What the current state of restaurant industry looks like

Covid-19 wreaked havoc on the restaurant industry, and recovery will take time. But it’s still a huge abyss to overcome and no one knows what else needs to be faced. There’s been a race as restaurants trying to navigate what, hopefully, might be the final stretch before the pent-up reward. Where does the restaurant industry go from here?

The second surge of the pandemic has worst affected the restaurant industry, which was on the verge of recovery post-November. After closing the operations for almost eight months from the beginning of the Covid-19 issue, the brands that could continue their operations slowly planned their financial and business strategies to manage past losses and the continuity for the next financial year. Somehow most of them managed to bring the sales back to 50 to 70 percent of the previous years.

Aji Nair, COO, Mirah Hospitality (The Company that owns and operates Bayroute, Hitchki & Rajdhani chain of restaurants) commented on the current situation. “The periodical changes in the state's law on operations of the restaurants led to inconsistency in overall planning. Finally, the second lockdown forced them to close the restaurants. A few of them are managing few operations through deliveries. However, as a significant share of India's food delivery orders and logistics are in the monopoly of two to three aggregators, the profitability from this section is either zero or negligible. The real hope was on speedy actions on Covid-19 protective activities, including vaccination. Looking at the current pace of vaccination and the kind of fear factors generated in the second wave, the restaurants' normal operations and the recovery seem very far,” he said. 

Are more bankruptcies coming?

“I think yes. However, those who will survive this storm will be shifted from good to great category,” Sunil Shah, Owner of New York Burrito Company feels. It remains likely some chains and smaller operators will need to restructure to handle debt accrued over the past year-plus of this pandemic disaster. 

“Two years of non-operations with limited rental waiver and payments of many other charges brought many restaurant owners to a deep financial crisis. So possibilities of more bankruptcies, especially within the medium and smaller sections of the operators, are expected in the coming few months,” Nair commented. 

Although many developers and landlords supported the restaurants with full or partial waivers for the initial few months, the absence of continued support and heavy rentals with zero business has become a significant threat, leading to the closure of many restaurants.

Ritik Bhasin, Owner of Cafe 145 and Jintan Kitchens feels that 2021 is a total write off. “In the best-case scenario, the latter half of the year will pay off the losses. I see a small window of hope. Yes, 80 percent of the sector will file for bankruptcy,” he added. 

What happens to operators who can't pay rent?

On rents and landlords, it is an exceptionally long topic. Bhasin strongly opines that nobody can afford or will pay rent for 2021 April onwards till the lockdown ends and the govt allows them to operate at least with 50 percent occupancy. Ultimately, it is a balancing act between investment into a location and exposure to lease liability. As much as it seems like a take/take relationship, now is the time to look at giving on some items to get on others.

“Maybe do revenue share. Or the worst-case scenario changes the location. I know it involves a lot of cost and trouble,” Shah committed. 

Rents are the biggest damaging factor and sadly most landlords/lessors don’t want to even discuss a Covid-19 discount even at the cost of termination and vacant real estate. “Neither the State nor the Union Govt has issued any SOPs/orders to show any support/care via moratorium, electricity bills, bank EMIs or even licence fees for the biggest job providing industry in India.,” Farhan Azmi, Owner of several restaurants like Cafe Basilico, Koyla and Madras Diaries commented on the grim situation.

How will owners plan expansion?

While many owners feel that It’s the year of survival and not the year of expansion, Shah suggests that people who have funds, this is the best time for expansion as rentals will be much less and availability of good location. Shah is making good use of the situation and opening more outlets. 

There is a mixed view on business expansion. “Major brands may take a break on the expansion and plan to wait and watch the current scenario. At the same time, some investors are also trying to be optimistic and ready to invest, understanding the current situation will get over in few months. Many closed restaurants are being taken over by new brands and investors looking at a bright future,” Nair commented. 

Home delivery has also become a very serious and competitive business over the past year and it will continue to grow. Owners can detour their expansion route to the delivery or cloud kitchen model. 

Azmi has decided to come up with cloud kitchens of existing brands, Koyla and Cafe Basilico, Madras Diaries, Mikails Pizzeria and Fresh Bakery. “Finding a partner to merge with OR sharing of spaces and human source, other important cost factors such as marketing and maintaining a working relationship with your suppliers/vendors will certainly keep the ship afloat,” he suggested. 

What to expect!

Restaurants should ask: What does the competitive landscape look like now? Who is still in business and who has moved on? During the interim period between the two lockdowns, the demand was very high. This gives the industry an optimistic feel that, once the country is ready with vaccination and other recovery models for the pandemic, the industry will return to the normal level. 

According to Nair, the only issue here is how a restaurant owner will manage the current phase. “The only solution here is strong support, commitments and cooperation between the owners, landlords and vendors to accept the current situation and patiently handle it for another 6-8 months. Looking at the way it is going today,  the industry will miss few old brands and witness the emergence of new brands in the next phase of operations,” he commented. 

To put it simply, even as the light at the end of the COVID tunnel approaches, there is still plenty to sort out.