Coronavirus pandemic has impacted millions of people around the world. The virus has also affected lakhs of people in India, leading to several lockdowns to curtail the transmission of the virus.
These lockdowns have severely affected various sectors throughout India, chief among these being the restaurant industry. If the coronavirus pandemic lasts for a long period, people may get habituated with the idea of not dining out, which will inevitably take the industry longer to recover.
In India, the restaurant industry has faced numerous challenges because of the COVID-19 outbreak: the end of group dining at restaurants, protecting the health of both the employees and the customers, following the safety regulations laid down by the Government, working with a limited number of workers, running expenditure without revenues to match, etc.
Restaurants can address these challenges by actioning the following:
- Focus on takeaways: Group dining has become a thing of the past due to the coronavirus pandemic. In this situation, focusing on building the business via takeaways would be a wise decision. This would promote social distancing and would prevent the virus from spreading while ensuring operations are sustained.
- Collaboration: Restaurants can collaborate to benefit from each other’s strengths. This would not only reduce cost but also increase the number of customers (combining the customers of both the restaurants). The merged restaurant can prepare their best dishes (for which they are famous) and focus their efforts on selling these (which would also result in zero wastage). Collaboration would also help in merging the workforce and have more people available for extensive cleaning and door-to-door delivery.
- Social media marketing: With the onset of COVID-19, traditional marketing wouldn’t prove to be fruitful. On the contrary, it will be expensive. Owing to the lockdowns, people are getting time to surf on social media. Thus, social media marketing would catch their attention. Restaurants will also be able to connect directly with their customers to build effective customer relationships.
- Opt for online food ordering: Since people cannot go to restaurants, the only way for these businesses to operate would be through food delivery. They can list themselves on Swiggy, Zomato or other food delivery aggregators to increase sales. They can even opt for food orders placed directly through phone calls. This would reduce costs and create a revenue stream.
- Create a social awareness program: The restaurants can create a social awareness program around frontline healthcare workers of COVID-19 by supplying them food. Apart from the element of social service, this can also be marketed or advertised on social media and other digital platforms to create goodwill amongst customers.
- Follow the norms laid down by WHO on hygiene: There are operational challenges in the wake of the pandemic. To overcome those, restaurants should maintain hygiene by extensively using hand sanitizers. They should bear in mind that food safety should be their priority. The working stations should be wiped down at regular intervals using a bleach solution. The executives and valets should be cautious during food delivery and opt for contactless payments.
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The Internal Rate of Return (IRR) is one of the most universal return concepts, and rightly so because of its effectiveness in interpreting returns from an investment. However, it is also one of the most difficult concepts to wrap your head around. In my personal opinion, the difficulty arises primarily due to the understanding of the fundamental underpinnings of the definition. It is not my intention to turn this discussion into a technical one; since the objective is to demystify, I will break it down for simpler understanding.
Firstly, the IRR is better understood when used to compare returns from two or more investments. The decision rule is rather simple – the higher the IRR, the better. The confusion arises when investors look at the IRR in isolation i.e. an investment yields a 20% IRR so what does that mean? The answer is a complicated one and often leads to more questions.
Secondly, the IRR is a multi-period return measure. What this means is that when investors would like to compare investments that span different time periods, IRR becomes the best tool for this purpose. For instance, investment A returns 20% in X years whereas investment B returns 25% in Y years. The question as to which investment performs better is best answered by the IRR.
Thirdly, the IRR works best when investments have conventional cash flows patterns i.e. a negative cash flow followed by multiple positive cash flows. Any variations herein are bound to be detrimental to the IRR calculation. For instance, you buy a stock (negative cash flow) and receive dividends (positive cash flow) during the holding period. The IRR works well in this scenario. However, if you short a stock (positive cash flow) and buy another one (negative cash flow) with the proceeds and finally square of the transaction (positive or negative cash flow) later on, the IRR may not necessarily yield desired results.
Lastly, due to its very definition, in some instances an investment may have no IRR at all or at least one that can be determined! Obviously, in such instances, the IRR is of no use and creates confusion in the mind of the investor. Therefore, the challenges in interpreting IRR arise when investors use the IRR for purposes other than those mentioned above.
