Continuing its webinar series which aims to shed light on various facets of the Coronavirus emergency, Endeavor invited Nirmal Rajaram, Endeavor Indonesia Entrepreneur & CEO of Cita Rasa Prima, to share his thoughts and insights on how he is managing his 200-location restaurant chain during COVID-19.
Nirmal spoke about the impact the COVID-19 pandemic has had in Indonesia in general and the country’s restaurant industry in specific. While focusing strongly on the need for companies to make sure that their employees are feeling safe, he also explained the way the crisis has affected food delivery and his restaurants’ operations and he pointed out effective measures for companies to maintain liquidity.
The COVID-19 worldwide crisis has most people feeling uncertain, scared and unsafe. “It is very important for employees to feel safe at work. Only if employees are feeling safe at their workplace, customers will feel secure as well.” Nirmal pointed out. On that note, he advises employers to order enough sanitizers and disinfectants, to disinfect stores regularly and to make sure that hygiene rules are followed carefully by all employees.
Nirmal focused on the key role that the delivery service will play, in restaurants’ struggle to survive this crisis. “Two weeks ago we started facing a 50% flat drop in sales and since the beginning of this week sales drop has reached 75%. In Indonesia, customers are encouraged by the Government to take away food, and not dine in. This is why we can now only rely on our delivery system, to help sales go up again.”
“During the crisis, people feel more comfortable cooking at home rather than ordering food”, he added. “However, in Indonesia, people are more used to ordering food rather than cooking, something that raises hope for his business to continue operating during the crisis.” Also, he focused on the importance of restaurants’ having their own delivery mechanisms. “In comparison to many other countries, where there are many food delivery companies, in Indonesia each restaurant must provide delivery services by itself”, he explained.
He also pointed out the importance of focusing on contactless delivery, which requires no physical contact at all. “During contactless delivery, the customer orders through an app and the store receives the order and starts processing it, without any physical contact.” At the same time, restaurant owners must make sure that the food they offer is well cooked, for germs to be killed, and that all packaging is clean and disinfected. “Customers must be encouraged to pick up the food from outside their doors and use contactless payment options” he added.
“In times of crisis, liquidity is the key.” According to the Indonesian entrepreneur, customers will continue to look for the same quality of food, while having less money to spend. Companies will have to reduce their prices if they want to keep their customers. “To ensure survival, labor, rental and utilities reductions must be made.” Nirmal pointed out that customers will now need more food for less. “Food prices must be kept as low as possible, as cost is a very sensitive parameter for customers during a crisis. Reduce the portions if you have to, negotiate with suppliers for price reductions, ask landlords for discounts.” he added.
Nirmal advised entrepreneurs to urge their governments to write off all employment taxes and provide utilities such as electricity, water, gas, internet. At the same time, he insisted on the importance of communicating closely with all employees. “Do not cut down on sanitary expenses, but cut down all CAPEX and expansion expenses.” he proposed. He also explained that the P&L of F&B companies will change significantly due to the crisis. For a typical F&B company, P&L is expected to change as shown below:
On whether one should subsidize some stores that used to be profitable before the crisis, but are not profitable at the moment, Nirman replied: “Based on my experience, I would advise all restaurant chain owners to never let some stores subsidize the ones that are not profitable. If a store is not profitable and is not going to break even in the near future, take the hard call and close it down.”
Guest speaker Dan Fleischmann, Vice President of Kitchen Fund VC, agreed that businesses’ number one priority should be to maintain liquidity. “It’s a liquidity game. Companies must reduce costs and save capital.” “I do not see a world where you can come out of this and do the numbers you did before. Be prepared for pressed sales for the next 6-12 months. The second quarter of 2020 is definitely going to be difficult.” he added.
When asked about whether the COVID-19 crisis will impact valuation, Dan explained “In the US, well capitalized deals that were going to be made before the crisis, will hold up. However, debt capital markets are down, so companies in need of capital will face great difficulties. Even the most well established and capitalized brands will see their valuation go down.”
Overall, both Dan and Nirmal agreed that the next months will be challenging. “I don’t know when the vaccine will be available, but the next 12-18 months are going to be challenging. Things will get tough, but we should never forget that we are all in this together.”
Listen to the recording of the webinar here