Impact of COVID-19 on the Restaurant Business

Impact of COVID-19 on the Restaurant Business

As the ongoing Covid-19 pandemic has brought entire industries and countries worldwide to a comprehensive operational halt, we’ll examine its potential implications on an industry that relies appreciably on the human interaction element, the restaurant business.

In a business that has long been notorious for its high failure and turnover rates and thin margins, the prospective measures to be undertaken by business owners in this dynamic sector to remain solvent and functioning make for an intimidating read.

Businesses face a fight to remain operational until the pandemic recedes, owing to its inherent nature of having high fixed operating expenses. The prevailing restrictions on travel have, for example, significantly brought down revenue for sit down establishments in several prominent business centers across the US as workers returned to their hometowns, thereby entirely depriving previously flourishing traditional restaurants and QSRs of their lunchtime clientele. Closer home, the National Restaurant Association of India has requested malls and landlords to waive off rentals for three months and adopt a revenue-sharing model for six months, which has prompted some mall owners to express their inability to do so, since they have yet to receive any form of relief themselves.

Moreover, adaptability to counter the effect of this pandemic is disparate and varies depending on the type of establishment. So, for instance, it is significantly more difficult for owners of fine dining establishments to remain sustainable for the coming few months as opposed to most pizzerias, which generate appreciable revenue from delivered orders. Add to this the fact that while retail at large has seen a significant downturn in footfall and dollar revenue generated, electronic retail is struggling to pick up slack with only 16% respondents to a Pymnts survey saying they have been ordering in more frequently to replace eating out.

It remains to be seen whether customers will enthusiastically return to their favored dining haunts as they reopen or apprehensive about being in closed, crowded spaces, whenever they do. Despite the widely promoted emphasis on delivery executive hygiene, contactless delivery et al., major online ordering and delivery service providers such as Zomato and Swiggy have registered a drop in orders amounting to over 60%. Kitchens are also struggling to procure supplies and delivery services in numerous locations have declined business, citing police action. This is despite food delivery services being declared as essential, owing to misinterpretation by local authorities across India.

In the event of continued shrinking consumer spending triggering a worldwide financial crisis, this may lead to widespread loss of livelihood in the foodservice industry and allied industries such as food processing.

The 2016 NRAI India Food Services Report projected the total food services market in India to grow to INR 498130 crore by 2021. Growth in this sector can in part be attributed to the increased frequency of Indians dining out, which reportedly grew fivefold from 2011 to 2016. It seems increasingly unlikely though that the foodservice industry will contribute 2.1% of the Indian GDP by 2021 as forecast then, as customers grow wary of dining out, and the pandemic drives down revenue in other industries, with the overall GDP growth rate in 2020 expected to be the lowest in the past 3 decades.