Karan Tanna, Head of the NRAI Youth Committee, and Co-Founder of Ghost Kitchens India, one of the fastest growing cloud kitchens companies in India that has grown to 210 internet restaurants and 18 homegrown brands since its inception in May 2019, shares his thoughts about the strategies that the restaurant industry will have to embrace to sustain in the difficult months ahead and how it will require rebooting the business model around the issues of cashflow, delivery, customer retention and loyalty and other metrics.
With businesses across industries operating under stress, will restaurants take a relook at their relationship with their key stakeholders?
The foodservice business has taken a big hit over the past three months. For the next 12 to 18 months, the revenues for this industry are going to be much less than what it was before the Covid and lockdown phase. In a tight margin business like restaurants, even a small drop in business leads to negative cashflows. In such a scenario, it becomes very difficult for a restaurant business to sustain for more than a couple of months.
For the entire ecosystem to survive, all stakeholders should share the cost of the damage to business; and that’s the only way that restaurants will be able to survive. Restaurants act as a bedrock pillar of the entire foodservice chain; unfortunately, they are the only ones expected to take the full brunt of the blow to the business due to the Covid pandemic.
Is it possible for them to absorb all the shock to the system on their own? In this case, government intervention becomes very pivotal to stop the negative snowball effect.
What will be restaurants’ attitude to reworking its models around delivery, online and e-commerce?
E-commerce/food delivery is a very important part of every restaurant’s business now. In the post Covid phase, these components will become even more important. Aggregators have provided great support in creating this convenience around food delivery. It is unfair to expect any reduction in the commission from the aggregators as they are also not making profits. Restaurants have to evaluate what is best for their business and, if need be, start investing in taking direct orders from customers to save on the delivery commission. However, this is a very subjective matter as there are huge costs involved in the process of customer acquisition.
How would restaurants look at things like conserving cash, reworking their fixed costs, getting down to a lean and mean working model and other operating metrics?
Every restaurant will have to adopt different strategies depending on their strengths and weaknesses. It is evident that the current crisis has stripped to the bone the financial health of most of restaurant companies. I am afraid that none, barring dark kitchens, will be able to ride out the storm and sustain the next few months.
We (Ghost Kitchens India), in spite of being a dark kitchens company, decided to keep the operations shut for the safety of our employees. Hence, not even cloud kitchens have been spared from the Covid distress.
I reckon that one-third of restaurants will not be opening their shutters, it’s so bad. The rest will have to scale down their operations and expansion plans; a few will consolidate with other restaurant companies. All operators will look at conserving liquidity and reduce monthly expenses; there will be many renegotiations with all stakeholders.
So, restaurants will try doing things differently compared to how they operated in the BC phase?
Clearly, yes. In the post Covid era, the first rule of the game will be about staying alive. Every restaurant will look to sustain for the next 18 months. That will mean that the top focus will be cash flows to be able to support for the next few months till the situation starts coming back to normal. Every decision that will be made will be around the premises of sustenance. And that is the right way to look at it.
Now that physical distancing will be the social vaccine for some time now, what will foodservice retailers need to do to instil confidence and credibility about their operations in the eyes of customers?
In my opinion, until the vaccine or medicines are out, dining out is a distant reality. People will only go out if necessary. They will go to the places that they are already comfortable with. There is nothing much restaurants can do besides ramping up their focus on hygiene and transparency. Unfortunately, all the other efforts will be futile in short run for spurring the dining out business.
How do you think food menus are going to change in the post-Covid world?
Food menus will change due to the customer’s new preferences and/or due to the evolving unit-level economics’ scenarios. If the business is very scarce and there are limitations on a number of people working in kitchens, the menus will have to be pared down substantially. In some demography, if the customer has preferences to eat healthy or veg food, restaurants will have to tweak the menu accordingly. There is no right or wrong or a thumb rule to it but it’s all based on the customer and business needs, and that’s how menus will change in the times to come.
In terms of greater technology adoption, what do you think will be the path forward for the industry?
All the sit down dine-in restaurants are already in the process of digitizing their menus. Order taking and payments will become digital totally. Restaurants will build their own channels to start taking orders for food delivery. Home delivery orders will shift to WhatsApp in the times to come as that will be much more convenient for a restaurant as well as customers.
Can we hope to see some new innovative experiments emerge in the foodservice domain? Can we expect to see some new and exciting food concepts take hold?
Of course, with the crisis, people will come up with innovation to survive. We are already seeing innovations like the emergence of ‘Do It Yourself’ kits and others. There are a lot of innovations that will emerge but only time will tell what innovation will be able to scale and sustain. One should be very careful when making an investment decision in innovation.
What will be the winning strategies that restaurants will have to embrace to win customers and retain their loyalty?
It is very tough to say but it will be the time to build up trust than to be clever to win short-term customers. Transparency will be the key. Restaurants will have to be on the toes to evolve as per every day changing scenario and customers’ needs. Also, we need to be cognizant about the fact that there could be a situation where everything could be normal as before in a few months. So, keep your eyes and ears open and ‘change quickly’ will be the mantra to survive, sustain and eventually thrive.