emerging trends, opportunities and challenges in indian restaurant industry · 2019-01-01 ·...
TRANSCRIPT
January 2018
Emerging trends, opportunities and challenges in Indian restaurant industry
Bon Appétit
02 Bon Appétit
Contents
Foreword 03
Keydriversandemergingtrends 04
Growthandstrategy 05
Keychallenges&opportunities 06
Thechanginglandscape 07
Potentialfraudrisksandmeasures 09
Newsthatmatters 11
1.Servicechargeconundrum 11
2.Definingportionoffoodserved 11
3.Alcoholbanonhighways 12
4.Banonsaleofcattleforslaughter 12
Demonetisation:Theaftermath 13
GST:Apositivedecision 14
Unifiedtaxwillsimplifytaxation 15
Disclaimer:ThisdocumentispreparedbasedonthesurveycarriedoutduringtheeventsheldbyNRAIinMumbaiandBengaluru.Alsoinformationavailableinthepublicdomainandbasedonpublicannouncementswasconsideredinpreparingthisdocument.Further,ouranalysisisbasedonappropriateassumptions(wherevernecessary).GrantThorntonIndiaLLPdoesnottakeanyresponsibilityfortheinformation,anyerrorsoranydecisionbythereaderbasedonthisinformation.Thisdocumentshouldnotberelieduponasasubstitutefordetailedadviceandhence,wedonotacceptresponsibilityforanylossasaresultofrelyingonthematerialcontainedherein.
Whilstduecarehasbeentakeninthepreparationofthisdocumentandinformationcontainedherein,GrantThorntoninIndiadoesnot,acceptanyliabilitywhatsoever,foranydirectorconsequentiallossarisingfromanyuseofthisdocumentoritscontentsorotherwisearisinginconnectionherewith.
Bon Appétit 03
TheIndianRestaurantIndustryhasevolvedandgrownsignificantly over the past two decades and continues to grow atasteadypace.Thiscanbeattributedtothechangingdemographics,increaseindisposableincomes,urbanisationandgrowthoforganisedretail.
The market is highly segmented on account of varying income levelsandagebracketofthepopulation.Itcanbesaidthat“there is a restaurant which meets the needs of every individual inthecountry”.
Over the past two decades, the industry has witnessed the emergenceofdomesticbrandsonaregionalandnationallevelandalsotheentryofforeignbrands.Segmentssuchasfinedining,casualdining,quickservicerestaurants,cafes,etc.,arenowoperatinginmosturbanareas.
The emergence of malls and other destination spaces has fuelledthegrowthoftherestaurantindustry.Variousformatswithinnovativethemeshavebecomepopularplacesfortheyouth and family to visit and the growing culture of outdoor entertainmenthasaddedtothis.
Thehomedeliveryspaceisseeingachangeintrend.Moreandmorefamiliesareoptingforfoodtobedeliveredathome.Also,thepenetrationofe-commercehasbeenresponsibleforthegrowthofthisformat.Thefutureofthissegmentisverybright.
The market is highly segmented on account of varying income levels and agebracketofthepopulation.Itcanbesaid that “there is a restaurant which meets the needs of every individual in thecountry”.
Foreword
Thistrendcoupledwithscopeforuniquenessandscalabilityhas attracted investment into the industry within India and fromabroad.Severalsuccessstoriesofbothdomesticandmultinational companies investing in the industry are examples ofthesecurrenttrends.
Inthiscontext,wearehappytobringyouthepublication‘BonAppétit – Emerging trends, opportunities and challenges in Indianrestaurantindustry’,capturingkeyobservationsandviewsoftherestaurantownersacrossMumbaiandBengalururegarding the emerging trends in the industry in light of the evolvingconsumerpreferences.
Hopeyouwillfindthispublicationinsightful.Asalways,wewelcomeyourfeedback.
Dhanraj BhagatPartner GrantThorntonIndiaLLP
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Key drivers and emerging trends
Every restaurant that stands the test of time offers a uniquevaluepropositiontothecustomer.Therestaurantownersneedtobuildontheirstrengthsandinnovatetoensurelong-termsustainability.
Dhanraj BhagatPartner GrantThorntonIndiaLLP
Qualityoffoodhasbeenhighlightedasthecriticalfactorforsuccessofrestaurantbusinessfollowedby‘location’and‘pricing’.Thisisreflectedintheconsumerpreferenceforhealthyfood.ForMumbairespondents,havingorganicfood is more important than concerns related to pricing and preferenceofacuisine.
