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

Bon Appétit 05

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.

06 Bon Appétit

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.

Bon Appétit 07

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.

Bon Appétit 13

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,

Bon Appétit 15

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

E:dhanraj.bhagat@in.gt.com

Authors Editorial review Design

DhanrajBhagatShanthiVijethaKureshKhambatiMitParekh

RohitNautiyal GurpreetSingh

For media queries, please contact:

Spriha Jayati E:Spriha.Jayati@in.gt.comM:+919323744249

Bon Appétit 17

Notes

18 Bon Appétit

Notes

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GrantThorntonIndiaLLPisregisteredwithlimitedliabilitywithidentitynumberAAA-7677andhasitsregisteredofficeatL-41ConnaughtCircus,NewDelhi,110001.

ReferencestoGrantThorntonaretoGrantThorntonInternationalLtd(GrantThorntonInternational)oritsmemberfirms.GrantThorntonInternationalandthememberfirmsarenotaworldwidepartnership.Servicesaredeliveredindependentlybythememberfirms.