The thought of opening a Food and Beverage (F&B) store would definitely come across your mind at some point in time. Imagine being the boss of a café, you will sit in your shop with your laptop or chitchat with your regulars when you feel like it. Wonderful life when you are your own boss.
You are dead wrong. Setting up a F&B outlet in Singapore is not a walk in the park.
SPRING has reported that only 6 in 10 of the smaller F&B businesses make it past the five-year mark. In absolute numbers, it means that almost half of the 369 cafes, coffee houses and snack bars registered in 2011 have closed down. In addition, an average business run at an annual loss of 8 percent, and it takes an average 2.5 years to breakeven. This means that you might be better off investing your capital into Exchange Traded Funds (ETFs) as a passive investment instead.
Not An Easy Task, But Huge Potential Upside Ahead
Despite the gloomy numbers, the potential upside can actually be great. According to Singstat latest report, the F&B sector is a $687 million business in 2016. In addition, the year-on-year sales for “other eating places (such as cafes, pubs and canteens)” have grown 6.0% at constant prices. In comparison, sales from restaurants, fast food outlets and food caterers are growing at -1.1%, 0.2% and -2.1% respectively.
These figures mean the potential upside is huge if you know exactly what it takes to run a food establishment in Singapore.
Challenges You Will Bound To Face
1. Manpower Shortage And Rising Cost
Most F&B businesses cited the shortage of manpower as their top concern. Due to long working hours and the inflexibility to have day off during weekends and public holidays, hiring Singaporeans are particular challenging. With tighter foreign worker quotas, manpower shortage is here to stay.
In addition, labour costs have been growing faster than revenues over the past five years at 9.4% compared to 9.2% annually. Manpower cost will continue to rise with the shortage of labour in this sector.
As such, you should always aim to streamline the operational processes for better efficiency. Fortunately, most Singaporean patrons understand the manpower constraint F&B businesses face. Thus they are (usually) quite patient and are willing to help themselves in some processes (despite paying 10% service charge).
2. High Rental Cost
Despite the softening of the retail rental market, the rental cost can still contribute significantly to your F&B businesses. Rental cost is usually the second highest, after labour cost, taking up 20% of the operating expenses. It is also worth noting rental cost might not be a fixed expense. Most landlords will increase the rental cost to be in line with your revenue when the business is doing well.
However, you should never compromise valuable human traffic to save on your rental cost. It is especially so if it is a new brand and you do not have a strong marketing strategy.
3. Maintaining Customer Loyalty
Based on Euromonitor, Singaporean diners have twice as many dining options as their counterparts in Hong Kong, on a per capita basis. This means that Singaporeans have twice as many distractions when they are walking towards your premises.
Although marketing strategy is important, it can only get customers to your doorstep. Essentially, the quality and the consistency of food is paramount. Wheeler’s Yard will only get that far with people taking OOTD all over Instagram when their Yuzu Crème Brulee is dreadful unpalatable.
What You Can Focus On
1. Research And Plan As Much As Possible
Research on the potential location, research on the incumbents and new entrants, and plan as detailed as possible. Talking to people within the industry enables you to collect information in the shortest time possible. It also allows you to have sufficient reaction time to adapt, mitigating any potential problems.
Location is a factor that the make or break your F&B business. Therefore it is important for you to look at the demographic, human footprint and the competition at the potential location.
For instance, The Singapura Club and its other outlet, The Tiong Bahru Club Singapura, are all strategically located at the cafe hotspots like Haji Lane and Tiong Bahru. While competition might be more intense at these spots, the target audience is clear: the cafe hoppers and hipsters who are willing to spend for a themed cafe.
One common mistake made by F&B owners is the underestimation of cost and the overestimation of revenue. Hence, it is important to have a clear and realistic breakdown of the figures.
In addition, you should always aim to benchmark your business against your peers, For instance, by looking at metrics such as sales per square foot, sales per seat and sales per full-time equivalent will let you have a clear view on how your business fare amongst your competitors.
|Most Successful||Least Successful|
|Sales per Full-Time Equivalent||$164,000||$61,000|
|Sales per Seat||$37,000||$21,000|
|Sales per Square Foot||$150||$40|
Source: SPRING Singapore, Study of micro food enterprises landscape in Singapore, 2014.
2. Quality Over Prices
Unless you are catering to a group of price-sensitive diners, you should be focusing on quality and services over the price. Hai Di Lao is the best example to show that Singaporeans are willing to fork up more for better quality and services. Despite pricing at a premium compared to their peers, Singaporeans are still willing to patiently queue outside the restaurants.
Take a walk around CBD areas and you are likely to find businesses such as Wheat Soba, Daily Cut and YOLO with long queue during lunch hours. Although the food is more pricey than the regular mixed vegetable rice, people are receptive to paying a higher price for healthier and cleaner food.
3. Lean Operations
With labour shortage, improving productivity is more important than ever. Streamline your workflow through proper store layout, automation and scheduling so your staffs can focus on the right things.
Menu engineering is also something that businesses overlook. While more variety is good, a large menu will create operational complexities, leading to operational inefficiency and food wastage. As much as we enjoyed Gordon Ramsay pulling out rotten meat and mayonnaise expired years ago in Kitchen Nightmare, you certainly do not want this to happen to you.
Keeping your operation cost lean does not mean that you have to slave drive your employees. Have a dedicated team by building relationships with your staff. By creating a fun working environment, the staff is more likely to sacrifice and work over time for you.
In conclusion, the outlook for F&B sector is optimistic with constant growing numbers. However, you need to manage your expectation as it is not an easy business in this fast moving industry. It is important for you to adapt and not be in self-denial, like every owner in the Kitchen’s Nightmare. With proper planning, lean operations and a dedicated team, you will definitely reap what you sow.