For F&B outlets, COVID-19 is a wake-up call. Here are seven changes they can make
A bloated restaurant scene and a risky business model were among the things that had gone wrong with the pre-pandemic F&B sector. The programme For Food’s Sake! finds out how businesses can turn things around now.
SINGAPORE: Businessman Ashok Melwani calls it a “Darwinian extinction event”.
Between January and July, 1,242 food and beverage (F&B) outlets in Singapore were permanently shuttered, according to data from the Department of Statistics.
“It’s like a meteor that came along, and I think any of us who were fragile got crushed,” says Melwani, whose 23-year-old dining fixture, Modesto’s, was one of them.
The meteor was, of course, COVID-19. But there had been indications of the fragility of the F&B scene before then — with “two forces that have worked so strongly against us” in the past few years, he says.
“Labour costs have gone up exponentially,” cites the 62-year-old. “Rent also has gone up, like, (by) double.
“When you talk to the Reit (Real Estate Investment Trust), it’s always ‘no’. They’re totally not interested to hear the words ‘rent decrease’. And they’d rather take the risk of leaving a place empty than to give a sitting tenant a break.”
Restaurants were taking a risk too. While many businesses may have four to six months of cash flow, restaurants usually operate on two, which means trouble if a restaurant does not turn in a profit for two months.
“We were too big,” Melwani says of his own restaurant. “Turnover is vanity, profit is reality, but cash flow is the only necessity.”
Singapore is not alone, however, in having its deficiencies exposed. For the first time, restaurants round the world are going through the same challenge.
“The restaurant industry is obviously destroyed,” says legendary chef and New York-based restaurateur Eric Ripert. “This COVID-19 crisis — it’s something that we’ve never seen.”
The pandemic is proving to be a wake-up call for the global food industry, with change needed for things to take a turn for the better.
So how can the F&B sector become more resilient and sustainable? There could be seven ways, highlighted on the programme For Food’s Sake!
WATCH: Shattered fragility? What COVID-19 revealed about the restaurant industry (4:03)
1. CALL TIME ON EXPANSION
Running a successful restaurant can be a costly affair. Consistently executing great food with amazing service means hiring great cooks and well-trained staff — which is more than 30 per cent of revenue.
The cost of raw ingredients can approach 30 per cent. Rent can come up to 25 per cent. Then there are equipment, utilities and marketing costs.
In 2018, the average profit margin in Singapore’s restaurants was 5.5 per cent, reported the Singapore Business Review.
“Even for the very best in the industry, profits can be less than 10 per cent,” says programme host, chef and restaurateur Ming Tan.
Despite the thin margins, tight cash flow and long hours, an average of 808 new restaurants enter the market every year.
And 22-year industry veteran Beppe de Vito, the owner of the il Lido Group of restaurants, believes the restaurant scene is oversaturated.
“We’ve seen way too big of an expansion over the past few years. The entry level to operate in this business is too low,” says the man with a Michelin star under his belt.
“They’ll all increase your average rental, they’ll have to pay your staff a little bit more to steal them from you, and they end up setting up something that may not last even five years.”
Today, however, there is the pandemic to be reckoned with. “During this period, plenty of restaurants are going to shut their doors. And as a chef, this is tough to see,” says Ming. “But maybe it’s about time.”
2. RELY MORE ON AUTOMATION
For years, the government has called for the F&B industry to rely less on manpower and more on automation. Incentive schemes have been offered, while foreign labour restrictions and levies have been a direct hit to restaurants.
It is hard to find Singaporeans willing to work in F&B, but the industry’s labour-intensive ways are also “costly and, compared to other industries, really inefficient”, acknowledges Ming.
Having enough staff for “key peak periods” — each in a specific role, from floor manager to waiter to sommelier — often means “being overstaffed in the least busy period”.
So it was an eye-opener to him to meet Ella, a state-of-the-art robotic barista with a sleek, metallic arm. According to its creator, it can make around 200 cups of coffee per hour.
“She makes exactly the same quality as our top barista, but at four times the speed,” says Crown Digital founder and chief executive officer Keith Tan.
In a speed test, Ella made two cappuccinos and one latte five minutes faster than Ming. But in a blind test on taste, a panel of three coffee lovers all preferred his coffee.
In future, Ella could be repurposed and made more versatile. “We might want to turn her into cooking some food,” suggests Tan.
With its price tag of S$150,000, however, not all restaurants would be able to afford Ella right now.
3. RETHINK LOCATION
One hawker who recently took a gamble is Fishball Story owner Douglas Ng, whose stall used to be in Timbre+, a food court in Ayer Rajah catering mostly for office workers.
After the pandemic started, his sales dropped by 80 per cent as there was less and less of an office crowd. So he moved to MacPherson, an area with an older demographic, where he is surrounded by residential blocks instead.
He saves S$6,000 on his annual rent, and he has double the space he had previously. It was a calculated risk, and he is “so glad” to have taken it because business has been “better” with people working from home.
“I was in Timbre+ for four years (and was) happy there,” says the 29-year-old. “But then again, you have to be realistic. It’s not (about) whether the place is nice or the customers there are very nice to you.
