The first wave of the pandemic is estimated to have wiped out thousands of struggling restaurants as the Covid-19 lockdown stalled business. Other outlets pulled through by turning into cloud kitchens or taking online deliveries. A year later, surviving eateries and large chains find an opportunity.
Rents have fallen and occupancy is down as the virus has ravaged the hospitality sector a second time in two years. Meaning, there’s space available to expand either at cheaper costs or at premium locations that were completely occupied earlier.
After the national lockdown last year, online food delivery platform Zomato said the number of restaurants in India was likely to shrink by 25-40% over 6-12 months. This time, optimism, at least among big chains and well-funded food service firms, stems from vaccine rollouts despite a second wave of infections.
Westlife Development Ltd., the operator of McDonald’s stores in west and south India, plans to open 20-30 outlets in FY21 against five in the previous fiscal.
“We were even able to open an outlet at the international departure area of T2 terminal [in Mumbai],” Amit Jatia, vice chairman at the company, told BloombergQuint in an interview. “That was only possible at a time when there are hardly any flights going,” he said referring availability of space and lower costs. “We will take a long-term view and will seize such opportunities which come our way.”
Rahul Agarwal, chief executive officer at Barbeque Nation Hospitality Ltd., said some retail properties are making sense due to lower rents than the pre-pandemic levels. While there are challenges as they can’t evaluate sites, Agarwal told BloombergQuint that expansion plans are on track. The company recently raised more than Rs 450 crore through an initial public offering.
Arjun Gehlot, director at Ambience Group, said the mall developer has seen enquiries for space jump from new restaurants as well as quick-service chains.
Indians, going by a report from retail consultant Technopak, spend 8-10% of their food expenditure in restaurants, cafeterias and other such establishments. While Covid-19 has restricted that to home deliveries and takeaways, dine-ins are expected to resume after vaccination. A reason why national and international chains are considering expansion in tier-1 and 2 cities with a younger population and higher disposable income. That too at cheaper costs than pre-Covid period.
According to Pankaj Rhenjen, chief operating officer and joint managing director at Anarock Retail, QSR chains are looking for better-structured deals, at least favourable till the situation improves. Malls, he said, also prefer a stable operator for the long run and are offering options of revenue share or a discount on rent over the pre-pandemic level.
Outlets Looking To Cut Costs
Last year, as the first wave ravaged businesses, mall owners and other landlords either waived or deferred rents, one of the biggest costs for retailers to restaurants. Fresh local lockdowns to curb record infections caused by new Covid-19 mutants have again prompted restaurants owners to push for rent renegotiation.
The National Restaurant Association Of India has written to all prominent mall owners and landlords seeking “immediate measures to prevent instant death of businesses, which leave behind a trail of unfulfilled dreams, job losses and lastly, massive unwanted litigation”, according to its statement.
Among its demands are:
- Complete waiver of rentals and common-area maintenance charges till the business is shut for unrestricted dine-in.
- Pure revenue share till Covid-19 restrictions are in place.
- No minimum guaranteed rents for six months after curbs are lifted.
Jaideep Dang, managing director of hotels and hospitality group South Asia, JLL India, said Mumbai, Delhi, and Bengaluru are the worst-hit markets. Talks between landlords and restaurants have begun. While negotiating with mall owners is easier in the current situation, it’s not so with owners of high-street real estate, he said.
Ambience Group’s Gehlot told BloombergQuint that they planned to go back to the pre-pandemic rental agreements from April onwards. “But looking at the situation, we decided to offer restaurants to continue with the revenue share model for the next quarter.”
Viviana Mall, located in Thane, Maharashtra, has told restaurants it will evaluate their business before taking a call. Minimum guarantees have come down but revenue share remains intact in the range of 8-15% and new rents need to factor in revenue and worth of real estate, Gurvineet Singh, CEO of Viviana Mall, told BloombergQuint.
The earlier arrangement, according to Singh, was that rents would be hiked in April-May 2021 but Viviana Mall has not done that for anyone. In the first wave, restaurants were treated very differently and were given 100% waivers, he said.