Is the coronavirus pandemic pushing restaurants and cloud kitchens to point of no return?
Karan Tanna, Founder of Ghost Kitchens, a fund that invests in cloud kitchens, details out the impact the coronavirus pandemic and the subsequent nationwide lockdown have had on an industry that employs close to 10 million people.
The restaurant industry is one of the largest employers in India, engaging close to 10 million people and second only to the railways, according to National Restaurant Association of India.
Along with fulfilling the daily needs of citizens, it adds value to lifestyle, nightlife, and tourism, creating a multi-dimensional impact on the economy, society, and culture.
And so, when an industry this size takes a hit, the ripple effect is exponential, not only for stakeholders directly engaged in the business – like restaurant owners, and employees – but also for the hundreds of vendors, farmers, and supply chain operators indirectly, but substantially, dependent on it.
After India instituted a nationwide lockdown on March 25, 2020, allowing only essential services to operate, nearly 90 percent of restaurants under NRAI’s ambit downed shutters, Moneycontrol reported earlier this month.
Even with delivery services such asand providing incentives to restaurants such as upgrading hygiene standards, not raising commissions, and promising biweekly payouts instead of weekly payouts, restaurants have had to slash hundreds of jobs, give up their retail spaces for dark kitchens, and even close down permanently.
caught up with investor Karan Tanna, Founder of and Yellow Tie Hospitality, whose fund has a corpus of $3 million till date, in brands such as Eathos and QSR India, among 18 others, and cloud kitchens, to find out why the future for restaurants in India seems bleak, what other industries might face collateral damage,and how those who have cash might still stand a chance to make a comeback in a year.
Edited excerpts from the interview:
YourStory: Millions of jobs in the restaurant industry are at stake today. How are restaurant owners handling the coronavirus situation?
Karan Tanna: The restaurant industry in India employs 7.5 million individuals, impacting roughly 20 million families. Most of them are blue-collar employees who live hand to mouth.With their salaries halted or delayed, how will they pay their EMIs/house rents, educate their children, and feed their families? This is only about the jobs directly related to the restaurant industry; the current situation will also impact jobs, payments, and salaries of employees in industries that are dependent on restaurants, like vendors.
Salaries are the first priority of payment that every restaurant owner has decided to take care of for the next two months. Even salary payments depend on the affordability and spare liquidity of many owners. They will have to let employees go when they run out of cash.
YS: The government has appealed for relaxation in rent collections for the time-being, but there is no relief as landlords also earn their livelihoods from rents. Essentially, restaurants are spending more than they’re bringing in right now. How is that affecting the industry?
KT: Though it is a ‘force majeure’ situation for restaurants right now, only a few landlords are accommodating enough to understand the situation and share the fallout of the restaurant industry due to the pandemic. Many landlords have outright denied any waiver or reduction of rent.
This is forcing many delivery kitchens to remain open, which is not a good step for the safety of their employees. The constant movement is also deteriorating our chances at containing the spread of the coronavirus.
Even in cases where landlords do not really depend on rental incomes, their refusal to cooperate is burdening restaurant owners with heavy outflows at a time when there is no income. There are very few landlords who have been able toappreciate that the situation is beyond anyone’s control, and havewaived rent entirely, or at least partially.
YS: There’s an entire ecosystem built around the restaurant industry. How do you think it will fare the downturn?
KT: The restaurant industry supports a lot of ancillary businesses like vendors of raw materials, dairy and poultry farms, technology companies, utility service providers, events, artists, beverage companies, and many more.
The coronavirus situation has already resulted in huge revenue losses for all stakeholders, and layoffs will soon become a part of their reality too, because their cash flows are heavily dependent on the restaurant’s revenue.
These ancillaries are not going to be in a position to incur fixed expenses for too long either. Eventually, this pandemic is going to destroy many a livelihood.
YS: How can the government help?
KT: Tax Deducted at Source, Goods and Services Tax, Employee State Investment Corporation, Provident Fund, Excise are some of the government dues restaurant owners need to pay periodically. They forma large part of cash outflows, and not clearing these dues can result in the restaurant getting red-flaggedforever.
The government has provided some relief in the interest cost, but restaurants are still obligated to pay these duties on time, and failure to do so willstill attract some interest cost. The government has to ask itself if this is the right time to earn revenue from interest costs.
All these considerations put together will burden restaurants, some of which will unfortunately become extinct by the time the situation resolves. Most restaurant owners who survive this crisis will spend six months to a year recuperating, and to return to business as usual. The industry that employees millions, attracts tourism, enhances lifestyles and nightlife, is on the verge of turning to ashes.
But like always, the passion and optimism of restaurateurs will be the phoenix that rises from the ashes, and I am still optimistic about the future.
(Edited by Aparajita Saxena)