Revenue of organised restaurant businesses to halve in FY21: Crisil

With the coronavirus pandemic severely impacting the food and beverage sector, revenue of organised dine-in restaurants is likely to plunge by 40-50 percent in the financial year 2020-21, said a Crisil report.
Organised restaurants account for 35 percent of India’s restaurant industry, and was estimated at Rs 4.2 lakh crore in the fiscal year 2019.
“India’s organised dine-in restaurants are on course for a 40-50 per cent cut in revenue this fiscal because of the disruptions caused by the COVID-19 pandemic, which have led to outlet closures, job cuts, and trickle-down effect on the food supply chain,” it said.
Dine-ins are 75 percent of the organised restaurants, with online delivery and takeaways making up for the rest. Dine-ins and public entertainment venues in Mumbai, National Capital Region (NCR) and Bengaluru have been shut since March 13-14, 2020, before the government announced the first lockdown on March 25.
Online delivery is available in select cities such as Mumbai, NCR-Delhi, Bengaluru, Kolkata, Pune, and Bhubaneshwar, and that too at low service levels.
Rahul Prithiani, Director, Crisil Research, said: “The organised sector has seen a 90 percent reduction in sales since the lockdown. Dine-in is not operational and online orders have declined 50-70 percent. And when the lockdown is lifted, the rebound is expected to be only gradual. This holds especially for Mumbai and NCR-Delhi, which make up nearly half of the organised restaurant industry in India, but are ‘red zones’ that account for over 30 percent of the COVID-19 cases in India.”
As per the report, slow recovery should begin from June and given low demand and social distancing norms, restaurants will operate at 25-30 percent of their monthly service levels in the first 45 days after lifting of the lockdown.
Besides, with restrictions on gatherings and public movement likely to be extended again in Mumbai and NCR-Delhi, curbs on dine-ins there will continue, or they may be allowed to operate only at low service levels.
“This will jeopardise the financial health of many restaurant operators. Additionally, because of high operating leverage, a 40-50 percent decline in revenue could lead to negative operating margins this fiscal,” said the report.
To manage liquidity constraints and cash flows, many restaurants are already seeking concessions or deferment of rentals. Players with high debt levels will face pressure to shut unprofitable outlets to save costs and raise money, while large players with low debt will be able to raise money; business revival remains a big question for them too, said the report.
Anjali Nathwani, Associate Director, Crisil Research, said: “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.”
The decline in restaurant revenues will, in turn, impact horticulture farmers, dairy producers, food processors, suppliers and logistics and delivery partners, according to the Crisil report.
Unorganised food producers, many of which have high exposure to the restaurants sector, will be hit the hardest due to a sharp decline inbulk demand this fiscal, it said, adding that the estimates are based on assumption that lockdown restrictions will continue till the end of May.
“Any further extension will aggravate the industry’s woes, extending the recovery period further,” the report added.