Moreover, once the lockdown is further eased, Crisil expects recovery to be “gradual" as consumers shy away from crowded places. This, Crisil said, could put thousands jobs at risks, prompt unviable restaurants to shutter down and even impact suppliers and vendors that work with eateries as restaurants look at reducing their fixed costs.
“Our analysis of the organised dine-in segment’s revenue being chopped in nearly half this fiscal takes into account the nationwide restrictions on hospitality and restaurant dine-in facilities across all zones till end of May. It also assumes services will resume sometime in June but only at low service levels since demand for dine-in will be very limited in the first month post-lockdown," Crisil said in note on Thursday.
India’s restaurants business has been severely impacted due the country’s strict lockdown to prevent the spread of covid-19.
Since India’s country-wide lockdown that commenced late March, sales at organized restaurants have reduced by a whooping 90%, Rahul Prithiani, director, Crisil Research said. Moreover, dine-in operations have remained suspended; while online orders have declined by 50-70%, Prithiani added.
And when the lockdown is lifted, the rebound is expected to be only gradual.
This holds especially true for cities such as Mumbai and Delhi NCR, which make up nearly half of the organised restaurant industry in India, but are red zones accounting for over 30% of the Covid-19 cases in India, the report said
Crisil is expecting any recovery to commence only in June—the estimates are based on an assumption that lockdown restrictions will be continue till May end.
“Given low demand and social distancing norms, restaurants will operate at 25-30% of their monthly service levels in the first 45 days after lifting of the lockdown," Crisil said in its research note.
Any further extension will aggravate the industry’s woes, extending the recovery period further.
Restaurants and malls were among the first to see business suffer as several states directed them to shut down citing safety reasons. In cities such as Delhi, Mumbai, and Bengaluru that have a high density of restaurants, public venues and dine-ins were directed to close before the national lockdown.
This has since impacted the sector that relies on active, daily footfalls.
While they were allowed to service online deliveries, not all restaurants were fully operational.
In fact, the National Restaurant Association of India (NRAI) has been imploring the government for a package to help rescue the sector that employs millions.
Restaurants are also seeking better rental arrangements with landlords to lower fixed costs in a situation when revenues have declined steadily.
“According to our estimates, fixed costs account for 30-35% of the income in the restaurant business. Given a 40- 50% decline in revenue, we estimate profit margin will turn negative at current cost structure. As a result, the organized restaurant segment will witness heavy losses, closures, salary cuts and layoffs, affecting lakhs of workers. The impact will be more in the unorganised segment because of higher revenue volatility and limited financial support," the report said.
To be sure India’s organized food services market is estimated at Rs1.5 lakh crore and employs millions of people.
In all, it accounts for 35% of India’s restaurant industry, which is estimated at ₹4.2 lakh crore.
The organized restaurant sector includes quick service restaurants, pubs, cafes, fine -dining, dessert joints, cloud kitchens, among others.
Crisil analysts said that once restrictions are lifted, restaurant owners will have to rework their business models to suit evolved consumer habits.
“Once the restrictions are lifted, restaurants will have to rework their business models and overcome operational challenges. With consumers turning more health-conscious, hygiene protocols at restaurants and supply chain will need to improve materially, which will increase cost," said Anjali Nathwani, associate director, Crisil Research.