The food and beverage industry in India directly employs more than 7 million people, contributes to more than ₹ 18,000 crores in taxes, and supports allied sectors such as real estate, food processing, and consulting, among others. Amidst the coronavirus pandemic, the F&B industry has faced a major setback. With micro, small and medium-sized enterprises (MSMEs) making up the spine of the industry, they are also at the most risk due to the cash flow crisis and continued costs such as rent and salaries. Indeed, Anurag Katriar, President of the National Restaurants Association of India (NRAI), recently stated that ‘we as an industry operate with a very high proportion of fixed operating expenses which makes our business very high-risk even in case of moderate revenue fluctuations.’ Therefore, in the absence of tangible fiscal interventions from the Union and state governments of India, the F&B industry may continue to stare at a bleak future.
In the context of the COVID-19 pandemic, business revival is not something that MSMEs should be looking at managing on their own. The NRAI has requested the Finance Ministry to come to its rescue, particularly in providing moratorium on bank loans, restoring input tax credit on GST for the sector, and generally invoking force majeure, among other measures. The body highlighted that the halting of revenue could have an extreme negative impact on the livelihood of millions who depend on the business, and lead to irreversible social and economic repercussions. The plea also stated that current license tenures to be extended without an additional fee and deferment of GST in order to aid in maintaining cash flows.
With restaurants opening up on June 8th, the fate of the industry still remains precarious. Social distancing norms would considerably reduce the seating capacity of most dine-in restaurants, giving rise to delivery-only restaurants. The return of migrant workers to their home states is also likely to impact the sector in metropolitan cities, among other challenges. It has been interesting to note that food delivery, however, witnessed a decline of only around 50% during the lockdown. Coupled with the fact that the coronavirus cannot be transmitted through food, the cloud kitchen or food delivery model seems to be a lucrative alternative to conventional brick-and-mortar restaurants.
Is it then wise to shift to a cloud kitchen or dark kitchen model? The Smart Kitchen Company, based in Delhi NCR, is taking conscious steps to help revive the F&B industry and protect employment. Besides offering ready-to-move-in kitchen infrastructure to key food brands, chefs, and restaurant owners, Smart Kitchen Company is also making marketing investments and providing growth strategies to their food partners to ensure higher profitability at low costs.
Indeed, the future of the F&B industry — to a large extent — will depend on the extent to which food entrepreneurs are able to take on risk appetite and innovate in adapting to the emerging trends of the food industry in a post-COVID world. In the absence of tangible financial relief from the government, the much-needed respite is likely to come from the cloud kitchen and food delivery model, which also helps secure employment, sustain operations — all at low costs.
The entire food ecosystem is bound to undergo a great churning as relationships between stakeholders in the ecosystem change and adapt to the new realities, i.e., between a food company and landlord, food company and aggregator, and even food company and consumer. Amidst the coronavirus pandemic, trust has taken a backseat.
Without concrete financial relief in the form of wage support subsidy, a longer moratorium on principal and interest payments, and working capital support for businesses that have incurred months of revenue loss, food companies will struggle to survive on their existing business models. Indeed, the NRAI has predicted that 4 in 10 restaurants in India will shut down in the aftermath of the coronavirus pandemic.
Economists across the board have critiqued the Union government’s relief package, some of whom seem to believe this stimulus to be no more than a ‘loan mela’, i.e., a move that may increase supply but does nothing to address the demand that is stagnating. In the interest of all members of the F&B ecosystem, we hope that resilience and innovation, coupled with government-led financial relief, will provide the necessary impetus to push the industry forward.