Locationdeterminestheaccessibility,therebyconvenienceforacustomer,whereaspricingdeterminestheaffordability;hencetheseappeartobethekeyfactorsdeterminingconsumerpreference.Infact,affordabilityhasbeenhighlightedasthe key emerging trend in consumer preferences specially in Bengaluru.
Ambience,menuandcuisineareratedabithigherinMumbaicomparedtoBengaluru,wheretheavailabilityofoffersandalcoholarehighlightedasthekeyfactors.
Healthyfood
Organicfood
Affordability MultiCuisine
GlobalCuisine
Mumbai Bengaluru
54%
40%34% 34% 34%
52%
17%
41%
24%31%
Emerging consumer preferences
Quality of food is key to the success of a restaurant
Quality of food Location Pricing Ambience Menu Cuisine Offers Alcohol
77%
57% 60%
43%37%
31%26% 26%
69%59%
52%
34% 31%21%
31% 28%
Mumbai Bengaluru
Offering high-quality food ensures success in the Restaurant business
Growth and strategy
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Pan-Indiaand/orregionalexpansionhavebeenhighlightedastheprimarystrategyforgrowthbytherespondents.Inaddition,Mumbairespondentshaveexpressedthatglobalexpansion and cuisine addition are two other crucial strategies forexpansion.
CuisineadditionappearstobeinlinewiththeemergingtrendinMumbai-basedconsumer’spreferencesforglobaland/ormulti-cuisine.
Global,pan-Indiaorregionalexpansionstrategiesappearstobedrivenbythesourcesoffundsavailabletotherestaurateurs,whichishighlightedinthechartsbelow.
Mumbai Bengaluru
43%46% 45%
29%
17%24%
29%
14%
Cuisineaddition
Regionalexpansion
Pan Indiaexpansion
Globalexpansion
Pan-India expansion is the preferred strategy for growth
Sources of funds for expansion
Bengaluru
24%
52%
24%17%
PromotorFunds
PrivateEquity
BankLoans
InternalAccruals
Mumbai
40% 37%
54%
37%
PromotorFunds
PrivateEquity
BankLoans
InternalAccruals
Mumbai’spreferenceforglobalexpansionappearstobedrivenbytheexpectationoffundingfromPrivateEquityfirmsandcuisineadditionfromtheavailabilityofinternalaccruals,promoterfundand/orbankloans,whereasBengaluruseesbankloansastheprimarysourceoffundingforpan-Indiaandregionalexpansion.
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Key challenges & opportunities
High rentals and retention of experienced staff are the top two challenges
Top challenges faced by the industry
Mumbai Bengaluru
74%High rentals
Retention ofexperiencedstaffLack of clarity
on regulation
Inefficienciesimpacting the profit
46%48%
34%
37%
29% 17%
62%
HighrentalsfollowedbydifficultyinretainingexperiencedstaffhavebeenthekeychallengesoftherestaurantindustryinMumbaiandBengaluru.Whilelackofclarityonregulationshasalsobeenmentionedasanareaofconcern,Mumbairespondentsexpressedthatinefficienciesintheoperationshavebeenadverselyimpactingtheprofits.
Key drivers for efficiency and profitability
Mumbai Bengaluru
43%
31% 34%29%
46%48%
31%
24% 24%
14%
Higher rate of table turns
Staff retention
Promotional schemes
Implementing IT systems
Centralised kitchen
While these challenges exist, restaurateurs feel that a sustained focus on staff retention, centralised kitchen, promotional
schemes and implementation of IT systems, will help a restaurantinbecomingefficientandmoreprofitable.
Mumbairespondentsratedhigherrateoftableturnsasthesecondmostimportantfactorafterretentionofstaff.
Trend in IT systems adoption
NoYes Maybe
68%
59%
87%
28%
39%
13%
3%
2%
Online orderingplatform
Bookingmanagement
Billing system
One of the key initiatives, which helped the industry in reducing inefficiencies, is the widespread adoption of the IT systems for billing,bookingmanagementandonlineorderingplatforms.ThesurveyrevealedwhilebillingsoftwarehasbeeninstalledinmostoftherestaurantsacrossBangaluruandMumbai,bookingsoftwarehasalessercoverage.
