SINGAPORE: The pandemic and accompanying restrictions have hit Singapore’s F&B hard in different ways.
This second wave of COVID-related restrictions has seen many restaurant closures, including the iconic Swee Kee Eating House.
During the first breaker and current phase 2 (enhanced alert), there was a complete ban on dining out.
In the intervening period, restaurants had restrictions on group sizes and the number of people they could pack into their restaurants. Residents were reluctant to leave their homes to dine out. The dining experience was also disrupted by masking restrictions.
Government support in several ways, including rent relief and employment support, were welcome steps to reduce financial pain, but demand has been hit too severely to help the results of many.
The daily uncertainty in estimating demand and managing stocks of perishable goods, increases the complexity of cost control due to waste.
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IS DELIVERY THE WAY OF EXIT?
The combined effects of on-site dining bans, restrictions and the move to online delivery have resulted in both increased costs and decreased revenues.
Delivery options can mitigate losses, but create new challenges. There is the investment in the technology and training necessary to make F&B staff and hawkers work smoothly with delivery platforms.
Being on a delivery app means the neighborhood stall, which relied on natural foot traffic and a loyal fan base, now has to compete against a wide range of choices, including major international fast food franchises.
The pricing and commission structure imposed by delivery platforms also wipes out most of the profit and leaves a very small margin, a huge proportion going to the platforms, despite government subsidies to cover delivery costs during this time of tighter restrictions.
That margin works out to about 50 cents on a S $ 25 order, according to the savefnbsg coalition, a coalition of more than 500 restaurants, if a profit is actually made.
Delivery options can at best extend survival to near breakeven point.
A GOLDEN ERA OF EAT IT OUTDOORS
The abyss facing restaurants today marks a reversal of fortune. For years, the F&B industry in Singapore has been supported by increasing affluence and a change in lifestyle that has seen more and more dining out.
A 2018 Nielsen survey found that one in four Singaporeans dine out every day, while more than half dined at least once a week.
Coupled with a steady growth in the number of visitors to Singapore from just over 13 million to just over 19 million over the past decade, catering was a booming industry.
With an average stay in Singapore of around 3.5 days, this is a significant addition to F&B demand. And as a major business and convention center, Singapore has seen additional demand for catering.
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Business was so good that the number of F&B establishments in Singapore grew from around 8,500 in 2010 to nearly 13,000 in 2019, an increase of over 50% in a decade.
WILL THERE BE A RECOVERY?
It is questionable whether this rapid pace of growth over the past decade has been sustainable, or whether it has reflected unwarranted optimism on the part of new entrants.
We know that the entire brick and mortar retail industry has faced tremendous pressure from competition from e-commerce platforms. Within this industry, however, the F&B sector as an experiential service has been more or less shielded from online and overseas competitors.
The freshness of the food preparation, the use of local ingredients, high quality service and an attractive ambience cannot be replicated by online operators.
Nonetheless, the general upward trend may have masked some basic structural factors that point to oversupply, and therefore a general upheaval in the industry, similar to what is happening in the non-F&B retail world. .
The proliferation of shopping centers over the past twenty years has had a concomitant effect on the proliferation of catering establishments in these shopping centers.
The low barrier to entry to open a restaurant or cafe has made this sector attractive to entrepreneurs.
When building a chain, a restaurateur can plan for growth and take advantage of the savings from operating a central kitchen. They can also track and respond to consumer trends, such as the growing interest in plant proteins.
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The new solo restaurant or café that enters the business does not have this strategic advantage. They see an opportunity and fill it, with the faith that they have something unique to offer in the specific location they have chosen.
But the overall restaurant market may be saturated. Singapore’s population is not growing rapidly and immigration is slowed down.
Each new restaurant can simply take away a slice of the same barely growing pie. There’s just a shuffle in demand – and ultimately, if the restaurant survives, that almost inevitably means some outlets are closing elsewhere.
(“Hawkers aren’t stupid or stubborn.” Find out why KF Seetoh says it’ll take more than hawkers accepting deliveries and going digital to save Singapore’s food culture on TSTIME’s Heart of the Matter podcast.)
THE HAWKER CENTER EFFECT?
Unique in Singapore, the system of subsidized hawker centers puts some pressure on the prices of other F&B outlets. Rents are subsidized and competition from peers from neighboring stalls sharing the same center creates a low ceiling for prices.
The control and classification of hygiene levels in these stalls translates into minimal quality assurance for diners. And when much of the consumption now takes place at home via take-out, paying for the ambiance and service of a more expensive restaurant seems unnecessary.
The recognition of “intangible heritage” granted to the Singapore peddling center system by UNESCO will likely result in continued subsidies for these centers; they serve a very useful purpose in the overall ecology of the Singapore catering business.
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READ: Comment: UNESCO registration may improve hawker culture, but saving it is a different challenge
Indeed, many households have just done without home food preparation.
It is a model that deserves to be defended. In most of the questions developed, eating out regularly and cheaply means relying on unhealthy foods mass-produced and frozen in industrial kitchens and reheated in fast food restaurants by low-paid workers.
In contrast, the hawking center model in Singapore makes available freshly prepared food, prepared by owners and their immediate families, at a very low price and in a convenient location.
WHO / WHAT WILL SURVIVE?
There will come a time when Singapore will be completely open for business again and tourists will start to flood our shopping districts and fill our bars and restaurants.
But even with restaurant outings now allowed from June 21 in Singapore, a rapid recovery doesn’t seem likely until most of the world is vaccinated and vaccinated.
It will be increasingly difficult for independent restaurant and stand owners to survive the challenges of the industry, even in the post-pandemic period.
For them, demand is limited by location. Every disruption, for example even a temporary road repair, construction activity or a diversion nearby, will result in a significant drop in profits.
The long-term effects will not be felt the same way by everyone. Those in the central business district will be more affected, with the WFH becoming the “new normal”. Those in tourist areas could get a boost once travel opens.
More generally, delivery platforms that have gained strength and experience during the pandemic are also well placed to consolidate their positions – by setting up central kitchens and venturing directly into the business.
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The massive data they now have at the individual consumer level is a godsend, something none of the stand-alone restaurants, or even chains, appreciate.
Another possibility is for independent operators to turn to pure delivery models or to add a pure delivery model to their product line. They will save on rental and personnel costs while being able to expand their reach across the city rather than their immediate location.
This can mean creating a new menu, tailored to the delivery method – foods that will stay fresh, don’t need to be served piping hot, and won’t go soggy over time.
Finally, there may be a demand for “ready-to-cook” delivery kits, where consumers can quickly prepare a high-quality meal without having to purchase, clean, chop and mix.
Overall, the F&B industry is likely to experience serious disruption beyond the pandemic. The fundamental operating model may need to be reworked for many other than high-end gourmet restaurants.
Dr Seshan Ramaswami is Associate Professor of Marketing Education at Singapore Management University.