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Mall owners and restaurants heading for logjam; DLF to propose 'shared pain' model

Rentals are 20 per cent of the overall costs. Only 10% of 2 million restaurants have opened because of restrictions such as 9 pm curfew, ban on bars, and 50% occupancy cap

twitter-logoManu Kaushik | June 10, 2020 | Updated 22:48 IST
Mall owners and restaurants heading for logjam; DLF to propose 'shared pain' model
DLF Malls says that it's working on 'shared pain' model which will be announced soon

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  • DLF Malls says that it's working on 'shared pain' model which will be announced soon
  • Restaurant owners want complete waiver of rentals during lockdown, and scrapping of minimum guarantee component
  • Multiplexes are likely to see 55 per cent drop in ticket sales, and restaurants expect 70 per cent drop in revenues

Reopening of commercial activity under Unlock 1 has pitted shops, multiplexes and restaurants against mall owners. While reports suggested DLF Malls, one of the largest mall operators in the country, is likely to waive rent for its tenants such as shops, multiplexes and restaurant chains, DLF denied any such move. Instead, it's likely to propose a "shared pain" plan where DLF Malls as well as tenants may have to share the burden of the economic impact and lack of business during lockdown and in the following months.

"This (rent waiver) is all hearsay. Our stance is that we want this to be a 'shared pain'. Our proposal is awaiting approval. We will be able to share it tomorrow after approvals," Pushpa Bector, CEO of DLF Malls, told BusinessToday.In. DLF Malls is working on its 'shared pain' model on June 11 after approval from the board.

The rejection of any waiver proposal from DLF Malls has particularly irked the restaurants industry which is reeling under severe limitations placed under Unlock 1.  It's estimated that just about 10 per cent of 2 million restaurants have re-commenced operations nationwide because of restrictions such as 9 pm curfew, ban on bars, and 50 per cent occupancy cap. "We wrote to DLF about two weeks ago, but we haven't heard back from them. They are supposed to respond. Malls owners must understand that this is not a little deviation. It's a life-altering problem for the consumer-facing sectors. Operators like DLF should stand up and rewrite the rules of the game," says Anurag Katriar, president of NRAI (National Restaurants Association of India), the largest restaurants body in the country.

Also Read: Hotels report 82% drop in occupancy; recovery unlikely before September

What Katriar means by rewriting the rules is to do away with minimum guarantee component of the rentals, and shift towards complete revenue-sharing model. Also, NRAI has asked for complete waiver of rentals during the lockdown period. "If mall owners expect businesses to revive quicker, they should move completely towards revenue sharing model," Katriar says. Rentals are about 20 per cent of the overall costs, and minimum guarantee component varies from location to location.

In a weak demand scenario coupled with a series of restrictions, industry players believe that revenues are likely to fall by 50-70 per cent over the next six-nine months as compared to last year. Restaurants operate on wafer-thin margins (5 per cent EBITDA), and with a marginal reduction in rentals, the whole viability of the business comes into question.

"Nobody would be opening restaurants under 'shared pain'; they are already in pain," says Priyank Sukhija, CEO and MD, First Fiddle Restaurants. Though Sukhija doesn't operate in DLF Malls; some of his restaurants do operate in other big malls across the country. Restaurant owners say that the problem is not specific to DLF; other malls are also lamenting about their sliding revenues, and fixed costs.  

The state of multiplexes is equally gloomy. As per ratings agency CRISIL, even after the lifting of the lockdown, social distancing norms will reduce effective seating capacity, and the fear of enclosed spaces will keep moviegoers away from cinemas for a while. "Ticket sales, which account for two-thirds of multiplex revenue, are seen plummeting about 55 per cent this fiscal [FY21] as social distancing keeps occupancies low. Besides, other revenue streams such as food and beverages (F&B) and advertisement, which account for the balance one-third, will also be impacted for the same reason," the CRISIL note said.

With mall operators like DLF are not expected to compromise significantly on their rental revenues; the fight between both the sides is going to get prolonged.

Also Read: Aviation Ministry can't make up its mind on filling middle seats in flights

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