Restaurantsarealsoinvestinginonlineorderingplatformsdueto the recent emergence of home delivery as an additional sourceofincome.
While many respondents are seeking help from third party vendors for these systems, majority of them have mentioned thattheyareyettomoveontocloudbasedsystemswhichshould help them rationalise the cost of IT infrastructure and systems.
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Mostbusinessesnowareusingtechnologytoadvancetheiroperationsandtherestaurantindustrycannotbeleftbehind.Useoftechnologyhasbroughtinlotmoreconveniencetocustomers,notonlywithintherestaurantpremises,butalsowhenonewishestoorderatakeaway.Fromrestaurantreviewstoseeingtheitemsonthemenutobenefittingfromoffers/discountstoorderingfoodfromtheconvenienceofhome/office,customersisempoweredtomakeachoicebytappingtheirsmartphonescreens.
Likewiseforrestaurateurs,technologyisbecomingthedriverforsourcingqualitysuppliesatrealtimeprices,ensuringquickerfoodserviceandturnarounds,buildingefficientkitchensandfactoringinreal-timecustomerfeedbackforrelationshipmanagement.Thepaceoftechnologicaltransformationisonlygoingtoacceleratewithcontinuousinnovationsanddisruptivetechnology,whichisexpectedtodriveconsumerexpectationsandbehaviours.Theindustryneedstobeadaptabletoeverytechnology-leddisruption.
Kuresh KhambatiAssociate Director GrantThorntonIndiaLLP
The changing landscape
Home delivery: Scaling new heights
Home delivery and the impact on the industry
15-25%5-15%< 5% >25%
Mumbai
40%
56%
33%
38%
20%
6%
7%Bengaluru
Over the years, home delivery has risen as a major source forincreasingrevenueintherestaurantindustry.Withtheadvent of the online platforms, home delivery has started contributingahighershareofrevenuecomparedtothepast,whenthesamewasminiscule.While,lessthanhalfofMumbaibusinessesgetashareof5percentormorerevenuefromhomedelivery,itishigherforBengaluru(around60percent).Infact,someestablishmentsappeartoreceivemorethan25percentofrevenuefromhomedeliveryinBengaluru.
Modes of fulfilment
29% 38% 33%
39% 26% 34%
HybridInhouse Outsourced
Bengaluru
Mumbai
Managinghomedeliverieshasevolvedovertheyears;thedistancecoveredandthetimestakentodeliverhavebeenaffectingthequalityofdeliveryservices.Theorderbookingand fulfilment is carried out in-house or outsourced or through ahybridmodel(orderfulfilmentin-houseanddeliveryoutsourced).Whilethedistributionismoreorlessuniformacrossthesemodels,boththecitiesdifferintermsofmodelsthatwork.Mumbaihashighershareofin-housemodelascomparedtoBengaluru,whichhasahighershareofhybridmodel.
Outsourced model has got impetus with the advent of technology and the m-commerce platforms connecting restaurantswiththeconsumers.Thepotentialoffooddeliveryspace has seen the emergence of start-ups and the private equity/venturecapitalfirms,whichhaveshownkeeninterestinfundingthesebusinesses.
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Deal activity in home delivery space
Volume Value
2014 12 181
2015 56 451
2016 32 148
2017* 14 124
*2017isindicativeoftheperiodJan17toSept17
Withtheadventoftechnology-ledfooddeliverybusinesses,the food delivery space has witnessed significant overall deal tractionin2015ascomparedto2014,withbig-ticketPE/VCinvestmentsandstakeacquisitionsinthesector.ThiswasmainlydrivenbyRocketInternetandGoldmanSacs’USD210mninvestmentinFoodpandaandZomato’sUSD60mnfundraise.
Thebigticketinvestmentsof2015werenotreplicatedinthesubsequentyears.However,2016and2017witnesseddealslikeSwiggy(fooddelivery)raisingUSD137mn,whereasFreshmenu(foodpreparationanddelivery)raisedUSD16.5mnandLicious(meatdelivery)raisedUSD13mn.Foodpanda,Zomato,Swiggy,FreshmenuandLicioushavebeenscalingupthroughinvestmentsandacquisitionofsmallerplayersintheindustry.
OtherbusinessmodelsinthissectorlikeHolaChef(onlinemarketplaceforchefs),InnerChef(operatesacentralisedkitchenanddeliversthefood)andChef’sBasket(readytocookpackagedfood)havealsoevincedinvestorinterestinthelastfewyears.
