How Can the Food & Hospitality Industry Deal With Demonetization

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It's been a chaotic fortnight for the entire nation ever since the government announced the partial demonetization of the higher denomination rupee notes. The service industry has definitely faced a short term impact of this, as spends are deferred towards immediate needs. Smaller businesses, QSR's and home deliveries have borne the major brunt, as there has been a tremendous loss of opportunity. Oddly enough, there has been a silver lining across the dark clouds, as the vibrant and innovative hospitality industry finds creative ways to deal with the impact, from value-additions, offers and shifts in spending patterns. Can we see a resurgence emerging from this that will allow the hospitality industry to reap the benefits from this move?


In a cash-intensive economy like ours, a major change that needs to be brought in is the shift from cash to card or e-wallets. That can only happen with a change in consumer mindset and increased security of payment portals. The move couldn't have been better timed for the hospitality industry. We are poised to reach a target of Rs. 4.98 trillion by 2021 and yet the industry is marked by unethical practices and there is a general air of non-compliance.

Having said so, I believe the demonetization has to be aligned with a more relevant tax system. Whether its FSSAI norms or liquor licensing or real estate set-up, the hospitality industry is severely plagued with an infrastructure that makes it difficult to sustain a healthy market.

Restaurants should increasingly move towards accepting payment in cards

Analyzing the impact of the move is not merely enough, there has to be an active participation to bring about a structural shift from within the industry. Restaurants should increasingly move towards accepting payment in cards as well as tying up with mobile wallets in large drives, as that is where the larger consumer diversion will be. The move levels the playing field between the cash-oriented parallel economy as well as the organized businesses. Our responsibility is to stretch out and ensure the non-tax paying businesses come under the scanner and ensure contribution to nation-building.

An important aspect of this is the long-term effect of establishing a legitimate accounting system and books. The hospitality industry sustains an entire supply chain between vendors and consumers that is essential to the building of a white economy. From procurement of goods, payment of salaries to clearing bills etc., the entire cycle can be cleaned up. As the real estate market witnesses a decline, rents and costs of spaces are also projected to come down. This will encourage young entrepreneurs to dive in the business as the risk is mitigated in the long-term.

The urban consumer with discretionary spend on dining out is anyway the target demographic of the organized sector. This is the kind of patron that spends in plastic and not cash. The food service industry has already seen a shift of plastic to cash ratio from 70/30 to 95/5.

The stakes are high in the long run, and a consistent effort to educate and increase awareness towards shifting to digital payments is crucial, if we want the Indian restaurant industry to reach an international stature.