Mumbai | New Delhi: More than two-thirds of India’s top restaurants and cafe chains either saw losses widening or posted lower profit during FY18 due to the rollback of input tax credit (ITC), inflationary pressures, hyperlocal delivery services and overheads such as steep rentals.
While 16 restaurant businesses that filed annual financial numbers with the Registrar of Companies expanded their combined sales by 17% to Rs 4,740 crore,13 of them were still in the red. Eleven had bigger losses or lower profits in the year ended March 2018 compared with a year ago. Combined losses of these firms stood at Rs 250 crore against about Rs 141 crore a year earlier, data from regulatory filings revealed. Most businesses in the organised end of the industry are not publicly listed.
“The
GST (goods and services tax) rollout had the most significant impact on our business since input tax credit was rolled back,” said Riyaaz Amlani, chief executive officer of Impresario, which operates the Smoke House Deli and Social restaurant chains. “Besides, we were not allowed to increase prices, despite escalating input costs and competitive pressures.” GST was implemented in July 2017.
In the past two years, the eating-out sector has been grappling with consumers cutting back on discretionary spending, a ban on liquor sales along highways and the introduction of GST. In November 2017, the government scrapped input tax credit (ITC), which accompanied a cut in GST to 5% from 18% for restaurants. Despite the relief, this move effectively lifted capital expenses and rentals by 15-18%, according to the industry.
Unlike unorganised restaurant businesses that purchase raw material in cash, the organised segment was hit by the inability to claim tax credit. This resulted in the cascading of tax as well as price increases for consumers, said the National Restaurant Association of India (NRAI), which represents over 5,000 restaurant brands.
“There is a direct impact of 5-10% to the bottom line due to removal of ITC and we can't arbitrarily pass it to consumers due to market forces and competition from cloud kitchens,” said NRAI president Rahul Singh.
Earlier this month, the association had raised concerns over food aggregators such as Swiggy and Zomato turning consumers into “discount addicts” and setting up centralised kitchens in competition with restaurants.
“There are headwinds coming from cloud kitchens which have a leaner cost of operations and non-compliance to regulations coupled with deep discounting and inventory management by food aggregators,” Singh said.
The eating-out market in India, dominated by unorganised players, is expected to reach $131 billion by 2022. Total sales in the quick service restaurant (QSR) segment is estimated to grow 9.2% to $21.6 billion by then, according to Euromonitor data.
Restaurateurs expect better numbers in the current fiscal, at least in terms of top line.
“Our consumption outlook is positive now, with the eating out sentiment picking up, international operations, and foray into delivery space,” said Zorawar Kalra, managing director and founder, Massive Restaurants which runs finedining brands Masala Library and Farzi Café, adding that GST rollout “dented profitability significantly”.
Source: economictimes.indiatimes.com