Sustainableandadaptablebusinessmodels(beitinhomedelivery,global,multicultural,etc),wheretheofferingsareinlinewithchangingconsumerbehaviourandexpectations, have retained the interest of the investors in theindustry.Overthelastfewyears,playersinthefood-techspacehavehadtopivottheirstrategiesandbusinessmodels in order to stay competitive in an environment of rationalising investor sentiment
Shanthi VijethaDirector GrantThorntonIndiaLLP
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Potential fraud risks and measures
Whilechallengesexist,onemustbeawareoftheriskoffraudinthisindustry.Today,therestaurantindustryfaceschallengeslikehighrealestateandmanpowercosts,inadequatesupplychain and financing issues impacting the longevity of its businesses.Onemustalsoconsidertheriskoffraudthatlurkson the horizon and has deep impacts on ensuring whether the restaurateursmaketheirventurespalatableforthemselvesandtheeconomyatlarge.
Therestaurantindustrytypicallyfacesthefollowingfraudrisks:1 Theft of cash and inventory: Restaurantbusinessesare
cashintensivebynature.Therefore,theftofcashbecomesthe most prominent and easy to execute fraud scheme, wherein the employees of the restaurant can find numerous waystosiphonawaycash.Highvalueinventoryisalsopronetotheftsduetoalackofwell-builtincontrolsandmechanisms.Theriskoftheftgetsexacerbatedduetothehigh turnover among junior level staff who find the lure of easymoneyquitehardtoresist.
2 Intellectual property thefts: Of late, restaurants have started experimenting with their recipes and concepts,termedas“glocalising”byRiyaazAmlani,widely acknowledged as one of India’s most innovative restaurateurs.Thesecreativerestaurantsarevulnerableto a different type of threat wherein their competitors/counterpartsinthesamebusinesswouldcopytheirformatsorstealtheirrecipes.
3 Brand protection: It’snotuncommontoseearumbleddownversionofTajMahalPalaceacrossIndia.Otherrestaurantsandcafestooaresusceptibletothisthreatwhereintheirnamescouldbeusedtosetuparundownversiontherebyimpactingtheirbrandandreputationadversely.
4 Relationship with investors: These alliances are fraught with issues of mistrust stemming from the fact that investors/privateequityplayersdonothavevisibilityaboutthewaythebusinessismanaged.Toaddtotheirdiscomfortisoftentheburgeoningproblemofnegativecashflowswhichmakestheinvestors/privateequityplayerswonderaboutthereturnoninvestment.Theseacrimoniousalliancesoftenendinthe involved parties parting ways to the detriment of the business.
5 Partnerships with food service apps for delivery of food: Customersarebuzzingtowardsfoodserviceappsforhome delivery, making these apps an integral part of the restaurantindustry.FoodPandawasinthenewsrecentlyfor all the wrong reasons serving as a clear example of how, ifsuchrelationshipsarenothandledwell,thenboth,theappserviceprovideraswellastherestaurantwillsuffer.
6 Financial misstatement frauds: The restaurateurs or their employees, in an attempt to present a rosy picture to their partners/bankers/investorsmayendupmisrepresentingthebooks.Thiswindowdressingoffinancialscouldbe,attimes,requiredtopreventthestakeholdersfrombecomingawareoffundssiphonedawayfromthebusiness.
7 Fictitious/excess purchases: The employees of the restaurant in collusion with various suppliers may indulge inpurchasingexcessivequantitiesoratfavourableratesorsimply making payment against fictitious invoices in return foracommission.
8 Dealing with authorities: Given the regulated nature of the restaurant industry in India, there are multiple touch pointsbetweenthegovernmentandrestaurants.Thisgivesrisetotheriskofbriberyandcorruptionwhichtherestaurateursneedtomanage.
9 Theft of customers’ personal information: Credit card theftsarenolongerstrangeintherestaurantbusiness.Thesebusinessesposeaneasyopportunityformiscreantstostealvaluableinformationandmisuseitfortheirownbenefits.
