F&B segment sees 20 per cent drop post demonetisation

The latest move not only caught everyone by surprise but it has caused a lot of heartburn for the city’s hospitality chains. Managers now say that the cash-dependent Food and Beverage (F&B) divisions of their enterprises have been dealt a massive blow, post demonetisation. Giving us an overview of the impact that this monetary decision has had on the industry in this part of the country, R Srinivasan, Managing Director, Radha Regent said, “Patrons of our hotel who had previously booked big banquet halls are considering to downsize by inviting fewer guests. There has been a dip in travel and especially food and beverage spend. F&B is down by about 20 per cent due to demonetisation.” 

Incidentally, the country’s cash-rich F&B sector is estimated to be growing at around 15 per cent annually. A joint report of FICCI and Grant Thornton pegs the growth to touch Rs 3.8 trillion by March next year with fast food joints taking a lion’s share of 45 per cent.  An industry veteran, on condition of anonymity, revealed that the standalone F&B segment (retail based channels) has been hit the maximum due to the demonetisation. “Cash constitutes a large component of the F&B business. The latest move of the government to go cashless has operators book sales only to the extent of being able to show it on record, i.e. legally. The simple logic is that one cannot evade tax by showing deflated figures as all transactions are being routed through digital payment gateways. Now they will not be able to explain sudden surges in business in their financial records,” he says.  

Though occupancy levels (70 per cent) have not been an issue, it is the stand-alone F&B players, who post a threat for hospitality brands. Despite their five-star pricing, customers tend to prefer such F&B outlets, triggering cut-throat competition among hospitality players, notes T Nataraajan, CEO of GRT group of hotels, who goes on to add that average room rate realisation has also been a challenge. In his capacity as a Treasurer with the South India Hotel and Restaurants Association, he says the industry in the metro suffered extensive loss of property and business to the tune of Rs 40 crore in the aftermath of the December 2015 flood.  Established brands such as GRT, Residency Towers, Raintree and The Park bore the brunt of the rain fury last year. They bounced back to normalcy soon with Residency Towers opening up 10 days after the floods. 

GRT alone remained shut for four months and after renovation (incurring Rs 10 crore for the same and a business loss upwards of Rs 15 crore), started functioning earlier this year. The other two got hit to the extent of partially suspending operations for a while. Meanwhile, according to information available on public domain “the long-term outlook for the Indian hospitality business continues to be positive, both for the business and leisure segments with the potential for economic growth increase in disposable income and the burgeoning middle class.” But with oversupply in Bengaluru, Chennai and Hyderabad, forcing hospitality players to look at options such as asset management projects, it is to be seen how the industry will cope up after the Christmas and New Year season, which are not thriving seasons for the domestic sector.