The Fault in our Restaurants
In today’s newsletter, we talk about the problems plaguing the restaurant industry and why they are in such dire straits right now.
The Story
Yesterday, there was some unsavoury news coming in from the restaurant industry
“Over the past week, several of the best known restaurants and cafes in New Delhi’s popular Khan Market — Full Circle Bookshop and Cafe Turtle, Sidewok, and Smoke House Deli — announced they were shutting. Owners said they had failed to negotiate their extremely high rentals with property owners — and that they could no longer afford to continue in India’s priciest commercial space, given the new norms for operations as the economy opens hesitantly under the cloud of the coronavirus.” — Excerpts from an article in the Indian Express.
But it wasn’t supposed to be this way. The food services market was expected to be worth 5 lakh crore by 2021. It was supposed to grow at a compounded annual growth rate of 10%. Young people were supposed to flock into casual and fine dining restaurants en masse and turn them into mega profit centres. However, all of these aspirations came crashing down when COVID made landfall.
Because here’s the thing. Running a restaurant is expensive. There’s rent, utility bills, staff wage, interest cost, and the lost opportunity to make money. And weathering this crisis will largely depend on your holding power. Can you keep running your restaurant at half the capacity and still turn a profit? Can you keep footing the bills without having to significantly downsize? Can you mobilize enough resources to keep the doors open?
For most people, the answer is relatively straight forward — no, no, and no.
So maybe the prudent move for most restaurateurs right now is to pivot — from dine-ins to takeaways.
Cafe Delhi Heights, a popular restaurant in New Delhi recently told Livemint they were all set to open an outlet for online orders. Zorawar Kalra, founder of Massive Restaurants, also said that the company was preparing to scale up online deliveries and takeaways. Okay, these might just be two random cases. But think about it. If you were running a restaurant and you had to start generating immediate cashflows, what would you do?
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I mean, even if takeaways and online deliveries aren’t as profitable as dine-in sales, they are more likely to gain a foothold as India begins to open up. You can’t prod people to visit restaurants right now. Fear and paranoia are rife. However, it’s quite possible online orders won’t suffer the same fate. So if you could put together the resources to pivot and stay alive, why wouldn’t you?
Well, one possible reason — unit economics. For most restaurants, takeaways and online sales, contribute only 10% of its total sales. That might not be enough to cover the fixed costs associated with keeping the doors open. So yeah, maybe even pivoting won’t help.
Besides, even if dine-in restaurants do make it through the crisis relatively unscathed, it’s still going to be pretty hard to get back up to speed.
Every plate is a byproduct of a complex maze of interconnected systems all working in unison. It’s probably been perfected over many many months after many trials and tribulations.
There’s a cleaner that preps your table. There’s a manager that takes you to your seat. There's a waiter who promptly fills your order and there’s a chef who cooks the dish. But that’s only the first-order system. You peel the layers and you will see that these things run deep. Most of the ingredients that went into the dish came from a farm 20 miles away. A distributor fulfills your order each day after liaisoning with a trucking company. And the truck driver makes sure you get your “produce” when you need it.
Putting these pieces back together can take time and money. Your top chef has probably left town already. The distributor only recently shut shop after defaulting on his EMI obligations. The trucking company has drastically downsized and the supply chain is in tatters. So it’s going to be hard for restaurants to live through the crisis.
And it’s a travesty that not enough people seem to be talking about an industry that is quintessential to our cause.
It’s the 3rd largest industry within the services sector in India. It’s 20 times the size of our country’s film industry, 4.7 times the size of the hotel industry, and 1.5 times the pharmaceutical sector. Think about the sheer scale for a moment…
Until then….