Covid-19 to eat up half of restaurant revenue this fiscal, Reports

India’s organised dine-in restaurants are on course for a 40-50% cut in revenue this fiscal because of the disruptions caused by the Covid-19 pandemic, which have led to outlet closures, job cuts and trickle-down effect on the food supply chain.

Organised restaurants account for ~35% of India’s restaurant industry, estimated at Rs 4.2 lakh crore in fiscal 2019. Dine-ins are 75% of the organised restaurants, with online delivery/takeaways making up for the rest.

Dine-ins and public entertainment venues in Mumbai, National Capital Region (NCR) and Bengaluru have been shut since March 13-14, 2020, before the government announced the first lockdown on March 25. Online delivery is available in select cities such as Mumbai, Delhi NCR, Bengaluru, Kolkata, Pune and Bhubaneshwar, and that, too, at low service levels.

Says Rahul Prithiani, Director, CRISIL Research, “The organised sector has seen a 90% reduction in sales since the lockdown. Dine-in is not operational and online orders have declined 50-70%. And when the lockdown is lifted, the rebound is expected to be only gradual. This holds especially for Mumbai and Delhi NCR, which make up nearly half of the organised restaurant industry in India, but are red zones accounting for over 30% of the Covid-19 cases in India.”

The slow recovery should begin from June. Given low demand and social distancing norms, restaurants will operate at 25-30 per cent of their monthly service levels in the first 45 days after lifting of the lockdown.

Besides, with restrictions on gatherings and public movement likely to be extended again in Mumbai and Delhi NCR, curbs on dine-ins will continue, or, they may be allowed to operate only at low service levels.

This will jeopardise the financial health of many restaurant operators. Additionally, because of high operating leverage, a 40-50 per cent decline in revenue could lead to negative operating margins this fiscal.

The estimates are based on the assumption that lockdown restrictions will continue till May-end. Any further extension will aggravate the industry’s woes, extending the recovery period further.

The decline in revenue is based on the assumption that restaurant services would resume by mid-June 2020, and the likely levels of clientele after the lockdown ends, it said.

To manage liquidity constraints and cash flows, many restaurants are already seeking concessions or deferment of rentals. Players with high debt levels will face pressure to shut unprofitable outlets to save costs and raise money.

While large players with low debt will be able to raise money, business revival remains a big question for them, too.

“Once the restrictions are lifted, restaurants will have to rework their business models and overcome operational challenges. With consumers turning more health-conscious, hygiene protocols at restaurants and supply chain will need to improve materially, which will increase costs,” Anjali Nathwani, Associate Director at Crisil Research said.

The decline in restaurant revenues will, in turn, impact horticulture farmers, dairy producers, food processors, suppliers and logistics and delivery partners. Unorganised food producers, many of which have high exposure to the restaurants sector, will be hit the hardest due to a sharp decline in bulk demand this fiscal.