F&B industry fears looming 'correction'

On top of labour costs and price competition comes a lower foreign worker quota and possible pullback in consumer spending


CUTS to the services sector's foreign worker quotas may be the latest blow to the food and beverage (F&B) services industry, which has come under pressure on various fronts.

While labour costs are a traditional bugbear, price competition is also a concern in Singapore's crowded market. And a possible pullback in consumer spending has emerged as a new fear, amid growing guidances for a worldwide economic slowdown.

"Diners are becoming more discerning and possibly price sensitive with regards to food purchased outside, possibly because of higher global uncertainty and its impact locally," said Singapore Management University finance professor Aurobindo Ghosh who leads a quarterly study on inflation expectations.

F&B service receipts last year grew 1.2 per cent on 2017 - buoyed by a 7.1 per cent rise in fast-food takings.

But that masked a much smaller growth in other segments, such as restaurants, caterers and cafes. In real terms, adjusted for inflation, F&B revenues actually kept falling and were down 0.2 per cent year on year.

"The improvement in the fast-food sector is interesting because it is unclear if it's due to shifting preferences... or belt-tightening," said Selena Ling, head of treasury research and strategy at OCBC Bank, citing the rise of food delivery apps. "Or, more likely, a combination of these factors."

Dellen Soh, CEO of Thai-owned operator Minor Food Group Singapore, told The Business Times in January that struggles at fine dining outlets may have been the canary in the coal mine for casual dining.

"Nowadays, food courts are getting prettier and prettier. There is no difference between sitting in a food court... and sitting in my restaurant, but their prices are much cheaper."

Last week, the Budget revealed that the services sector dependency ratio ceiling, or foreign worker quota, will drop from 40 per cent, to 35 per cent by 2021.

The Manpower Ministry later named food services as one of the industries that will feel the most impact from the lowered quota.

A spokesman for the global BreadTalk Group, which has brands from mass-market Toast Box and Food Republic to premium Din Tai Fung, said: "F&B is a highly competitive industry, buffeted by long working hours and reliance on labour."

He declined to comment on quotas.

Like BreadTalk, companies may even have to leave town, amid the limits in the market here.

DBS Bank has seen about four out of 10 F&B small-business customers go abroad in the past two years - mostly to second-tier cities in mainland China, Indonesia and Taiwan.

"This is a twofold increase over the last five years," said Joyce Tee, DBS head of small and medium-sized enterprise banking. "The overseas expansion is driven by limited growth opportunities in Singapore for F&B companies. Customers are telling us that F&B growth opportunities in Singapore are limited, due to high manpower and rental cost."

Thibault Ricbourg, director at pricing consultancy Simon-Kucher & Partners, is also advising clients to look at trends like healthier menu options and food delivery.

"If well managed, those changes can enable companies to further upgrade customers to higher margin products," he said.

But Mr Soh warned: "I think you'll come to a point where there'll be a correction... Those that don't have the energy, the money or perseverance will start to fall out; and that's very sad."