Food services industry ends difficult year as note ban, GST, liquor ban hit hard
New Delhi: For the food services market, 2017 was one painful year, as it reeled under the ripple effects of the invalidation of high-value banknotes and rollout of the goods and services tax (GST), to a highway liquor ban.
“The year has been very difficult for the food services market, especially the liquor category. With the highway alcohol ban, the market was shaken for a while. A lot of people lost employment during that time,” said Karan Tanna, founder and chief executive officer at Yellow Tie Hospitality Management LLP, a food and beverage franchise management firm that operates brands like Genuine Broaster Chicken and Just Falafel.
In December 2016, the Supreme Court prohibited sale of liquor up to 500 metres from highways starting on 1 July 2017. Bars and restaurants with liquor licenses saw a revival after August, when the apex court partially lifted the highway ban on the sale of alcohol by exempting municipal areas across the country.
Additionally, the GST Council also reduced the tax rates for all restaurants, except the ones located within hotels with room tariffs of Rs7,500 and above, and outdoor catering—to 5% in November. Earlier, the levy was 18% for air-conditioned eateries and those with liquor licenses, and 12% for non-air-conditioned restaurants.
Despite the relaxations (in terms of GST and liquor ban), there were some segments that couldn’t recover at all. Premium dining is one such segment which got severely hit due to the regulatory changes, says Gaurav Marya, chairman of franchise solutions company Franchise India, which manages more than 100 food and beverage brands.
“There has been no absolute growth in the prime dining segment. 2017, in fact, was the year when people moved from dining to deliveries and there was the lowest level of customer loyalty. The highest growth was experienced by food delivery platforms and convenience (casual) dining. While food delivery players saw a 40% growth, casual dining grew between 18-20%,” said Marya.
Meanwhile, quick-service restaurants were committed to reinventing themselves to boost sales and revenue. Jubilant FoodWorks Ltd, which operates Domino’s and Dunkin’ Donuts outlets in India, spent Rs100 crore to tweak products for the pizza chain, change its packaging and launch a new marketing campaign. Yum! Brands-owned Pizza Hut said it was revamping more than 350 stores across the country at a cost of Rs2 crore per outlet to adopt an ‘open kitchen’ concept.
Quick service restaurant (QSR) industry executives believe a reinvention of brands is inevitable with the rise of casual dining and deliveries, and increasing competition. “We were the first ones to reset our brand; we called the trend in 2016. The consumption pattern is changing with a fast casual dining and online deliveries. Fundamentally, QSR has to follow convenience, affordability and taste. So, brand transformation is required to have these fundamentals all the time,” said Unnat Varma, managing director at Pizza Hut (India subcontinent).
2017 also saw one of largest global fast food chains and the second largest in India battling its local partner. American burger chain McDonald’s, in August, terminated its franchise agreement for 169 restaurants with long-time joint venture partner in north and east India, Connaught Plaza Restaurants Pvt. Ltd (CPRL) run by Vikram Bakshi.
As 169 restaurants have been staring at closure as a result of this termination, the future of 6,500 McDonald’s employees remains uncertain and what has escalated is a headline-grabbing legal conflict in multiple forums. To be sure, Bakshi and McDonald’s have been at loggerheads since 2013 when the latter had voted against the re-election of Bakshi as managing director of CPRL.
While the food services market has seen a tough one year, 2018 seems promising with more than 60 global food and beverage brands, including theme restaurant chain Planet Hollywood and pizza chain Little Caesars, planning to enter India to cash in on and grow the Rs3.09 trillion food services market in India. All these brands are expected to invest $1 billion and open as many as 5,000 outlets over the next five years.
“Although the last year has been tough, many international brands are looking at India for growth and expansion. India is a good opportunity. The disposable income is increasing; people are willing to experiment with their food and try new products,” said Aashish Kasad, partner and consumer products and retail sector tax leader at consulting firm EY India.
With the new product and brand launches, the food services market is poised to be a Rs4.98 trillion market by 2021, according to a joint report by National Restaurants Association of India and consulting firm Technopak Advisors.
The promoters of HT Media Ltd, which publishes Mint, and Jubilant FoodWorks, which runs Domino’s and Dunkin’ Donuts, are closely related. There are, however, no promoter cross-holdings.