Food & beverages sector hits a sour note

The long queues outside the Starbucks coffee stores in Delhi and Mumbai till late in the evening do not tell a slowdown story. But, experts attribute this euphoria to a much-awaited foreign brand that is aspirational in nature, and they argue the crowds might thin down once the novelty wears off. Perhaps, they have a point, as even some of the much celebrated restaurants in five-star hotels across metros have more empty chairs than anytime recently. So, too, with weekend occupancy of prominent restaurants in big cities—the numbers have suddenly dropped. Even ordering pizza at home is showing signs of slowing down.

The Federation of Hotels and Restaurant Association of India (FHRAI), the apex body for the food and beverages sector, says the fine dining segment has been the worst affected by the current economic slowdown, while the quick service restaurants are more or less stable.                               

Pointing out that global recession has created an air of austerity, Kamlesh Barot, President, FHRAI, told Business Standard that there are “no signs of revival before 2014”. The association’s estimates suggest a 30 per cent drop in the overall restaurant business of the country this financial year over 2011-12. Last year, revenue in this segment grew six per cent, and it has slipped by 5.5 per cent in 2012-13, according to industry data.

Gaurav Marya, chairman, Franchise India, agreed the fine dining business was under pressure, while quick service, cafes and casual dining were not so affected.    

In a study on opportunities in the food and beverages segment a few months ago, Technopak, set to come up with a fresh study soon on the sector, had projected a compounded annual rate of growth of 25 per cent, adding it would continue to grow with a similar pace in the next few years. Those were times when the slowdown had not hit home so hard.

According to Saloni Nangia, president, Technopak, people are increasingly turning cautious in all discretionary spends across categories. She pointed at the difference between the last time when the global recession had impacted India and now. Although the sentiment was low in 2008-09, eating out and retail were hardly hit, she said, adding that “this time, there are clear signs that people want to spend less”.

Why this streak of caution now? Nangia explained that last time around during the global slowdown, India’s economy was still showing robust growth, but not any longer. Besides the country’s economic growth rate slipping to the moderate five per cent level, high inflation has triggered a sense of caution as well in people.

Some experts however argue that it’s the medium to upper end that are getting impacted most in F&B. The typically high-end, which is more for the super rich, is still doing fine.

For instance, Starwood Hotels and Resorts, which manages an array of four and five-star properties, claimed it had not been bogged by slowdown woes, with its restaurants registering double digit growth. "We get business from our guests and also a lot of outside customers,” said Dilip Puri, managing director, India, and regional vice-president, South Asia, Starwood Hotels and Resorts.    

The only solace is that India is still far behind other countries when it comes to eating out. As Marya put it, people in India eat out or order food once in two weeks, on an average. Compare that with, say, Indonesia, where people eat out 1.5 times a day!