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National restaurants body cuts FY20 growth forecast amid slowdown

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NEW DELHI – Hit by the overall slowdown in the economy, the National Restaurant Association of India has slashed its growth estimate for the industry by 250 basis points from its earlier forecast.

“I think we are looking at about 6.5-7.0%. Earlier we were looking at 9%,” said Anurag Katriar, president of the restaurant body.

The restaurant body’s scepticism on the growth decline in the sector comes at a time when the Reserve Bank of India reduced its GDP growth forecast to 6.1% 2019-20 (Apr-Mar). The restaurant sector has been witnessing a decline in footfalls even during the ongoing festival season.

Listed companies, like Jubilant FoodWorks Ltd that runs Domino’s Pizza and Dunkin’ Donuts is expected to post a lower same-store sales growth for the September quarter because of the current slowdown in discretionary consumer spending. In Apr-Jun, the quick service restaurant company had posted a near 0.7% on-year fall in its net profit due to lower-than-expected same-store sales growth.

“… when sentiments are low, any discretionary expense is the first casualty. And F&B (food and beverages) in a large way is a discretionary expense. So there is definite drop in footfalls we’re looking at the very early part of the festive season, there has been a definite drop,” Katriar said.

Within the restaurant industry, the premium dining segment is expected to be hit the hardest.

“…in our company, for example, in premium dining we have seen a drop of almost as high as 14-15%,” said Katriar, who is also the executive director and chief executive officer of restaurant chain Indigo, Indigo Deli.

However, the silver lining for the sector comes in the form of expansion in tier-II, tier-III cities. On Aug 21, Jubilant Food had launched a Domino’s Pizza outlet in Agartala, Tripura capital. With this, Domino’s Pizza is now present in 13 cities in the country’s northeast region.

“That is one of the bright points honestly over the last 12-18 months. The tier-II cities have become a good hunting ground for certain restaurant brands simply because the cost of doing business there is still very low. Especially the proportion of operating expenses, the cost of space and the manpower is significantly lower in tier-II cities…” he said.

The industry has also been at war with online food aggregators like Zomato, Swiggy, Eazydiner and Magicpin over their discount schemes to push sales.

Food aggregators offer discount benefits such as Zomato Gold to customers, which offer deep discounts, cashback on the expense of restaurants’ profitability, Katriar said.

“It is a very unique programme (Zomato Gold) where all the accruals is going to you (Zomato), and the entire discount is being funded by us (restaurants). This is as lopsided as it can get,” he said.

“… restaurants can not fund the kind of discounts they (online food aggregators) were asking us to fund. A good restaurant works on an EBITDA (earnings before tax, interest, depreciation and amortisation) of 12-15%. If we’re offering 15% discount on every transaction, we’re losing money…” Katriar said.

As per Katriar, apart from the slowdown, and the deep discounts offerred by aggregators, denial of input tax credit on goods and services tax have also hit the bottomline of restaurants hard.

“Earlier there was a tax rate of 18%, and we had an input tax credit on all the GST that we were paying. Currently, it is down to 5%, so optically for customers it’s great, but now with no input tax credit, things like rentals, for example, have technically gone up by 18% straight away. All the services you buy have gone up by 18% because that is now the additional cost that I am bearing,” he said.

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