“COVID-19 won’t disappear so quickly. The environment's changed, the whole food industry will change, and people calling for delivery — all this — is here to stay.”
In the F&B industry, location is one way to ensure a steady flow of customers, but at a price, with rents that are sometimes up to 60 per cent higher than in less desirable locations.
What makes a great location, however, and how does it help with financial sustainability? Ng’s advice for those in the industry who are looking to relocate is that they need not look for a “very luxurious” place.
“You never know if you’re going to succeed or not. But it’s less painful if the investment is smaller,” he says.
4. BE COMMUNITY-CENTRIC
Positioning is an important part of staying sustainable, thinks DP Architects director Ng San Son.
But he suggests that this can be done by establishing a new norm, namely by forming a “relationship with the community”, be it through events or “bespoke dishes for that particular district”.
He cites the Home Team NS clubhouse in Khatib, deep in the heartlands, as an example of a space for F&B where people can “get excited” and engaged in activities. “It’s about contributing back to the community,” he says.
In a nutshell, he advocates that restaurants should be a bigger part of the local community so that in times of need, the community can rally round to ensure that restaurants in their area stay in business.
5. VENTURE INTO THE CLOUD
Some businesses are going in the opposite direction, venturing away from the community and into cloud kitchens. These are large, shared facilities where many different restaurants can prepare food for takeaway and delivery.
Ian Lin’s company, the Dynasty Group, runs 21 outlets selling salad bowls and Thai food, among other things. But his newest brand, Lady Boss Mala, is unlike the others: A virtual one created just for GrabKitchen.
“The rent's much lower,” he says. “At the same time, when you run a virtual brand, you don’t need a front counter. There’s no cashier, there’s no waiter or someone to clear the plates.”
There are over 20 F&B brands at GrabKitchen Hillview, which is Grab Singapore’s first central kitchen, and 18 brands at its second GrabKitchen, in Aljunied. Dine-in or takeaway customers at the kitchens can order from any of the brands there.
Not only does GrabFood Singapore senior director Dilip Roussenaly think cloud kitchens are here to stay, he also calls it the future of dining, under a “less volatile model”.
“Labour isn’t going to be as intensive … You’re only focusing on what you do best — you cook, and that’s it. And that benefits all the merchants,” he says.
“Even though we have a dine-in (area), it’s not optimised for dine-in, so the rent is low. With this, we de-risk the venture for merchants. That’s exactly what it is.”
6. SELL MEAL KITS
But what if owners do not want to give up their shop front? They could draw inspiration from one restaurant owner who took a leap forward with his crispy pork belly.
Amid the pandemic, Dylan Ong of The Masses managed to sell more than 10,000 pieces in two months, without having customers come to the restaurant.
His is a vacuum-packed frozen dish that customers can make at home anytime they want, as it can keep for up to a year.
All that is needed is to roast it for 25 minutes in the oven, an air fryer or a toaster. And it is created to taste no different from the restaurant’s typical fare — convenience food taken to another level.
“Roasted pork belly is a well-loved dish … But it takes about three days to cook a perfectly (good) pork belly,” says Ong, 33. “What we did was minimise … all the things that you need to do.”
According to a 2018 Nielsen report, the proportion of Singaporeans who had purchased restaurant deliveries or a meal-kit service online was 11 percentage points higher than the global average.
So pre-cooked gourmet meals can be a new revenue stream for restaurateurs here, and they can also utilise their teams better. This was the case for Ming when he released his first gourmet DIY meal kit: Damn Easy Hokkien Mee.
It was more difficult to make than he expected, as it must be able to keep for up to a week in the fridge. But it helped to bump up his sales by 30 per cent.
7. HOW ABOUT MINI-GREENHOUSES?
Although safe distancing is still bad news for revenue, since restaurants cannot accommodate as many diners as before, one restaurant in Amsterdam found an opportunity to embrace this new situation and stand out from the rest.
A lot of Dutch restaurants are tiny places full of “gezelligheid”, which means cosiness and conviviality. But the restaurant Mediamatic ETEN reinvented cosiness when it conceived of “quarantine greenhouses” in April, when Amsterdam was still in lockdown.
The vegan-friendly restaurant has a greenhouse where it grows most of the produce it serves, hence the mini-greenhouses for its customers to dine in as a safe, creative solution.
Even the staff cannot enter these mini greenhouses. Instead, they serve the food balanced on a wooden plank. Is this the future of dining too, or a new normal?
“It’s good to create those possibilities and see where they can lead to,” says Mediamatic Eten chef Giulia Soldati, adding that if other restaurants copy the concept, it would be a “nice message that … we could inspire other people”.
Dutch chef and television host Rene Pluijm describes his experience of dining at the restaurant as “safe” but also “very comfortable”. “And you have complete privacy. It’s a fantastic idea,” he says.
“What these guys at Mediamatic are doing right now is they’re turning something terrible … into something positive, into a new concept. So what I learnt here is that new concepts are born based on something that’s maybe negative.
“This is completely new, and it might work.”
Or as Ming puts it, “There’s no way forward unless we’re flexible and we evolve.”
Watch this episode of For Food's Sake! here.