Survival of the restaurant industry during and after the coronavirus

0

Even before Prime Minister Modi popularized the beating of thalis as a mark of gratitude to first responders fighting COVID-19, ringing the bells in a restaurant, after a good meal, has always been an accepted gesture of thanks from employees. . In these unprecedented times, the moot point is how many of those bells would still be left to ring in the wake of the economic disaster this humanitarian crisis is inflicting on India’s restaurant industry. Unless immediate intervention is requested from the government, only time will tell if this industry can afford to weather these difficult days that threaten its very existence.

According to the National Restaurant Association of India (NRAI), the restaurant industry in India has an estimated annual turnover of Rs 4 lakh crore and employs around 7.3 million people. With the very nature of the business being people-specific, it is one of the hardest hit sectors, in the current circumstances, with an estimated revenue loss since March 2020 pegged at between Rs. 20,000-30,000 crores.

What makes the situation worse is that even after the lockdown is lifted and assuming all goes well, with social distancing norms and changing consumer behavior, it will take between 12 and 18 months for the sector recovers significantly. The case in point is that even after the lockdown was fully lifted in Wuhan, China, restaurants are struggling to barely reach 30% of pre-COVID business. This is enormous pressure on an industry, which had already been reeling from a host of issues such as demonetization, reduced GST input credit, highway bans, sealing campaign, commissions from aggregators, high rents, etc. a few years, and is highly dependent on a running cash flow.

Since the underlying ramifications of any likelihood of industry collapse are catastrophic with a wide possible domino effect, it is emphasized that the central government should consider implementing the following economic and policy measures to mitigate the damage and resuscitate this sector, in order of their priority:

People Measures

As pointed out, the restaurant industry is one of the largest employers in the country and it is imperative that we continue to secure these jobs. With zero/minimum income in the coming months this is going to be a gargantuan task for restaurateurs and can only be secured if a temporary national wage subsidy scheme is put in place immediately where the government lends a helping hand by covering a portion of salary costs (at least 50%) through a direct benefit transfer program. This may be partially covered by surplus funds from the Employee State Insurance Corporation (ESIC) or by a separate stimulus package.

Our government can also learn from wage support measures implemented by other countries such as the United States, United Kingdom, Canada and Singapore, in which wage subsidies ranging from 50 to 80 percent of the costs salaries (capped at a certain limit) will be borne by these governments, for the next 3 to 6 months. The opening of the PF contribution fund is a welcome initiative, but its scope can also be extended to cover a wider network of employees, for a longer duration and a higher limit of the amount that can be withdrawn. In addition, to ease the pressure, the moratorium on employee personal loans can be extended for a longer period with interest relief during this period.

Control of rents and charges

The rule of thumb for a healthy restaurant balance sheet is that fixed expenses which include rentals and staff costs should be between 30-40%. The rest is split between variable expenses such as food costs (30-35%), utilities and other costs (10-15%) and the final EBITDA at the store level should be around 15-20%. . While variable costs have a direct impact on sales and can be controlled, it is fixed costs like payroll and rent that are beyond management’s control.

As a result, it is advocated that an interim central rent control law be passed in the country, waiving rents during the lockdown and after that (for at least 6-12 months), capping monthly rents at a fixed percentage current rate (50% or less) or as a percentage of revenue (7-15%), whichever is greater. This is absolutely necessary to maintain a level playing field in the interests of landlords and tenants and to avoid multiple force majeure disputes in the country.

Some policy measures can also be implemented to remove or reduce GST on rental income (currently at 18%), property taxes, electricity, gas charges, etc., to ease the burden of both parts. Additionally, restaurants also currently levy 5% GST on the sale of food and VAT (varies state to state, in Delhi it is currently 20%) on the sale of alcohol. As these indirect taxes are collected instead of the services provided by the restaurant, part of this amount can be reimbursed in the form of a housing/support allowance.

Infusion of working capital and extension of moratorium on term loans

At least 50% of a restaurant’s inventory is perishables and when the lockdown was first announced with less than 4 hours notice, most of that stock was gone. Moreover, the payment of wages during the lockout when the reserves are already exhausted will put restaurateurs in a difficult situation even after its lifting, to restart their activities. They will also need additional funds to adapt and respond to new safety and social distancing protocols which must be strictly adhered to.

It is therefore imperative that a subsidized interest and unsecured working capital loan (since a large number of restaurants operate from leased properties) be provided to restaurants so that they are able to open their doors after the lock. The moratorium on term loans can also be extended for another 6 months and interest during this period must be reduced or completely waived.

Postponement of legal contributions and ease of doing business

Restaurants should be given the option to defer payment of all statutory dues for a few months so they can prioritize their limited resources to support their business. The government should also focus on making it easier to do business by easing license renewal requirements for the restaurant industry which is otherwise infamous for being heavily regulated by multiple nodal agencies. Most of the bars in Delhi have already prepaid the excise license renewal fee for the whole financial year and part of this amount is expected to be refunded due to loss of business.

Ensure a safe and robust work environment and supply chain

Not only is it necessary to ensure that restaurants live until the day they can reopen, but also that they are able to operate in a safe and secure environment afterwards. A comprehensive safety protocol must be implemented in this regard for food handling at every stage of the entire chain, from the point of production to last mile delivery. Otherwise, as recently evidenced by Malviya Nagar, Delhi, where following a pizza delivery man contracting COVID-19 there has been a 30% drop in delivery orders across the city, one unfortunate incident is enough to create a ripple effect of this proportion or worse.

To conclude, there has not been a tougher time for the restaurant industry in India, to the point that its mere survival is now a question. Unless the government steps in immediately and makes positive and transformative changes along the lines of the above suggestions, it will only be a matter of time before the restaurant industry is pushed into large-scale bankruptcy. ladder. It is postulated that there has been no better time for the government to transform its role from a mere regulator and tax collector into a facilitator and partner in business with its skin in the game. With the right grip in hand, there is some hope for light at the end of the tunnel and that too will pass.

-Zachariah Jacob is a lawyer and co-founder of Delhi-based restaurant Mahabelly. Opinions expressed are personal

Share.

About Author

Comments are closed.