1 in 4 F&B businesses in Singapore churn out of business every year. Many close within the first year of operations. This is the case across segments, from hawkers, to cafes and even high-end fine dining restaurants. Reputable Michelin stars restaurants too, have been leaving the scene.
Why is it that even F&B operators with S$150-550m in revenue only have 5-7% margins. How do they then also command a respectable 25%+ return on capital?
In June this year, we conducted close to a thousand surveys with F&B business owners across Asia. Many shared common challenges – people, off-peak demand, competition. (Read Full Article Here) Despite the many tech and software start-ups helping to create change in the F&B space, it is a highly challenging business to be in.
This (somewhat long) post focuses on F&B in Singapore. We explore some of the main challenges, zooming in on the realities of what it takes to survive, as well as what we can learn from those who have succeeded.
For aspiring and existing F&B business owners, we believe some of our findings will be useful and hope everyone can benefit from it.
There are several inherent challenges to running F&B businesses in Singapore:
- Rental rates are high
- Employment rules are stringent and it is difficult to hire, train and retain people
- The market is highly competitive and chains / scale players makes it harder for single outlet F&B operators to compete
- Newly established F&B operators often struggle with operations
- Hawkers and food court / coffee shop stall operators face their own unique challenges with working capital and cashflow management
For these reasons, 28% of F&B establishments are replaced every year. While efforts are underway at the governmental level to help transform the F&B industry through technology and policy support, we think it is equally important for individual F&B business owners (especially aspiring entrepreneurs) to understand the economics of F&B in Singapore.
To survive and do well, owners need to think commercially – serving great food and having a nicely renovated outlet is no longer enough.
That said, Singapore is also home to many successful local F&B entrepreneurs who have built great business around good food and went on to grow their business within and outside of Singapore. Breadtalk, Paradise Group, Fei Siong, Kith, PS Gourmet and Katrina Group are just some examples of the many successful F&B businesses in Singapore. Those who have succeeded and done well often share a few common characteristics:
- They cash in on underlying consumer trends (not fads) that exposes new segments
- They scaled rapidly for economies of scale, many with central kitchen operations
- They are well managed operationally and financially – for quality food, service, margins and returns
So what does success look like? We studied a number of successful Singapore F&B businesses and found that they typically have 5 – 10% pre-tax profit margin and 10 – 25% return on invested capital. Respectable!
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