With the restaurant industry badly hit due to the lockdown brought on by the COVID-19 pandemic, Ashish Ahuja analyses what can be done to alleviate the pain
The Indian restaurant industry was in the midst of seeking a prescription for a range of ailments, namely deep-discounting, predatory aggregator policies, non-availability of GST input tax credit, rising costs, wafer-thin margins and the evolution of the new-age consumer who preferred flirting with multiple brands as opposed to remaining loyal, among others. But this was early March 2020, which now seems aeons ago. What hit the industry in the form of COVID-19 in late March and the subsequent national lockdown has put the entire sector in need of immediate ventilator support. Sadly, as we are all aware, ventilators are in short supply. The industry waits its turn with the hope that a timely intervention would help it survive. It is not about prescriptions any longer, it’s the very survival that is at stake now.
That favourite waffle store, the neighbourhood pub, that smiling server who always knew how you liked your drink, and that immensely talented chef who had mastered the intricacies of a pinch of salt, might not be around when diners return out of the lockdown inertia. Conservative estimates predict that almost 30 per cent of your favourite eateries might not be in a position to fire their ovens once any semblance of normalcy returns. The balance 70 per cent would, in most likelihood, rationalise recruitment — thereby pointing towards a massive loss of livelihood. A sector that employs more than 7.2 million is staring at laying off close to two million people.
So what’s the way forward?
Step 1: Revive the patient — government intervention
A patient in critical care does not plan on how to run the marathon in under four hours. The restaurant industry is akin to that patient. The first step is to revive the patient and the governments (both centre and state), which need to fulfill the vital role of a life-saver. But, how, may we ask?
Employees — The government in its wisdom ordered all businesses to pay their employees in full and not allow any termination. While the intent behind this policy is laudable, the practicality of this provision would eventually bankrupt the soundest of balance sheets. Saving employees today at the cost of businesses which provide that very employment would eventually save no one. It is a zero sum game. As businesses fail, the employee that was the target of benefit, would eventually face the same fate. Such short-term measures need to give rise to a sustained practical view. The government needs to introspect and propose a mechanism that addresses both issues — employee survival as well as business survival. The government could allocate a certain percentage of employee wages to be paid through the ESIC corpus. Furthermore, it could allow businesses to furlough employees and allow them to pay only a subsistence allowance during the lockdown period.
Statutory dues — Under lockdown, with no cash flows accruing to restaurants, the government could provide tax-deferrals for at least the next six months, for restaurants to conserve cash and be able to re-start operations, thereby creating liquidity.
Credit Availability — Government could facilitate loans without collateral and interest subvention to make credit available to ailing restaurants that are capable of surviving the crisis and hopefully thrive in the new COVID-19 world.
Licensing — With most licenses due for renewal, authorities must ensure that existing ones are automatically renewed for the current fiscal.
Consistent re-opening strategy — As and when the “new normal” is defined, government needs to formulate a cohesive consistent policy with respect to reopening — one that is clear, objective and practical. A well thought-out plan with respect to time-lines, public health, safety standards and standard operating procedures that are not ambiguous would help the restaurant sector to prepare and work in tandem with the state to deliver the desired results. Once the above emergency measures are administered, the restaurant industry could look to the next stage, that is, ‘rehab’ (akin to planning to run the first few miles while preparing for the marathon run).
Step 2: Rehabilitate the patient
The world has changed as we know it and we’re realising that a “new normal” is the need of the hour. We all understand that we have to live with the threat of the virus till a reliable cure is found. Changes to our lifestyle, interactions and consumption habits are a foregone conclusion and the restaurant industry shall have to adapt to these changes to survive and eventually flourish in the “new normal”. Post lockdown, health and safety are probably going to be the prime determinants of consumption in the restaurant industry for all times to come.
Social distancing — With new norms in place, restaurants are already planning operations with reduced seating layouts. Kitchens are being redesigned to ensure social distancing at the production stage. Safety through social distancing shall replace “cheek-by-jowl skirmishes”.
Hygiene — Sanitisers, periodic disinfection protocols, temperature checks, masks and gloves, contactless payments and digital menus are things that would define the “new normal”. Most restaurants are actively working during this shutdown to ensure public health and safety is given importance.
Trust — Restaurants would need to win the trust of the customer for them to patronise their services. The fear psychosis would last for an extended time and hence, most consumers would be risk-averse. Restaurants would re-strategise their USPs and “selling with a seal of trust and confidence” would be the new marketing mantra.
Menu rationalisation — With social distancing and whole new operating scenarios at work, menus across restaurants shall have to be re-engineered. This will achieve sustainability with respect to anticipated reduced footfalls (owing to reduced seating capacity as well as reduced customer visits owing to a certain fear psychosis of being in public spaces).
Spreadsheet magic — With revenues expected to see a dip, anywhere between 30 per cent to 40 per cent on re-opening, CFOs would need to realign cost percentages to re-build a sustainable business model, markedly different from the one being followed pre-COVID-19.
Ease of doing business — To ensure a swift revival, governments must adopt a business-friendly approach and remove all bottlenecks to speed up commercial activity within the sector. A rationalised indirect tax structure, ease of licensing and minimum government intervention could potentially unshackle the industry — creating substantial economic dividend.
While the government has announced a slew of measures to alleviate the pain, how and when the serum permeates down to the patients (restaurants) shall determine how many survive to attempt the marathon ahead.
Step 3: The final marathon run
In due course, the lockdown would be lifted. Restaurants, by their very nature of being public spaces, might end up de-shuttering later than most businesses. Once open, the final marathon run would begin — probably as challenging as the lockdown itself. If the revival and rehabilitation procedures are administered with precision, the fit and able restaurants would be able to stand a chance to embrace the tape in this final run. Marathons are never easy. Running a restaurant, especially in these times — not so either.
(The writer is Director, Pebble Street.)