Karnataka: Bengaluru hotels see gradual uptick in business, turn to ‘cloud kitchen’ model for survival

Staff shortage, inability to pay salaries to retained employees, paying electricity and water bills and other borrowings and commitments are cited as the major reasons behind the downfall of the industry in times of the pandemic.

Even though the Karnataka government has allowed calibrated reopening of services in hospitality sector from September, the hotel and restaurant industry in the state continues to be in dire straits. However, a gradual uptick in daily business has been observed in recent days even as hoteliers take to the ‘cloud kitchen’ model to keep their business running.

Staff shortage, inability to pay salaries to retained employees, paying electricity and water bills and other borrowings and commitments are cited as the major reasons behind the downfall of the industry in times of the pandemic.

P C Rao, President of the Bruhat Bangalore Hotels Association, said the growth was at a “very gradual pace” compared to that in August, when almost 40 per cent of the total restaurants in the city picked up business compared to nearly nothing in April and early May. “Since the Unlock 4 guidelines are implemented, we have seen an additional growth of 10 per cent more business,” he said.

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The Hotels Association further observed that at least 14 per cent (3000 out of the total 21,000) of the restaurants in the city were yet to resume operations while a thousand of them have closed permanently due to the lockdown.

“While most restaurant clusters in Bengaluru are located in HSR Layout, Koramangala and Indiranagar areas, those that have been shut and are at the verge of closure are located in other parts of the city,” Rao added.

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Tourism Minister C T Ravi said an estimated 28 to 30 lakh people had lost jobs in the industry in the last five months. While he was hopeful that these job losses were “temporary” and would recover soon, hotel owners contended that the process would not be easy.

“People are still wary of the virus infecting them. Travelling, tourism, and other related sectors will pick up once normal life is restored fully. The draft of the new tourism policy will be tabled for approval in the upcoming Assembly session beginning September 21,” Ravi said.

Meanwhile, former president of the Karnataka Hotel Owners’ Association M Rajendra asserted that at least 25 lakh of these job losses were from 50,000 hotels, restaurants, and bakeries in the state. “Over 35 per cent of these are at a selling-off position now as businesses are struggling to even pay bills regularly. While most people employed in the sector were from north Indian states like Odisha, Bihar and some northeastern states, only a very few chose to stay back for work when the pandemic was at its first peak,” he said.

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At the same time, he said hotel managements could only afford to retain a smaller share of employees who stayed back as there was hardly any turnover in the last five months.

“Even as operations resumed earlier this month, most restaurants that used to make business worth Rs 50,000 daily have now been reduced to a maximum of Rs 15,000,” Rajendra said.

Meanwhile, hoteliers cite the advent of the ‘cloud kitchen’ model — a concept where cooking takes place solely to fulfill orders received from online food ordering portals — has helped business survive even though they are not generating any profits.

How Karnataka restaurants survived by evolving to virtual cloud kitchens

Following the imposition of lockdown, several restaurants turned to “cloud kitchens” overnight.

“Through Swiggy Access, our cloud kitchen initiative launched in 2017, we made significant investments to create one of the largest cloud kitchen networks, based on the belief that a large part of the future restaurant industry will be delivery-only. Access kitchens are enabling this transition for our restaurant partners,” a Swiggy spokesperson told Indianexpress.com.

Even though dine-in operations have resumed, consumers are still skeptical of eating out at restaurants. “Therefore, many restaurants in India are looking towards cloud kitchens, which is an asset-light model and helps with keeping running costs low while continuing to serve customers,” the spokesperson added.

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A similar trend has been observed by food delivery firm Zomato as well, which believes that the food-delivery industry has largely recovered, with the sector clocking around 75-80% of pre-COVID GMV (gross merchandise value). “With everything going digital, restaurants are opting for dynamic menus and focusing on customer favourites for swift revival,” a company spokesperson at Zomato said.

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However, several restauranteurs in Bengaluru are not in favour of the “cloud kitchen” model as it hardly helps in generating profits.

“While the maximum profit we make for a dish might be 25 per cent after all costs involved in the making, online food aggregators take a commission of over 20 per cent from these, leaving us with nearly no profit. Such a situation is not ideal for small-scale businesses, especially in these testing times,” the proprietor of an Andhra mess outlet operating in Koramangala 4th Block said.

Echoing him, Rao of the Bruhat Bangalore Hotels Association pointed out that consumers picked only popular restaurants for online delivery during the lockdown period. “This was another challenge faced by single-outlet restaurants struggling to survive,” he said.

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Rajendra urged the government to take proactive measures to support the ailing industry. “The government should consider slashing interest rates on loans and other borrowings for at least a year from now. For those repaying loans, EMI payments should be halted until December 2021. Else, the survival of the hotel sector will be in doubt with the same expected to have a longing impact to the Karnataka tourism industry as well,” he said.