The impact of GST on the restaurant industry is largely positive, finds Grant Thornton report

Business owners from restaurant industry in Mumbai and Bengaluru believe that the impact of Goods & Services Tax (GST) is largely positive. According to a report by Grant Thornton in India -  Bon Appétit – Emerging trends, opportunities and challenges in Indian restaurant industry, 70 per cent of the restaurant owners believe GST is a positive decision for the industry. The report further highlights that 68 per cent businesses believe that GST will ease compliance as it is backed by technology.

The report captures key observations and views of the restaurant owners across Mumbai and Bengaluru regarding the emerging trends in the industry in light of the evolving consumer preferences.

Commenting on the industry, Dhanraj Bhagat, Partner, Grant Thornton India LLP said, “The Indian Restaurant industry has evolved and grown significantly over the past two decades and continues to grow at a steady pace. This can be attributed to the changing demographics, increase in disposable incomes, urbanisation and growth of organised retail. The market is highly segmented on account of varying income levels and age bracket of the population. It can be said that ‘there is a restaurant which meets the needs of every individual in the country’.”

Like GST, demonetisation has also affected the restaurant industry. The report finds that the impact of demonetisation appears to have been more in Bengaluru, where only one-third of the respondents say there is no impact, compared to Mumbai, where it was 60 per cent. The impact does not seem to relate to the modes of payments observed as Bengaluru, with low cash component, has significant impact compared to high cash component market of Mumbai.

Also, cash is still a predominant mode of payment and accounts for 20-30 per cent of receipts in a restaurant. M-wallets have just started picking up and account for 4-5 per cent of the collections.

When asked about the key drivers for growth and success of restaurants, quality of food has emerged as the critical factor followed by ‘location’ and ‘pricing’. This is reflected in the consumer preference for healthy food. For Mumbai respondents, having organic food is more important than concerns related to pricing and cuisine preference. Affordability has been highlighted as the key emerging trend in consumer preferences, especially in Bengaluru.

High rentals and difficulty in retaining experienced staff are key challenges faced by the restaurant industry in Mumbai and Bengaluru. While lack of clarity on regulations has also been mentioned as an area of concern, Mumbai respondents expressed that inefficiencies in the operations have been adversely impacting profits.

When it comes to the preferred strategy for growth, pan-India and/or regional expansion have been highlighted as the primary strategy for growth by the respondents. In addition, Mumbai respondents have expressed that global expansion and cuisine addition are two other crucial strategies for expansion.

Mumbai’s preference for global expansion appears to be driven by the expectation of funding from Private Equity firms and cuisine addition from the availability of internal accruals, promoter fund and/or bank loans, whereas Bengaluru sees bank loans as the primary source of funding for pan-India and regional expansion.