Although this list is by no means exhaustive, it captures the salient features of the IRR. Hope this piece has helped simplify the concept and gives you confidence to seamlessly compare investments using IRR.
|Vinay boasts of a decade of experience working in both large and small organizations. His roles have ranged from sales to operations and even a stint in academia. He currently manages affairs in capital markets in Capital Float.|
Oct 24, 2018
With the implementation of the Goods and Services Tax (GST) from 01 July 2017, business units across the country are beginning to feel its impact. Since the GST has subsumed all other taxes, such as service tax, VAT, Octroi, excise duty etc. collected by the central and state governments in India, the reforms are extensive. Their impact too is comprehensive and is expected to continue well into the future.
Like all other industries in India, GST impact on logistics and supply chain will also bring some major changes in the way these domains operate, as well as their bookkeeping activities. Logistics is a small but major part of supply chain management that concerns the administration of goods distribution in an efficient manner. We will therefore initially look at the effect of GST on logistics and then see how it impacts the broader domain of supply chain management.
The logistics industry includes the road transport sector (comprising unorganised and small enterprises, trucking companies and other fleets), the storage and warehousing domain and the third-party logistics. The operational efficiency of this industry had been falling due to the complexity of networks, growing coordination costs across supply chains, inadequate infrastructure and the levying of entry fee in different states. In addition to these, the multitude of business taxes was making logistics management an unwieldy and expensive process.
Most firms had to establish hubs and transit points in several states to avoid the state value added tax (VAT) because the goods directly supplied to dealers were taxed as per the VAT rate, but the transfer from the warehouse was treated as a stock transfer and did not attract VAT. However, this only caused more problems in accounting and lack of clarity for companies, while also resulting in opportunities for tax evasion.
GST for logistics companies
With GST now having replaced the multiple state taxes, there is no longer the long-prevalent need to install a hub across all states. Companies can remodel their supply chains and consolidate their hub operations to benefit from large-scale operations. It will also help them to use efficient practices like bulk breaking and cross-docking through a centralised location.
Under GST, the tax on warehouse and services involving manual labour has increased to 18% from the previous tax rate of 15%. With this change, a third-party logistics company will have greater incentive to provide services where the degree of value addition is high and where input tax credit can be claimed. This, in turn, will help in the consolidation of storage and warehouse sector.
With the convenience of entry across states by measures like the e-way bill, transportation delays will be reduced, although it will also call for streamlined IT systems and readily usable documentation at the entry points. For the third-party logistics companies, the costs of designing a logistics network will be less, and asset-light firms will be able to adapt quickly and reap more advantages in comparison to asset-heavy firms.
Impact of GST on supply chain
Before we look at the GST impact on supply chain, it must be understood that supply chain management is vital for the running of business organisations producing and distributing merchandise. Each business has standards for inventory turnaround, and these must be diligently adhered to in order to ensure optimum profit for the organisation. A loss of inventory at any point will result in a loss of value.
Post the implementation of GST, the benefits accrued by entities in supply chain management mechanism include:
Customisation of supply chain – Under GST, manufacturers can shift towards tailored supply chain models as per customer requirements. The removal of stock transfer benefits can help in increasing the share of direct dispatches for medium and large-sized dealerships.
Superior inventory management – After the elimination of multiple state-level taxes in lieu of a uniform GST rate, the stock points have been optimised and channel inventories reduced. There will be fewer transit stays after GST, which will help in advancing lead times while also reducing inventory levels at stocking points. With more potential for consolidation, warehouse management can also become more efficient.
Tangential decrease in incoming logistics costs – An impact of GST on supply chain will also be seen in the form of tangential benefits for direct out-of-state procurements and logistics costs. This can help manufacturers to expand their vendor base outside state boundaries and alter the sourcing models profitably.
Cash flow management for export businesses – Due to GST, tax exclusion benefits will continue with minimum effect on the bottom line, and a streamlined tax system will help in promoting more exports.
Modified after-sales distribution models- Implementation of GST can significantly affect the spares market due to an increased need for storage and retail penetration. Forward-looking businesses can develop their distribution footprint to retreat from consignment stocking, and enable customised supply chain models while also offering high-quality service at lower costs.
