The hospitality sector urgently needs a push from the government, in terms of loan restructuring, GST relief and other eases.
At least 15% of Chennai’s restaurants closed permanently with Wave 2, according to industry stakeholders as businesses abruptly shut down after a year and a half of losses. On July 5, restaurants in Tamil Nadu were allowed to reopen with 50% capacity. However, many companies have chosen to remain closed because operating at half capacity would further deplete their reserves.
âIn and around Chennai, there are 10,000 registered cafes, tea stalls, large chain stores such as Namma Veedu Vasanta Bhavan, Adyar Ananda Bhavan, Saravana Bhavan, small independent restaurants, confectionery, etc. permanently, âexplains Mr. Ravi, secretary of the Chennai Hotel Owners Association. He explains that the increase in loans and mortgages to pay for GST penalties, rent, property taxes and high business operating costs have created a debt trap for many restaurant owners.
âFor 18 months, we have been closed with zero income from our establishments. During this time, we had to pay rent to building owners, interest on loans, ESI (state employee insurance) contributions, GST on businesses, etc. Says R Sreenivasan, owner of Madurai-based Vasan Tiffin Home and Secretary of State of Tamil Nadu Hotel Owners Association.
Srinivasan explains that to stay afloat, some restaurateurs have negotiated with building owners for rent reduction, while others have taken out huge loans to keep their establishments in business.
âIdeally, the state government should pass an ordinance asking building owners not to charge rent to closed businesses during an imposed foreclosure. For this, the state government must stop charging the construction or property tax that goes to its chessboard. For a commercial space of 25,000 square feet, the property tax can reach 8 lakh per year. It’s a huge sum for the owner of the building and they torture the restaurateurs even more to pay the rent, âhe adds. The Union government has so far not issued any easing of GST penalties for the hospitality sector, which has further afflicted the industry.
The hospitality industry is in desperate need of a helping hand from state and Union governments with GST penalty relief, loan restructuring and other flexibilities.
Take-out is only a part of the winnings
Speaking to TNM, Ravi said that since the pandemic, restaurants have only made 15-20% of their regular income, through take-out, including online orders from Swiggy, Zomato and other platforms. . This is not enough to compensate for the losses suffered, he adds.
âAt most, takeaway revenue can be up to 20% of the company’s total revenue. But again, this is only for branded restaurants. For small stand-alone stores and small bakeries and tea houses, the pandemic has sounded the death knell because Swiggy and Zomato have not generated any orders for them. They have no online visibility, âexplains Ravi.
KT Srinvasa Raja, who runs the popular restaurant chain Adyar Ananda Bhavan (A2B) based in Chennai in southern India, with his brother KT Venkatesan, says they expect more losses after the opening of their points of sale.
âWe do as much business as possible at lunchtime, which is from 7 to 11 p.m. But the government only allowed restaurants to stay open until 8 p.m., forcing us to sacrifice three evening rush hours. The 50% capacity clause will further reduce our profits. So we expect to only earn 10% more than what we were doing during the lockdown, âsays Srinivasa Raja.
To deal with the situation, A2B has opened a few selected outlets in the busiest areas of Chennai. âAll of our branches on highways, residential areas and less traveled roads will remain closed,â he says.
Ravi, who is the executive chairman of Namma Veedu Vasanta Bhavan, said they will close large branches 5,000 square feet and larger and move to smaller spaces.
âWe have 25 branches in Trichy and Chennai, and we are identifying larger branches to close them and move to spaces less than 2,000 square feet in order to reduce running costs,â Ravi explained.
Things will only look good for the restaurant space once tourism picks up and footfall increases.
âRight now, despite the lockdown eases, movements are very weak. Restaurant attendance has declined considerably. People spend their money on medical and health expenses and are also wary of a possible third wave that prevents them from going out to restaurants, âsaid R Srinivasan. The work from home cultivation also contributed to the losses as they lost business from the “office crowd” who over lunch and dinner.
In Chennai, 60% of the workforce employed in the hospitality industry is unemployed, says Ravi. âWe bring in workers from the northern and northeastern states and train them to become skilled workers. These are the people employed in restaurants, including star hotels in Chennai and other areas. But with the pandemic, most of them have returned to their hometowns. Either they do not want to return to Chennai, or they have already found employment in other industries in their home country. This has resulted in a huge demand for labor with the slow opening of restaurants, âsays Srinivasa Raja.
Appeals to the government and the State of the Union
On June 19, the Chennai Hotel Association wrote to Chief Minister MK Stalin, asking the government to “waive store rents, GST penalties, EMI on bank loans and private finance, water charges, EB charges, sanitation charges, municipal tax, payment charges for hotels and restaurants during the entire containment period. âThe letter also asked the state government to allow hoteliers and restaurateurs to pay EB bills in installments “instead of collecting penalties for late payments without disconnection”.
In another letter to Union Finance Minister Nirmala Sitharaman, the association called for waivers on GST penalties, GST on store rents and IME on bank loans. The letter also called for the relaxation of the GST revocation process and the restructuring of loans so that hotels and restaurants can take a break before paying them back.