreover concepts like “contactless dining” have no real meaning in hospitality, says Fenn. “Going out to a coffee shop or a restaurant is a deeply social exercise,” he says, “Even when people want time alone, they frequently go and sit amidst the crowd in a coffee shop and that’s because it’s comforting to have people around you. It’s such a deep need that in the category of music called ‘White Noise’, there’s a section called ‘cafe noise’,” he says.
The restaurant industry is fragile, says Fenn, but it involves a real exchange of goods, with value added at every step. “We pull 15 hour shifts of hard labour – cutting, cleaning, chopping, cooking, serving. In fact, if someone forced me to point to a silver lining in this crisis, I would say that perhaps people will emerge from the lockdown with a greater appreciation of the work we do,” he says.