The biggest blow from the pandemic is that it hasn’t just brought about an extended slowdown, but has hit reset for many hospitality businesses. Only those who were able to pivot at the right time were able to survive, writes Jaideep Ahuja
The Covid-19 pandemic and resulting lockdowns over the past two years affected every industry across the globe, but the impact on the hospitality industry was catastrophic. Restaurant businesses were decimated, food service providers couldn’t stay afloat, city and business hotels relying on transient travellers saw their revenues plummet, and many cash-flow-challenged hotels had to shut shop. Everything came to a standstill as only those dealing in essential goods and services were allowed to operate.
As per The Federation of Hotel & Restaurant Associations of India (FHRAI), owing to financial losses during the first wave, almost 40% of hotels and restaurants in India have shut down permanently. And about 20% haven’t bounced back fully and the remaining continue to run in losses. This pretty much sums up the state of a sector that contributes nearly 7% to the country’s GDP and caters to more than 39 million jobs.
These seismic changes in the hospitality sector became quite apparent from the get-go. But what about the long-term consequences of what happened during the pandemic? While on the one hand several hotels and restaurants were shutting shop, those in leisure destinations like Goa, Himachal, and Uttarakhand also saw revenues rise as people from neighboring Covid-affected cities flocked there for staycations. But is this change here to stay? Or was it a one-wave wonder for these destinations? Let’s look at some of the problems that arose as a result of the pandemic and how the industry is looking at tackling them.
The biggest blow from the last two years of the pandemic is that it hasn’t just brought about an extended slowdown, but has hit reset for many hospitality businesses. Everything had to be re-examined and re-designed for survival. And only those who were able to pivot at the right time were able to survive.
To that effect, revenue losses stretched over `1.30 lakh crore during the previous fiscal year! And to cope with that the industry has been pleading for government help to provide fresh impetus and revive growth. And looks like we are on the right track here because, in the recently declared Union Budget 2022-23, the Finance Minister has extended the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs till March 2023, while more importantly providing a guarantee cover of `50,000 crore, exclusively earmarked for businesses in the hospitality and related sectors.
In addition to ECLGS, the government also announced the Raising and Accelerating MSME Performance (RAMP) programme with an outlay of `6,000 crores over the next five years. While the focus of this programme is not entirely on the hospitality sector, mid-tier entities in the segment will stand to benefit from it in the long run. The ECLGS scheme on the other hand shows positive intent of the government and should provide short-term relief. This is good news.
The government also announced various other indirect measures for pumping growth and energy into the hospitality industry. While these will only help the Covid-battered industry in the long run, we do need these measures because like I’ve mentioned above, the long-term impacts of the pandemic are still unknown, and having these options ensures that the industry continues to get the help it needs over an extended period.
Although industry shareholders were hoping for more of a reduction in GST rates from the current 12% to 5% as well as the inclusion of hotel-related expenses under LTA to help boost demand from travellers, not all is lost. Funding to the Tourism Ministry has been increased by 18.4% compared to the previous year with a focus on developing tourism infrastructure, capacity building, alongside marketing and promotion. This will help boost domestic tourism at a time when international travel is still reeling from restrictions.
In addition to this, increased focus on large-scale infrastructure development under PM Gati Shakti plan has been proposed, with roads, railways, airports, ports, and waterways being the key areas. This will not only help the tourism sector to achieve its full potential but also provide new business opportunities for growth and expansion. The introduction of 400 new Vande Bharat trains and construction of 25,000 km of new expressways this fiscal, should significantly improve access and last mile connectivity to several tourist destinations across the country. Moreover, infrastructure development in northeast India and the proposal of eight new ropeways under the Parvatmala scheme (an eco-friendly alternative to regular roads), which has been stressed upon by the government will help in unlocking the tourism potential of the north-east region and hill-stations, which remain in high demand during the summer season.
