The biggest news to hit Singapore’s food and beverage (F&B) industry recently was the announcement that foodcourt operator Banquet was finally shuttering its operations.
The news may have caught some by surprise, considering that it was once Singapore’s largest operator of halal foodcourts, but the proverbial writing was already on the wall back in August 2012.
At that time, it was revealed that Banquet had shrunk from an original 46 outlets across the island to 14.
News reports indicate that the decline was largely attributed to cash-flow problems, causing the company to be in the red since 2010.
Banquet’s management at that time blamed rising rents, along with an escalating wage bill and skyrocketing food costs for its financial troubles.
Its cash woes were reportedly so bad that the foodcourt chain had been unable to pay its stall operators on time.
Some have commented that Banquet’s shutting down is no loss to Singapore’s food scene, pointing out that in recent times, the quality of food served in its various premises has been dismal even as prices shot up.
They may be right, but Banquet’s demise may just be a portent of things to come for the F&B scene here.
RISING COSTS OF EVERYTHING
Doing business in Singapore has become extremely difficult due primarily to business costs, and it is not going to get easier anytime soon.
Traditionally, the F&B industry, with its long hours and generally lower wages, has struggled to attract workers.
Banquet was already in financial trouble and making it more difficult was the Government tweaking the rules to make it even more difficult for the sector — any sector — to hire cheaper foreign labour to fill its ranks, forcing companies to stump up more for local workers and just make do with less.
This is not to say that the policy is a poor one, but the market correction due to the change is one that has left a pall across the industry.
Food costs have also gone up, affecting all in the F&B sector from the humblest of hawker stalls to the swankiest of high-end restaurants. Foodcourt operators, despite having the size and scale to leverage economies of scale, are not spared either.
Singapore’s Consumer Price Index shows that food prices have gone up by 8.9 per cent YTD (year-to-date) since 2009. But what is interesting is that during the same period, the price of prepared meals (when you eat out) rose by 7.8 per cent, while the price of food excluding prepared meals (ie. food ingredient costs) rose 10.8 per cent.
In layman terms, what this has meant is that F&B businesses have been absorbing part of the price increase in food over the years.
But the biggest cost bugbear for an F&B business in Singapore is that of rent.
Commercial rents have largely risen across the board, and especially within shopping malls, and even more so for food-related businesses.
When your lease is due for renewal and the mall landlord decides to squeeze you for more, how many more bowls of fishball noodles do you have to sell to cover that increase?
If even a large foodcourt operator such as Banquet struggles to manage these costs, what chance do small independent F&B businesses have?
SCOURGE OF INSTITUTIONALISED SUBLETTING
In the recent news article that announced Banquet’s closure, it also reported that the foodcourt operator still owed some of its tenants their rightful payouts.
How Banquet operates is to first collect the takings of all its stallholders, taking 20 per cent of the monthly revenue as rental payments, and the remaining 80 per cent goes back to stallholders the following month.
When Banquet dithered on those payments, this meant that the stallholders did not get their rightful income. It was reported that the payment delays got so bad that some stall operators were owed more than four months worth of revenue.
At one point, a stallholder reportedly put out a notice telling customers she no longer had any money to buy ingredients.
And like in any other workplace, if stallholders are not paid promptly and sufficiently, it can lead to resentment that soon leads to a drop in service standards and food quality.
If stallholders do not have sufficient cashflow, how do they pay their suppliers on time? If they are unhappy, how can they smile and provide quality customer service? And if food quality and service standards drop, why then should customers return? It’s a vicious circle.
DRIVING AWAY INNOVATION
In such a model, you can probably argue that unlike the majority of hawkers, foodcourt stallholders are not exactly independent business owners, that they are merely employees. It arguably curtails real entrepreneurship behaviour.
Yet this business model is rampant in Singapore’s F&B industry. Large operators buy up or rent large swathes of space — whether it is a foodcourt, coffee shop, or even hawker centres — and then reapportioning the space and re-renting it to others.
And just like how a hotel developer would seek hotel operators to run a hotel after it is built, foodcourt operators are courted — pun fully intended — by mall owners to start an operation for every new mall.
What this can mean is that it takes away precious F&B space — and drives up rents — to the point that independent business owners with potentially new and innovative concepts are unable to afford to set up or grow their businesses.
Ever notice that every time a new mall opens, the usual suspects are almost always there when it comes to F&B outlets?
Perhaps that is why true food innovation happens in clusters where rents were originally cheap: Little India, Tiong Bahru, Duxton Hill, and in more recent times, Tras Street.
The important question is how all these factors impact Singapore’s food scene.
Banquet may have come to an end, but the march of foodcourt culture looks to continue unabated. In the meantime, our hawker centres — where hawker stall operators are largely independent — continue to decline.
This article was first contributed to and posted on Insing.com.