Restaurants will also have to actively practice social distancing. That means fewer tables in the same restaurant, which makes balancing revenue and costs tricky. The Delhi outlet of SodaBottleOpenerWala, a popular Parsi food chain, has a 48-seater licence. If social distancing cuts seating in half, there is no point in reopening, said Manu Chandra, chef-partner at food and beverage company Olive Bar & Kitchen Pvt Ltd., which also owns and operates SodaBottleOpenerWala.
The small slice of the industry that is open during the lockdown—those still offering home delivery—are also taking a hit as customers prefer to cook at home fearing contamination. Last week, in an ominous portent for the industry, food tech aggregator Swiggy cut 1,000 jobs across its 1,000-odd cloud kitchens. Both Zomato and Swiggy have also decided to stop footing discounts to customers. This will now be at the discretion of restaurants, something they have lobbied for for a while.
Restaurateurs must now reimagine the entire business—from hygiene to the very business models they’ve honed over the years. Milkshake chain Shake It Off, which has outlets across Chennai, Delhi, and Bengaluru, is contemplating pivoting from its small-store format to a delivery-driven business model, said co-founder Anil Paremal. Others are hoping to convince landlords to move to a revenue-sharing system rather than fixed rentals.
Cost Control
Even renting out kitchens is now on the table. Anurag Katriar, the NRAI president, said he might rent out his central kitchen in Mumbai to other restaurants. Katriar is the CEO of deGustibus Hospitality, which runs 27 fine-dining and cloud kitchens. For the majority of restaurateurs, though, it’s not about extra income, but lowering costs.
Shake It Off’s orders have already dropped 60-70%. While only three of its outlets are still operational for deliveries, Paremal continues to pay rent—about 20% of his monthly revenue for each store—for all its stores. He is negotiating with his landlords to defer or waive off rent for March and April, and to switch to a revenue-sharing agreement.
“There is simply no other way out,” says Katriar, whose monthly rent is about 25-26% of revenue across 27 fine-dining and cloud kitchens.
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Pushpa Bector, executive director of the DLF Shopping Malls, was asked about the prospect of revenue-sharing on the webinar. Bector agreed that collaboration was crucial and said DLF would provide subsidies, but stopped short of agreeing to a revenue-sharing model.
Crucially, most contracts have no provision for such a switch. Moreover, for mall developers like DLF, 90% of their revenue is from rent. This makes it a Catch-22 situation for them.
“The mall has a much larger financial risk, leverage, and exposure as compared to the store. This fact needs to be appreciated by all stakeholders,” Manoj Agarwal, CEO of Mumbai-based Viviana Mall said in an email to us. Viviana will re-evaluate contracts based on terms with each tenant and their performance over the years, he said.
But lower rents are unlikely to be low enough. They won’t drop by more than 10% on average, estimates Singh of Beer Café, much less than his estimate of a 40% drop in revenue. Stalled negotiations have led many Indian chains to invoke the force majeure clause to seek rent waivers until May.