A new lockdown was introduced in Kenya in late March by His Excellency President Uhuru Kenyatta. This is following a surge in the number of reported Covid-19 cases and reportedly a third deadlier wave of the virus.
In his 15th presidential address on the Coronavirus pandemic, the president announced the following measures:
- Cessation of all movement by road, air or rail into and out of the counties of Nairobi, Kajiado, Machakos, Kiambu and Nakuru
- Curfew hours in the five counties revised from 10:00 pm to 8:00 pm and end at 4:00 am
- All restaurants and eateries in the five counties restricted to provide take away services only
According to the top official in the Retail Traders Association of Kenya, this measure had an immediate impact on the operations of their businesses.
Cognizant of the impact of the third wave on the country’s public health, the association would have expected the government to:
- Consider and allow sit-in dining. This is based on the fact that the ministry of health had developed guidelines regarding this in July of 2020, which business players in this space had conformed to. Conforming to these guidelines involved monetary investment in changing the fit-out of the restaurants and operating at 50% capacity
- Consider restaurants staff as frontline workers and receive vaccination as early as possible
- Give tax concessions. Besides VAT, restaurants and hotels pay a 2% trading levy and it would make sense to have a temporary suspension of this levy since trading is limited due to the restrictions. The restrictions coincided with the end of the 1st quarter when businesses are expected to submit the newly introduced minimum tax, a blow to businesses that are already struggling.
- The seat at the hospitability table. As it is currently, there is a tendency to focus on the issues affecting the hotel sector and leaving out the restaurants. E.g., The trading levy is designed for a hotel trading dynamic, which is different from restaurant operations, restaurants didn’t benefit from the hospitality stimulus package given in 2020.
The last 10-15years have been great for the restaurant industry. This is evident from the number of investments that have been done in this sector in the last decade or so. There has been an increase in the number of chains, branches and also much investment has gone to the design and fit-out of these facilities.
So, if the last 15years have been great, why is a one-year interruption causing much disruption?
Most businesses keep a reserve to cushion them in case of unforeseen circumstances. And most of this is used to fund growth to generate more revenue. However, there are always unknown scenarios and the Covid-19 pandemic has been one of those that no one would have predicted to happen in the modern world. According to experts, the only time Kenya experienced something close to what’s happening now was after September 11th 2001, when there was a sharp drop in the number of tourists visiting the county, which affected the restaurant and hotel industry. Yet, for the last year, the experience has been unprecedented.
Why suspension of sit-in dining is a big blow to restaurants
With the introduction of the ministry of health protocols in July 2020, restaurants were expected to only allow a maximum sitting capacity of 50%, meaning that they lost ~50% of the sit-in revenue due to these measures. So, limiting them to only take away further dwindles their revenues.
On the flip side, take away business has grown significantly during this pandemic, with some eateries report a 30% growth in their take away businesses. However, this limits the customers in-store dining experience, a key factor in the growth of restaurants. Also, restaurants have to pay a certain percentage of their sales to the delivery partners, which further eats into their revenue.
The restaurant’s success is fundamentally based on a strategic location and the ability to capitalize on traffic around the store. Store located in commercial areas like CBD tends to do well on sit-in compared to take-way delivery, while those located near residential areas tend to do well on take-way deliveries. However, take-way delivery is not a like for like a substitute for sit-in dining.
The new measures not only affected the restaurant’s ability to generate revenue but also other players along the value chain:
- Landlords: Most of the restaurants are struggling to generate enough cash flow to pay rent. Others have resulted in the closure of some of their outlets leading to low occupancy rates on commercial buildings. With no concessions for landlords, they have been pressed had to give and reprieves for their tenants.
- Restaurants: Struggling with reduced revenue, closure of some branches, job losses and pay cuts
- Processors: Nowhere to sell their products e.g.
- Ice cream processor has no place to sell the ice cream due to reduced demand in restaurants
- Meat suppliers were ready for the Easter holiday, nowhere to sell their meat
- The same applies to suppliers of vegetables, eggs etc.
- Farmers: Nowhere to sell their products e.g.
- Since the ice cream processor has nowhere to sell the ice cream then the farmer has no place to sell his milk
- Processors: Nowhere to sell their products e.g.
The causal effect of the new presidential directives is being felt heavily by business people across the value chain. As a nation, if the policymakers could have the bigger picture of the business model, then we can do better when it comes to some of these directives.