What is happening with the unorganised restaurant sector amid pandemic

The Indian restaurant industry is growing at a rapid pace over the last decade and the growth story is set to continue for the next foreseeable future. Not just it is one of the largest employment generators but a huge contributor to the economy, estimating that the total contribution of the restaurant industry alone is more than 2.1 percent to the GDP of India. 

The market is clearly and equally divided into the organised and unorganised sector. The unorganised segment of the industry consists of individuals or families selling ready to eat food through roadside vendors, dhabas, food carts, street stalls, etc and it owns a larger chunk of the total percentage that is scattered, untapped and unregularised. It grew10 percent in the past three years to touch INR 275,512 crore in 2018-19 and is expected to touch INR 341,877 crore by 2022-23, a whopping growth of six percent. 

Talking about employment, the unorganised sector employed an estimated 3.6 million people in 2018-19, contributing to 49 percent of the total workforce in the sector. Overall, employment in the food service industry is forecasted to grow at six percent CAGR to hit 9.2 million in 2022-23.

No one championing their cause

In the current Covid times, when the whole of the restaurant industry is gasping for ventilator support, the restaurants falling under the unorganised sector is in a worst-hit crisis. Shivanand Shetty, President of the Indian Hotel and Restaurant Association feels that, although the unorganized sector in the space is a big chunk and also an employment generator, in the given circumstances when the organized sector has to fend for themselves, there is hardly anyone championing their cause. 

“While there are no employment benefits, one more very critical thing is the quality of food churned out by them as there are no particular guidelines followed, thereby exposing customers to various health hazards,” Shetty commented. 

Situation grim than organised sector

Looking at the current scenario, there are several problems being faced by the unorganised restaurant sector. Manvir Singh Anand, a Food Business Expert and Founder of Knight Gourmet pointed out. “The infrastructure or CAPEX investment done into respective categories of food service will push their payback period by over two to three years, in some cases, they will have to shut shop since they can't recover the cost of infrastructure by just doing deliveries,” he started with. 

Not to forget that the Covid-19 is already to eat up half of the restaurant revenue this fiscal with shutdowns, layoffs and fading footfalls. Rahul Prithiani, Director of CRISIL Research stated that the organised sector, in particular, has seen a 90 percent reduction in sales since the lockdown. Dine-in is not operational and online orders have declined 50 to 70 percent. 

“And when the lockdown is lifted, the rebound is expected to be only gradual. This holds especially for Mumbai and Delhi NCR, which make up nearly half of the organised restaurant industry in India, but are red zones accounting for over 30 percent of the Covid-19 cases in India,” he said. 

The above statements are a mirror to what’s happening with the outlets and small shops falling under the unorganised category too. For them, the pain is further augmented by a large population of staff going back to their hometowns or villages, which is making serving the existing customers also difficult.  

Government must reform policies

Commenting on the rental issues, Anand said, “While larger players like McDonald's, Dominos have a bargaining power with unit rentals, the unorganized sector is reeling under the heavy load of paying rentals in spite of the lockdown, some even adjusting against their inventory. With the lack of knowledge of law or support from the government, clauses like Force Majeure have not provided any support to save the interests of the small Food Business Operators (FBO's).”

According to Anand, it's a sheer mockery that an industry that is one of the largest consumers of skilled, semi-skilled and unskilled staff in the country, has been given no relief and support from the Government.  “Even mild initiatives like a moratorium on rentals, Tax/Excise compliances or interest payments would have been welcomed,” he added. 

Sadly, the unorganised sector has become the ‘elephant in the room’, that is not being addressed by anyone, nor by the Government nor by the industry bodies. For the highly fragmented sector, the government must reform policies. 

However, in line with the evolving consumer preferences and increasing innovation by the organized formats, the industry has experienced a rapid shift towards the organised segment in the recent past. The shift is further fuelled by the foray of large global international brands into the organised foodservice sector. The share of the unorganised sector is forecasted to drop to 57 percent by 2022-23.