Apart from these relief measures, e-passports were also announced in the Union Budget. This will enhance comfort and convenience for international travellers by cutting down long queues at immigration counters. Moreover, corporate travel is also expected to revive, considering a 35.4% increase in Capex by the government to accelerate the country’s economic recovery and aid job creation.
All in all the budgetary decisions seem to be a step in the right direction and will definitely benefit vulnerable players while also helping the sector become more resilient, competitive, and efficient.
Government initiatives aside, the industry is also fast adopting to changing consumer patterns. This was one of the major challenges at the onset of the pandemic. Fuelled by fear and concern, consumer behaviour became unpredictable and that made it very tedious for businesses to assess which direction the buying patterns would go in. What seems to be like a silver lining is that now two years into the pandemic, consumer behaviour seems to have shifted for good, and organisations in the hospitality sector are now adapting to it quickly.
When it comes to food and travel, this has manifested in the form of home-delivered meals becoming common, something that can be judged by the exponential growth of the online food delivery segment during the last couple of years. A market size that is about to hit the $14 billion mark and user penetration, which is already at 24%, speaks for itself.
The concept of cloud kitchens has also gained a lot of steam, with many foodservice providers exploring it as a possible cost-saving alternative to dine-in restaurants. As it primarily focuses on the food delivery experience, owners now have greater flexibility in terms of the set-up space and location, leading to a substantial reduction in real estate costs and increased profitability. An increasing number of restaurants, therefore, are also responding to the pandemic challenges by investing in cloud kitchens.
This has further led to investments in direct delivery channels and alterations of menus to suit home delivery logistics and quick turnaround times. Those eateries which adapted quickly and increased their focus on online deliveries or switched to dark kitchens initially were able to survive without having to shut outlets and lay off staff. But the same was not the case with many others who either couldn’t pivot as quickly or were catering to specific dine-in experiences.
Moreover, the rising concern and expectations for safety, cleanliness, and hygiene amongst consumers forced the HoReCa player to press the reset button. Industry first initiatives also came to light with a major focus on proper sanitation and cleanliness even in the kitchen premises. Face masks and daily temperature checks of restaurant staff, regular hand and contact surface sanitation, social distancing, and QR-based ordering became common practices in the industry. Businesses also started leveraging their digital presence on social media to showcase their commitment toward the health and safety of the consumers.
The advent of Covid also forced hotels to alter their pricing strategies and product offerings, depending on the severity of the pandemic in their area. Hotels across the country initially resorted to lower booking prices, and service offerings such as free cancellations, “breakfast service included” options and higher number of people allowed in the room, among other things to cope with the economic losses.
While this has continued till now in some form, the market is hopeful for a rebound in the coming times. Covid has also forced many companies to rethink their staffing with greater focus being put on talented employees while seeking greater flexibility with dynamic staff during high-demand cycles. As a result the relationship between the academic world of hotel schools and the industry has seen a reinvigoration in the last couple of years.
An interesting example of this is the partnership between CII and EHL Advisory to launch a Vocational Training Initiative to help the industry’s insatiable hunger for quality trained manpower for front-line positions. Contract terms have also been re-negotiated and in some cases changed not just for the short term but also for medium to long terms as it has become clear that recovery is going to be a long process. Departments like Food & Beverage have been re-examined for innovation and improving profitability. These cost-saving strategies have helped several hotels keep their debt in check and remain afloat during challenging times.
As hospitality companies continue to reduce their debt and find themselves on the path to recovery, a new dawn seems to be lighting up the horizon for the hospitality industry. With the reduction in travel restriction post the third wave, the hospitality industry expects a good recovery this year and those who are a part of it are confident of rebounding to pre-covid levels in the next couple of years owing to an increase in leisure and work travel.
One reason for this growth expectation is the overall aspect of revenge consumption and travelling among customers. While offices are opening up, people have started eating out and engaging in work travel. Even those who are working from home have started moving out during weekdays and weekends now. Additionally, newer trends like education tourism, staycations, workstations, and homestays are also expected to generate revenue in the coming times and help the industry to get back on its feet.
The author is CEO & MD, Ahuja Residences