Navigating Covid-19: Five considerations for F&B operators

The F&B industry has been hit significantly by the coronavirus and lockdown. Here's what SME operators in this space could keep in mind for the medium term

Updated: Apr 8, 2020 02:45:44 PM UTC
Image: Shutterstock

The industry was already going through pain due to changes in consumer behaviour, unfavourable regulations (from demonetisation to input tax credit), increased competition, deep discounting by food delivery agencies, etc.

When Covid-19 hit, sales massively crashed—in many instances right down to zero. Business leaders suddenly found themselves faced with catastrophic cash flow issues. They not only had to absorb losses, but also pay rent and salaries. Understandably since lock-down, the environment became hyper-dynamic and difficult decisions had to be made by the hour.

There are no definitive answers. Each business is unique in its situation and so each operator must create his own hyper-evolving plan, for now and post-Covid.

Here are a few simple thoughts SME operators may find effective:

1) You...
Recognise that today’s unique situation puts you under inordinate stress. Like in an aircraft emergency, you must put on your own mask, before helping others. Ask yourself how long you and your family can go on personally, without a business income. Your emotional state of mind is critical, particularly if you are a sole proprietor. Positive self-talk is invaluable. Speak with someone who understands. It helps absorb the overwhelming anxiety.

2) Money...
Create a six-month financial spreadsheet indicating how your fixed costs translate into your week-on-week build-up of losses. Look at different scenarios of when the lockdown will end, so you can realistically see and prepare for various business outcomes. You may have enough cash reserves for a while, may need to dig into your personal savings, take a loan to bail you out, or be forced to shut down temporarily or permanently. Like in an investment portfolio where individual appetite for risk and other factors help determine your choices, you will need to make some very individual choices for your business. Ignore what others think. When considering government relief, include only what is already granted. Discuss with your chartered accountant, partners and investors.

3) People...
(A) EMPLOYEES Speak with your team (particularly seniors), and share a realistic position of your specific business. Since this is a huge decision that directly involves them, be inclusive, ask for their thoughts and listen before announcing your decisions. Often, the power of shared purpose can bring out heroes amongst us. How you treat your team at such a time will determine their loyalty and support to you post-Covid.

Like you, your landlord may have loans and bills to pay. Prioritise a friendly chat over the legal route, whether you plan to maintain a long term relationship or shut down.

Keep communication lines open and convey your position to them regularly. Pay your dues at the earliest, particularly to the small vendors who can’t survive without it.

4) Negotiations...
You may consider two types of payments—a deferred payment where the amount due is paid back in instalments, and a reduced payment where you renegotiate the amount payable during the lockdown. Reflect on the implications of both on your long-term relationships.

When the lockdown is lifted, consumers may remain cautious for a while before rushing back to eateries, so sales may start with a trickle before gradually increasing. Consider renegotiating a reduced rent with your landlord for six months post-Covid before going back to the original rent.

5) Post-Covid...
Consumers are likely to keep emergency stocks of ready-to-eat and ready-to-cook foods in their homes and possibly purchase larger freezer capacities. On the premise that human beings prefer to see, touch and feel people, like they do their in-store products, dining-out at restaurants will hopefully return to pre-Covid levels.

Investors are likely to study actual and projected cash flow and capital expenditure of their potential investments more closely than earlier.

Operators are likely to think deeper about decisions like purchasing versus renting equipment and software, minimum guarantee of rent and salary plus a percentage or variable commission, etc.

Businesses who never offered delivery may consider it, and ramp up logistics and technology accordingly. For delivery to be sustainably viable for F&B operators, they will have to either increase their food prices to absorb delivery associates’ commissions, or get them to reduce their commissions.

Operators and their teams may more likely implement and comply with food safety and hygiene standards based on their new-found understanding.

Supply chain and delivery consortiums of regional and hyper-local vendors may be created, to improve distribution of raw and cooked food while keeping an eye on price.

I believe today’s adversity offers us a blank canvas, to rewrite our standards and procedures in a way that we may continue to feed and serve with even greater sensitivity, than ever before.

The writer is Founder & CEO Phoenix Consulting, a business consulting firm offering start-up, developmental & turnaround assistance to entrepreneurs in the trade

The thoughts and opinions shared here are of the author.

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