10Frauds by customers: Given the retail nature of the restaurantindustry,itispronetobeingdefraudedbyahostofwaysinwhichthecustomerscoulddefraudthem.Forinstance-
• Use of forged coupons/gift cards,• Faking an injury and claiming compensation,• Claiming compensation for deficient services, which are not
deficient,• Availing wrongful refunds through false accusations, • Eatandwalkawaywithoutpayingthebill,onthepretextof
an urgent call
10 Bon Appétit
11Excessive charges in the name of taxes:Sometimesemployees levy unnecessary charges in the name of taxes onthecustomerbillswhicharesubsequentlypocketedbytheemployeesthemselves.
12Obtaining requisite licenses or renewing them: The restaurateursmayfeelinclinedtocutcornersbyfunctioningwithoutavalidlicenseorbynotrenewingthelicense.Thiswillhaveseriousimpactsinthefuture.
The restaurant industry cannot afford to adopt an ostrich approachtotheseproblemsandhopeforamiraclewhileitburiesitsheadinthesand.Theidealsolutionwouldbetotakethebullbyitshornsandadoptmoderntechnologiesofintegrated software and surveillance, periodic reviews and audits,dataminingandmonitoringofsocialmedia.Allthesethings put together will yield insightful results necessary to take correctiveandpromptactionstoensureprofitable,ethicalandsustainedgrowth.
After all, as they say, the proof of the pudding is always in the eating!
Samir ParanjpePartner GrantThorntonIndiaLLP
Bon Appétit 11
News that matters
1. Service Charge conundrumInJanuary2017,theDepartmentofConsumerAffairsthroughanotificationhasaskedtherestaurantstonotaddtheservicechargemandatorilytothebill.
On21April2017,thegovernmentofIndiaapprovedguidelinesonservicecharge,whichstipulatesthatservicechargeistotallyvoluntaryandnotmandatorynow.Hence,thespaceforservicechargeinabillneedstobeleftblanksothatthecustomerscanfillitupbeforemakingthefinalpayment.
Ifthereismandatorylevyofservicecharge,customerscanfileacomplaintintheConsumerCourt.
2. Defining ‘portion of food served’Addressingthenationon26March2017inthe30thepisodeofhisradioprogrammeMannKiBaat,thePrimeMinisterShriNarendraModiurgedthenationtofightthemenaceof‘foodwastage’,reiteratingthatpreventingfoodwastagewillbenefittheeconomy.
InspiredbythethoughtsofthePrimeMinister,MinisterofConsumerAffairsRamVilasPaswansaidthatcontrollingtheportionof food served is the key to prevent wastage of food and his ministry would soon define portion sizes of food served in hotels andrestaurants.
MostoftherespondentsacrossMumbaiandBengaluruhaveindicatedthatservicechargeshouldbemandatorilyaddedtothebill(fixedat10percent).Therespondentssupportedtheirargumentbyexplainingthatservicechargeisanimportantcomponent of service staff compensation as it is pooled and distributedbetweenthem.
Interestingly,anequalnumberofrespondentsinMumbai(otherthanthefixedrateresponses)areoftheopinionthatservicechargerateshouldvarybasedontheexperienceofthecustomer.
Thisinitiativeisaimedatreducingthewastageoffoodandthegovernment’sintentionisgood.Atthesametime,itisaratherdifficultregulation(ifatallitisinplace)tobeformulatedsincestandardisationacrossdishes,cuisines,pricepoints,etcisachallengingexercise.Further,implementationofthesamewouldrequireconstantmonitoringoftherestaurantswhichinitselfacumbersomeexercise.
Response on the fixed rates of service charge as a % of food bill
8%10% 5%
Bengaluru
Mumbai
55%
74%
23%
11%
23%
16%
12 Bon Appétit
3. Alcohol ban on highwaysInalandmarkjudgement,theSupremeCourtofIndia,itorderedclosureofallliquorshopsalongnationalandstatehighwaysiftheywerewithinarangeof500mfromtheedgeofsuchhighways,directinggovernmentsto“ceaseanddesist”fromissuingexciselicensesafter31March2017.Thebancameintoeffecton1April2017.
Also,on23August2017,theSupremeCourtclarifiedthatthebanonsaleofalcoholwithin500metersofstateandnationalhighwaysdoesnotapplywithincitylimits,grantingrelieftotheliquorandhospitalityindustry.Theorderfurtherclarifiesthatitisapplicabletosaleofliquoralongandwithinproximityofhighways,whichprovideconnectivitybetweencities,townsandvillagesanddoesnotprohibitlicensedestablishmentswithinmunicipalareas.
