The past few days have seen a churn in the entire nation, as Indians struggle with the second demonetisation in the history of the country. Markets and restaurants have reportedly worn a deserted look, as most consumers struggle with organising ready-cash for essential items. Many sectors are struggling with reduced consumer interest, as priorities have suddenly shifted.
Yet, while the short-term offers pain points across industries, let’s attempt to analyse what it means in the long term for India’s hospitality sector.
India’s booming hospitality sector, which depends on discretionary spends, has been impacted in the short term. There has been a reported dip in income in the week gone by, especially for QSR, and home deliveries, many of which have slipped by almost 40 percent in sales since November 9. However, I believe that this is a welcome step for the growth and sustainability of the industry in general.
Hospitality is the third-largest industry among service sectors in India today. It is poised to grow at an eight per cent overall growth and offers employment to millions of people. According to the latest National Restaurant Association of India (NRAI) report, the food service industry is targeted to reach a revenue target of Rs 4.98 trillion by 2021. It also contributes a significant percentage to the Gross Domestic Product of the country.
Demonetisation, actually, is a good move for the organised segment within the industry, allowing genuine players to have a level-playing field. The black money scourge was affecting the hospitality industry by allowing short-term players to enter the market on long-term gains. Branded chains, which invest in proper infrastructure, backend, logistics and employees, end up being affected by the price sensitivity of the market thanks to these new entrants.
The move ensures that all backend and front-end operations go by the book and bring in increased transparency to the business. We are moving towards a cashless economy and there is a dire need to bring in more customers on board for online payments. The young urban consumer is the demographic that dines out the maximum and they are also the group that prefers digital transactions. We usually witness a plastic to cash spend ratio of 70/30 which has gone up to 90/10 in the past few days.
Though things are a bit uncertain currently, in the long term, the government’s efforts are projected to stabilise and control the real estate market.
Consequently, the brick-and-mortar infrastructure of restaurants will surely benefit. Restaurateurs pay first-world rents for third-world sales which directly affect our business. One also foresees a big role going forward for mobile wallets, which have seen almost a 200 per cent increase since demonetisation. They are convenient and fast, and, are the future for most small transactions.
While this is the first step towards eradicating corruption, we hope in the long run, compliances and taxation policies will witness a change. The existing framework of the Goods and Services Tax as well as the licensing structure is not conducive to a healthy market. Overall, we see this as a first step to eradicating corruption and allowing for ethical and sustainable business.