Overall, the logistics and supply chain management industry has been touted as one of the primary beneficiaries of GST structure. To begin with, there will be more compliance and adjustment costs because the frequency of filing returns has increased for businesses. Further, to claim the input tax credit, compliance will be expected from every single party across the value chain. This may hurt the profitability of the industry in the short run, but in the long run, operational efficiency is bound to enhance.
At Capital Float, we take all steps to ensure that small and medium enterprises do not face any hurdles in procuring loans for their business expansion or to implement the changes that need to be implemented as a result of GST. We are also helping our clients – which include logistics and supply chain firms – to comprehend the clauses of GST and use it to maximum advantage in their operations. Read our dedicated GST blog series to know more about the implications of GST on various sectors.
Oct 24, 2018
The Digital SME
If you’ve been reading the papers over the last year, you must have come across the words ‘digital’ and ‘SME’ on almost a daily basis. From the the ‘Digital India’ initiative by the government to cut red-tape, bureaucracy and dare I say even corruption, to the KPMG-Snapdeal report on how going digital (or selling online) has helped SMEs increase their turnover and profitability, there’s a lot of excitement in India about SMEs going digital.
Over the past few months I’ve been asking myself a couple of questions:
- Do SMEs really understand what “going digital” means?
- Do SMEs know what are the benefits of going digital?
Going Digital: What does this really mean?
Depending on which report you read, SMEs can sell products online for prices between ₹1500- ₹3000. So does this mean the SME has now gone digital? I think not. This just means the SME now sells its products online and therefore has a greater reach, which to be honest is a great achievement in itself, but the SME still has to adopt technology internally for it to go truly digital. A modern digital SME is powered by solutions that are spread across multiple functions: From Customer Acquisition to Risk Management to Operational Efficiency to Enabling/Empowering Workforce. Adopting new age technological solutions internally will allow an SME to achieve scale and more importantly operational efficiency at a lower cost. Some of the largest start-ups have managed to scale globally because they have successfully done this. Firms like Practo, AirBnB and Uber for example, have successfully incorporated technology in their internal processes which has allowed them to grow globally at a rapid pace.
The rapid growth of technology has given SMEs:
- Access to Enabling Infrastructure through increasing device penetration and an enhancement in internet connectivity.
- Availability of economically feasible enterprise solutions and services along with a thriving mobile applications (apps) ecosystem.
- Customers who have adopted technology and ecosystems that are allowing this adoption through key initiatives.
Going Digital: Key Benefits
4 areas are likely to be directly benefited if SMEs adopt technology:
A) Customer Acquisition
Technology can be leveraged to access clients in distant geographies and create a greater visibility among target segments. Personalisation in engagement and customer relationships, for both new and existing clients, can be managed in a more efficient manner. The immense data that is captured using technology will allow SMEs to develop customer intelligence which will then allow them to optimize sales and engage with various ecosystems to open new sales channels.
B) Operational Efficiency
Automation and streamlining of core processes will allow the SME to become more efficient, reduce wastage and utilize resources in an optimal manner. This will allow them to enhance the customer experience and optimize their supply chain management through better visibility and control over logistics. With efficient processes in place, SMEs will be able to choose suitable potential partnerships that will fit their internal processes and not cause any disruption,
C) Workforce Enablement
Technology can go a long way in identifying workforce shortfall and identifying key areas of skill development needed within the organisation. A number of digital tools are now available for employees to collaborate and for the SME to monitor employee productivity. Web based solutions for skill development and training for employees will help the SME ensure that employees are empowered with new tools and concepts on a regular basis
D) Risk Management
With use of technology comes the responsibility to protect the information the firm has gathered. Data Security becomes paramount for customer/employee data as well as the company’s financial information. Digital solutions for preventing such leaks would strengthen the organisation. Technology can also be used to safeguard and monitor physical assets through the use of surveillance, asset control and tracking solutions.
There has never been a better time for SMEs in India to “go digital” and leverage technology to incorporate financially feasible solutions.
|Akshay joined Capital Float after completing MBA from Judge Business School, University of Cambridge. Following 6 years with Deutsche Bank across various functions and geographies, he opened a French Italian bistro in India. At Deutsche Bank, Akshay worked across risk management, structuring derivative products, trading Indian government bonds and structuring and executing assets financing trades.
Akshay manages Capital Markets at Capital Float.
Oct 24, 2018