4. Ban on sale of cattle for slaughterInamoveamountingtoavirtualbanonunregulatedtradeofcattle,theCentre,on26May2017,announcedstrictrulestoprohibitsaleofanimalsforslaughterorreligioussacrificeatlivestockmarketsandanimalfairs.Theanimalsunderpurviewarecows,bulls,bullocks,buffaloes,steers,heifers,calvesandcamels.TheMaduraibenchoftheMadrasHighCourthadstayedcertainportionsoftherule,includingtherequirementthatthosetradinginanimalmarketsshouldgiveanundertakingthattheanimalwouldnotbeslaughtered.
On11August2017,theSupremeCourtstayedtheCentre’snewruleonlivestocktradethatrestrictedslaughter.
Theapexcourt’sdirectiveiscertainlywellmeantandforpublicinterest.Itspringsfromthefactthatdrunkendrivingisthereason for death of thousands of people each year on our highways.
Havingsaidthat,ablanketbanonallliquoroutletsoperatingwithin specified limit from the highways is a sweeping measure thathasputthousandsofbusinessesemployinglakhsofpeopleinatightspot.
Somehotelswhich,duetotheirproximitytothehighwaysweresought-afterbybusinesstravellersandtouristshavebeenhitduetoalcoholbanalongthehighways.Sincealargenumber
Thebanislikelytohaveasignificantimpactonthehospitalityandtourismindustryashotels,restaurantsandcateringsegmentsremainoneofthelargestconsumersofbeefinthecountry.
of domestic as well as foreign customers would avoid dry establishments,loweroccupanciesaffectedoverallrevenuesandprofitability.Manysatellitecities/suburbanareasinmetrocitiesinIndiahavebeenbuiltaroundthehighwaysandmanyofthehotelsinthesecities/areashavingin-housebarsandpubswerestaringatuncertainfuture.Suchuncertaintywouldhaveledtoenormouslossestobusinessandtourism,whichwilltranslateintojobslossaswellashugerevenuelossesforstategovernments.
However,withaclarificationinAugust2017,thebanhasbeenliftedfromthelicensedestablishmentswithinthemunicipalareas.
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Demonetisation: The aftermath
Share of revenue impacted
<30%<20%No Impact >30%
Mumbai
Bengaluru 33% 41% 11% 15%
60% 13% 20% 7%
TheimpactofdemonisationappearstohavebeenmoreinBengaluru, where only one-third of the respondents say there isnoimpactofdemonetisation,comparedtoMumbai,whereitwas60percent.
The impact does not seem to relate to the modes of payments observedasBengaluruwithlowcashcomponenthassignificant impact compared to high cash component market ofMumbai.
Cash is still a predominant as a mode of payment and accountsfor20-30percentofreceiptsinarestaurant.M-walletshavejuststartedpickingupandaccountfor4-5percentofthecollections.
Preferred modes of payment
CouponsCashCredit card M wallets
Mumbai Bengaluru
64% 74%
19%30%
2% 2%4% 5%
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GST: A positive decision
GSTintroductionandimplementationinIndiathrowsshorttermchallenges.Overaperiodoftime,itwillcertainlyyieldpositiveresults,especiallyfortherestaurantindustry,whichislargelydominatedbyunorganisedmarketplayersnotregisteredunderanylaw.Theseplayerswillbeforcedtoregulariseforsustainabilityandgrowth.Further,simplifiedtaxstructureandtransparentapproachwouldalsohelpingainingtrustandconfidenceofsuchunorganisedplayers.
Biren VyasPartner GrantThorntonIndiaLLP
NeutralPositive Negative
70%
21%
8%
of the respondents feel it will bring tax evaders into the tax net
of the respondents feel that the impact of GST on the restaurant industry is largely positive
say there should be no exclusions
of the respondents feel it will ease compliance as it is backed by technology
feel nil rate/lower rate of GST should be applicable for restaurants in SEZ
of the respondents feel it reduces litigations
of the respondents feel all goods and services including the current exempted ones – alcohol, petroleum, real estate, tobacco and raw food - should be covered.
61%
70%
64%
68%
51%
44%
43%
As
Reduceslitigations?
Easescompliances?
Brings taxevaders into
the net?
61% 68%44%
15% 11%
13%
24% 21%43%
NoYes Maybe
However,
Are exemptionsfine?
