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INTERVIEW

“Removal of input tax is cancer for business, post-Covid will destroy it further”
Monday, 22 June, 2020, 08 : 00 AM [IST]
Elior India is one of the country’s leading standalone food services company that serves more than 2 lakh meals per day across the nation. Sanjay Kumar, MD & CEO, Elior India, shares his views on the changing trends in the food and beverage industry in the country, post-Covid-19, in an email interview with Kimberley Fernandes. Excerpts:

The food service industry is said to have suffered huge losses following the global shutdown due to Covid-19. Comment.
Food services being a $7 billion industry in India, is going to see the most severe impact that one can possibly contemplate. We expect a revenue drop anywhere not less than 60 to 70 per cent, reflecting through 30-40 per cent return on people coming back to work on their desks in the next 3 to 6 months.

This is going to be the biggest hit in the top line. As a consequence, even if an estimate of 30 to 40 per cent comes back to work, there will be seen a massive change in the process of how people consume food at work.
All this then adds up to creating a huge and massive impact on employment. Currently, we employ 5,200 workers and don’t believe that going forward, even 25 or 30 per cent of them will be possible to employ because the industry is reeling from a huge hit. In the Western world, government has reimbursed wages for employees; we don’t see that happening here. Businesses will not be able to afford such large wage bills. Shortage of working capital in the food industry is something we have all been mindful of. The removal of GST and the input tax credit has added to the woe of this industry.

The fact that premium on safety will increase and food service providers will have to take greater accountability for safety as well as transparency, in the way they manage safety so their consumers can be reassured that the safety protocols being followed are adequate and allow them to trust the service providers for their food.

What should be unlearned and what can be done differently to keep the momentum going in the post-pandemic period?
What we have to unlearn, particularly for India, is, we can no longer take safety for granted. This is a very important message which all of us in India, where we really didn’t bother much with safety, so we have to let go of that attitude and now learn to live with higher levels of safety.  
Things that can be done differently: One is, what can the government do and second, what can entrepreneurs do.

From the government, introduction of the input tax credit is a very critical time need for the entrepreneur, enhancing safety, ensuring that they build a leaner business model which can enable survival with lower volumes because recovery from the Covid era is not going to take less that 24-36 months.

Any ideas or suggestions as to how the re-engineered model will look like?
The biggest drive of the re-engineered model is going to be lower levels of consumption outside of the home and therefore the amortisation of expenses and real estate for the restaurant industry and for that matter any space that was currently being used to serve food will get significantly altered and that is going to be the challenge for the companies going forward because typically real estate returns have been high, cost to service been high, taxes have been high, all of that lend themselves to basically lower levels of per capita consumption outside of the home. Unless these are significantly re-engineered, we are going to see the death of many small and medium businesses in the food service space.  

What kind of measures are adopted to ensure that your staff is protected from the global pandemic with regards to safety standards set by the government and job security?
We use personal protective equipments for all staff responsible for handling food. We ensure there is monitoring of symptoms for those working on our production sites serving there. We also ensure that those employees who come to work stay within the work premises and are provided with food on site. Of course, there have been some who have moved back to their home town or villages and have not been coming to work, hence, we have seen some reduction of number on that account.

How has your company faired since it entered the Indian market in 2017?
Our company had one of the most successful post-acquisition increase that any other multinational company has had in India. There were no surprises post the acquisition, business grew rapidly and footprint expansion was achieved in a very short time. In addition to that, the founder of the business continued with the business and delivered excellent results. The culture building, which was the key to developing the organisation was easy to fast track, given the kind of leadership we were able to build in the country, we had mix of entrepreneurs and professionals, there was a lot of crosspollination as a consequence and a culture of openness, trust and risk taking got deeply embedded towards the whole enterprise. So, Elior today, not just because we represent the company, but from the world outside our organisation from our stakeholder, customers are seen as one of the most successful entries in the food service business in India. Driven also by the fact that we didn’t lose a single customer post-acquisition and the portfolio grew by almost two and a half times in a short period of 13 months.  

Has your application El Chef had more success before or during Covid-19 and how do you plan on maintaining success of the app post-pandemic?
The app was always successful, it has got over thousands of users on it, but post-Covid we think it is going to be more important because the app enables food cafeterias to manage social distancing norms by the use of technology. It can map numbers in the cafeteria, it can talk to the chefs and schedule the production in such a way that there is no queueing or overcrowding and the numbers can be staggered. The application has the functionality and intelligence to be able to do all of this, including managing the flow of customers within the cafeteria. We believe this will not only enhance the convenience for people who consume food at work but will significantly help reduce the points of contact and manage social distancing more effectively post-Covid.

How is the lack of input tax credit eating away from the margins of food services providers?
The input tax credit basically results more than margins, which of course most companies got impacted by 3-4%. The fact that it has brought back the castrade, the stated objective of streamlining the supply chain and enabling transparency of transactions is what GST was supposed to do. With the removal of input tax credit is way worse than what we had before which was service tax and VAT, so the removal of input tax credit basically has come in like a cancer for the food service business and post-Covid will destroy it even further if it is not restored.

What about plans for expansion and collaboration post-Covid-19?
With the removal of input tax credit, no foreign food service company would contemplate any expansion in India.
 
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