While home delivery is the only means to serve consumers during lockdowns, restaurants take a hit on margins due to the high commission payout to food aggregators.
The food services industry is in for another bleak year as the second wave of the pandemic brings their operations to halt again. According to a report from Care Ratings, even with ease in restrictions from May-June, it is expected that consumer demand for dine-in services may not recover till the second half of FY22.
“On account of the statistical base effect, it is expected that Q1, Q2, and Q3 in FY22 might record higher year-on-year growth rates in net sales. Overall, for FY22, net sales could increase by 45-50 percent. But this would still be much lower than the FY20 level,” the report said.
The overall market size of the food services industry, as per the report, is expected to have declined by 40-50 percent due to the global outbreak of COVID-19 and subsequent imposition of restrictions in the country.
Care Ratings pegs food services industry that comprises roadside eateries, dhabas, cafes, restaurants in hotels, independent as well as fine dining and casual dining restaurants, quick-service restaurants, pubs, bars and lounges registered a CAGR of 7 percent and grew from Rs 3 lakh crores in FY15 to Rs 4.2 lakh crores in FY20, as per market sources.
In anticipation of another tough year ahead, restaurant chains and QSRs are gearing up to bring down their dependence on food aggregators. Speciality Restaurants, which owns brands like Mainland China, and Oh! Calcutta, is piloting an app in Mumbai, while Impresario Handmade Restaurants, known for brands like Smoke House Deli and Social, has tied up with ‘dabbawalas’ in the city.
“When customers order directly from restaurants, we have end-to-end control on the quality of the food and the way it is delivered. We also save a big chunk of money that would otherwise have gone as commissions to them, sometimes as high as 25-30 percent. We are then able to pass this saving on to them,” says Riyaaz Amlani, CEO & MD, Impresario Handmade Restaurants.
In May, Kerala Hotel and Restaurant Association too launched its own mobile app Rezoy.
While home delivery is the only means to serve consumers during lockdowns, restaurants take a hit on margins due to the high commission payout to food aggregators such as Swiggy and Zomato. At times, it can be as high as 25-30 percent of the total order value.
The efforts to bring down the reliance on aggregators have been on since last year. Impresario Handmade Restaurants had launched its tech-enabled platform for ordering food in 2020. Lite Bite Foods, which operates Punjab Grill, Zambar, Tres, and You Mee, had introduced the delivery app FooGo last year. Several restaurants had also tied up with offline-to-online platform Dotpe.
Of cloud kitchens
Restaurants and QSRs, which ideally drew about 80 percent of their business from dine-in, had to realign strategies to fit in deliveries as the first wave of the pandemic struck the country last year and eventually also forayed into cloud kitchens.
Speciality Restaurants has introduced cloud kitchen brands such as Hakka and Chow Chow.
“We realise that aggregators are necessary and hence we are looking at a more hybrid model of operation,” said Anjan Chatterjee, Chairman and Managing Director, Speciality Restaurants. The company has consolidated its operations and is now servicing delivery orders for several of its brands out of one large kitchen at several locations.
“This learning that we have had since the first wave will help us minimise costs,” he adds.
Impresario Restaurants and Lite Bite Foods had also launched cloud kitchens last year. QSR chains such as Mad Over Donuts, and Momo King are other offline players who entered the segment last year.
The efforts have already paid off some restaurants; however, it is still not enough to cover the loss from the dine-in business. Speciality Restaurants has seen its delivery business double to Rs 8 crore from Rs 4 crore in the pre-pandemic times.
According to Neha, Chief Marketing Officer, Pizza Hut India, the company’s average daily sales in the first quarter of 2021 were at par with its pre-COVID average and in May witnessed the highest delivery sales supported by increased app downloads.
“We are hopeful that we will be able to see this robust growth continuing as we expand on our delivery offerings at a great value. We believe our focus on digital media and upgradation of digital assets will ensure that the brand is present wherever our customers are most likely to find us and order from us,” she added.