Exempltion torestaurants in
SEZ?
Should there beexclusions to
inputs?
64% 51%43%
9% 29%17%
27% 20%40%
NoYes Maybe
As
However,
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Unified tax will simplify taxation
Today, foreign investors are monitoring the Indian economy closely considering a rise in positive announcements and actionstepsfromtheGovernmentofIndia(GoI),especiallyafterthebigannouncementofintroductionofGoodsandServiceTax(‘GST’)fromnon-deferraldateof1July2017.After arduous journey which was full of challenges, GoI has finallyimplementedGSTwhichisaimedatgearingupIndianindustry in multiple ways like simplification and transparency intaxation,robustcreditmechanism,andtechnologydrivensupport.
GSTprovidesaplatformtobothgovernmentandindustryforstructuredapproachandproductivefocusonbusinessgrowthasopposedtoambiguousandcostlysystems.
At initial stage, considering operational challenges, it would beexcruciatingandmightappearnegativeinsomeareasspecificallyatthetimeoftransition.However,onanoverallbasis,ifanalysedequitably,GSTimplementationinIndiawouldhavepositiveimpactsoveraperiodoftime.Thiswouldbealmostacrosssectorsandindustriesincludingfoodindustry.
WhilefoodindustryinIndiaisdividedinvarioussub-sectorslike fresh straight from farm, semi-processed, ready-to-eat and cooked food ready for consumption, the hotel industry hasseenmulti-foldgrowthinrecentyears.Further,theannouncementofonerateonsuppliesbyrestaurantservicesand technology support for handling compliance will facilitate easeofdoingbusiness.
India’sfoodindustrywhichislargelyunorganised,GSTimplementation will emphasis on standardisation in approach, eliminationofmalpracticesinquality(asservicesfromGSTregistereddealerwouldbemuchsafer)andthus,creationoftrustworthybusinessapproachforgradualbusinessgrowth.
OnfairanalysisofimpactofGSTimplementationonfoodindustry,followingpointsemergeatfirstinstance:
Challenges for food industry under indirect tax regime• Duallevyoftaxincaseofhotelindustryandlackof
uniformityinlawinvariousstates.• Procurementfromandpreparationbylocalunits,whichare
unregisteredunderanylaw.
Approach under GST regime• Simplifiedsinglelevyandstandardisedapproachacross
states.• Automation and e-platform for smooth handling of tax
function.• Dealerregisteredunderlawwouldrequireabundance
precautiontomaintainsafequalityinfoodandbetterservices.
Focus on the vision: GSTimplementationwouldbeawelcomestepforindustriesin India, especially for food sector as players, whether aiming onrapidgrowthorpreferringmaintenancemodeinbusiness,wouldneedtofocusonthreethingsviz.,(i)qualityinproductandservices,(ii)transparencyinbusinessand(iii)automationwithstandardisationinapproach.
Conclusion: OnamacrolevelevaluationofGSTintroduction,itisclearthatlocal units in food industry operating as a part of unorganised marketwillhavetoadoptanorganisedapproach.Theywillneedtoimprovequalityoffoodandservices,takehigheraccountabilityforbusinessoperationsandregularisebusinessrevenuebydepositingtaxesalongwithfulldisclosure.
16 Bon Appétit
Acknowledgements
Forfurtherinformation,pleasewriteto:Dhanraj BhagatPartner GrantThorntonIndiaLLP
Authors Editorial review Design
DhanrajBhagatShanthiVijethaKureshKhambatiMitParekh
RohitNautiyal GurpreetSingh
For media queries, please contact:
Spriha Jayati E:[email protected]:+919323744249
Bon Appétit 17
Notes
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Notes
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“GrantThorntoninIndia”meansGrantThorntonIndiaLLP,amemberfirmwithinGrantThorntonInternationalLtd,andthoselegalentitieswhichareitsrelatedpartiesasdefinedbytheCompaniesAct,2013.
GrantThorntonIndiaLLPisregisteredwithlimitedliabilitywithidentitynumberAAA-7677andhasitsregisteredofficeatL-41ConnaughtCircus,NewDelhi,110001.
ReferencestoGrantThorntonaretoGrantThorntonInternationalLtd(GrantThorntonInternational)oritsmemberfirms.GrantThorntonInternationalandthememberfirmsarenotaworldwidepartnership.Servicesaredeliveredindependentlybythememberfirms.