Rising costs, manpower shortages, intense competition and food supply challenges are some of the roadblocks experienced by many F&B SMEs.
According to a DBS BusinessClass survey, almost half of 369 cafés, coffee houses and snack bars registered in 2011 had ceased operations by 2014. Other businesses are looking at new business directions. TungLok Group and Les Amis Group, for example, are streamlining their local operations and exploring further overseas expansion.
Lim Chu Chong, head of SME Banking, DBS Bank, said: “While operating receipts for F&B businesses were up 4.7% in 2013, their operating surplus slipped 1.7% over the same period.
Margins are compressed as revenues fail to keep up with rising expenditures in labour, rental and raw materials.”
Despite the challenges, the F&B industry is still compelling to many entrepreneurs — this can be seen by a 55% increase in demand for manpower in the Singapore F&B industry from 2011 to 2014 (from 5,010 to 7,740). However, due to the country’s tight foreign labour policy, these listings often see a 6 months vacancy. This manpower glut causes some businesses to stagger their operating hours or turn away customers.
Tough but opportunities abound for the courageous
DBS said the F&B market is still profitable, and opportunities are there for businesses that innovate creatively.
According to Euromonitor International data, the F&B business in Singapore is a SGD6 billion industry, and from 2015-2018, it foresees a 4.4% CAGR growth rate to S$7 billion (US$5.1 billion), with decline in margins to 5.2% from the current 6.4%. There are 5,636 food service outlets in 2014, with the average Singaporean spending US$1,563 on food last year.
According to Andy Sim of DBS SME research, SMEs can consider undertaking an active online engagement strategy via social media, website, e-mail and mobile channels. There are also third-party platforms that SMEs can explore such as DBS Indulge which regularly pushes out promotions to the platform’s audience that can help to bring in new diners to the establishments.
DBS, to assist its SME customers, has launched a mobile app for information sharing and forum participation. The app has been downloaded and activated by 10,000 users since its launch in October last year.
Companies of various sizes, even the large ones such as McDonalds are diversifying their brand with their McCafés, to further enhance and localise their appeal to a wider consumer demographic.
Singapore is also seeing a trend of independent cafes sprouting outside the central business district and in the suburbs.
The health-conscious consumer segment has also become increasingly important. Eateries offering healthier options are making more margins — 1.7% more compared to those in the fast-food industry.
Outsourcing and alliances
Dato Charles Chen, founder and chairman of FoodNet Consultants, spoke about the need for a centralised kitchen, outsourcing, quality assurance and purchasing through alliances.
“Most F&B operations operate their central kitchen area as a cost centre. Instead, many central kitchens have moved to catering, where the margins are high. By thinking innovatively, systemised cooking is also productive for your business — focus on what you do best.”
According to Chen, F&B companies are still wary about outsourcing, but this can be done successfully with well-documented agreements and a proper supplier assessment programme.
“The other thing is obtaining economies of scale by purchasing via industry alliances. This we have done successfully in China. Singapore F&Bs can consider exploring to set up such an alliance to achieve economies of scale when purchasing raw materials for their business. Think of how this can work in Singapore,” Chen added.
Food Tech showcase
There is ample room for more food startups. In the US, US$48 billion of venture capital has been streamed into them but in Singapore and Asia, it is still fairly at the infancy stage. ra