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Too many cooks: The heat is on in the catering business
FROM some angles, it looks like boom time in the catering industry, especially on the consumer front. The number of catering businesses rose from 395 in 2014 to 450 in 2017, public data from the Department of Statistics (SingStat) shows. Citing growing demand for "more gastronomic experiences", Chris Loh, creative director of Rasel Catering, tells The Business Times: "It's actually a flourishing industry. The only thing crippling the industry is the labour crunch - the lack of expertise." But other figures paint a less rosy picture.
Caterers saw total income dip by 2.8 per cent between 2016 and 2017, to S$939 million, according to data provided by SingStat to BT this month. Over the same period, operating surplus slipped by 4 per cent to S$168 million. Full-year numbers for 2018 are not yet available.
This came even as restaurants, fast food outlets and other eateries posted modest upticks in operating receipts, which include both sales and other operating income. Restaurant receipts inched up by 0.08 per cent to S$3.73 billion, while fast food chains improved by 4 per cent to S$1.14 billion. In the food and beverage industry, operating receipts come mainly from sales.
Meanwhile, data for the year to last November shows caterers' year-on-year sales ranging from a slide of 20.5 per cent in January to a high point of 7.5 per cent growth in February, which is when Chinese New Year fell last year. December 2018 figures will only be released in February 2019.
And that's not taking into account a rash of year-end food poisoning cases that cast a pall over catering here. Tainted food from the Mandarin Orchard hotel, caterers FoodTalks and Tung Lok Catering and Spize restaurant in River Valley sent scores of diners to doctors, with one fatality.
Litany of woes
True, the industry has seen a flurry of headline-grabbing mergers and acquisitions (M&As), including Catalist-listed Neo Group's S$1.8 million deal for a majority stake in Lavish Dine and S$4.4 million purchase of Ye Liang How Catering Service last year.
Meanwhile, Swensen's franchisee ABR Holdings struck a deal for Nyonya food and beverage group Chilli Padi in 2017. The mainboard-listed ABR paid S$14.8 million for 80 per cent of Chilli Padi, which owns Chilli Api Catering, and has a put and call option for the remaining stake.
But trigger-happy companies may risk spending beyond their means.
In a report last November, RHB analyst Juliana Cai flagged the debt issue at Neo Group, which has brands including institutional catering and tingkat (tiffin carrier) delivery arms, as well as Neo Garden, Orange Clove, Deli Hub and Chilli Manis.
"As the group continues to embark on an acquisition spree, we view the high net gearing ratio of more than 1.9 times as worrisome amidst the rising interest rate environment," Ms Cai wrote then.
"We note that the new acquisitions could take more time to turn around and ramp up, while the high interest cost erodes the earnings of its core catering brands."
Separately, mainboard-listed electronics distributor Serial System paid S$4.5 million for a 21 per cent stake in caterer Tong Chiang Group in 2015, only for various Tong Chiang units to be put under interim judicial management in August last year. That was followed by a winding-up application from creditor Maybank, according to bourse filings from Serial.
Both consolidations and shutdowns could point to the impact of rising competition in Singapore's crowded food and beverage sector.
Catered food prices rose by 1.1 per cent in 2018 over the previous year, according to the latest inflation data from SingStat. This is more sluggish than the 1.5 per cent average price increase across the food services segment.
Rizwi Wun, who heads the consumer brands industry group at RHTLaw Taylor Wessing, identified higher costs and a failure to adapt as key challenges for local caterers. "In some cases, this has led some businesses to close down," he adds.
"With sufficient resources, consolidation through M&As could be a solution if it supports a company's corporate strategy. Larger players can acquire niche caterers to pursue a multi-brand strategy in an effort to capture more segments of the market. Furthermore, food manufacturers and other related suppliers are also prime takeover targets for caterers to achieve greater economies of scale across the value chain.
"Smaller players without the same financial resources should turn to alternative means to survive."
Neo Kah Kiat, chairman and chief executive of Neo Group, tells BT that customers can no longer be relied on for loyalty.
He ticks off other issues: "The family-owned businesses are very lean, but the newcomers have chefs. Business is also not very consistent. A contract-based business has benefits, but the profitability is very, very low, and the cost pressure is getting higher."
And, on top of logistics difficulties and manpower costs, even advertising has had to change, Mr Neo says.
"It used to just be newspaper advertisements, but now there is social media and a lot of expenses, as you need a team to market your business," he laments. He tells BT that he spent up to S$4 million on marketing last year - a far cry from S$50,000 or S$60,000 in the old days.
Other food and beverage operators - from upmarket eatery Nara Thai to the grande dame of Singapore cuisine, Violet Oon - have also started muscling onto caterers' turf. And that's not counting the premium private dining niche, where some top restaurants now provide a catering option, such as the one Michelin-starred Garibaldi, or have their chefs cook for private events.
Singapore-based Clubvivre, which was set up in 2012, is an online booking platform that matches organisers of small gatherings with set menus from private chefs.
It saw about 1,000 bookings last year, with half of those coming from repeat clients, according to chief marketing officer Maria Kuvshinova.
Meanwhile, Chinese restaurant group TungLok started catering in 1998 and now has two segments: TungLok Catering and the mass-market Bellygood Catering. These make up about 15 per cent of the group's business. Andrew Tjioe, president and chief executive of TungLok Group, says: "The fact that our catering business is still going strong and improving shows that there is an active market in this business segment.
"While many occasions are held within our restaurants, there are many other events which require to be held at external venues. Having a catering unit allows us to offer our cuisine out of our restaurants and remain competitive."
And Rasel's Ms Loh says that hoteliers are "major players" and the main competition for the group's Purple Sage brand, which specialises in meetings, incentives, conferences and exhibitions (Mice) events.
Her business partner and managing director Alan Tan adds: "We do a lot of events at Gardens by the Bay, which is in the Marina Bay area, so we have people like the Ritz-Carlton coming in, Conrad coming in... All these hotels are coming in, so when we have a pitch, it is always against these hotels."
Ms Loh thinks that caterers can go the distance better, as hotels' hands are tied by a focus on rooms. "Tell me what you would like to have to impress your clients from overseas, and we will do the food for you," she says.
"Tell me what experience you would want to have and we will give you the set-up - the kind of table linen you want, the kind of table layout that you want.
"I think this is something that the hotels lack, not because they can't do it, but because their hands are tied. They have other key performance indicators to look at."
Still, the price pressures seem to be keenly felt across the whole industry.
Clubvivre's Ms Kuvshinova, who founded the company with her husband, says: "Our margins are quite small, let me tell you." One reason she cites is that competition keeps her prices neck and neck with higher-end restaurant offerings. She estimates that the average ticket for a Clubvivre event is S$750 for dinner for six to eight people.
"We're not lowering the prices more," Ms Kuvshinova adds. "It has to make sense because we are contracting the chefs."
She declines to give details of her company's latest accounts, but corporate records show that Clubvivre made a profit of S$17,159 on revenue of S$297,817 in the 12 months to Nov 11, 2017.
This was after annual losses of S$60,463 in 2016 and S$222,945 in 2015, which forced Ms Kuvshinova to rethink her business model and focus more on home events - rather than corporate clients, who "I wouldn't say stay loyal to you" because they may angle for repeat-customer discounts or shop around for vendors more.
Adapt and grow
Given Singapore's small pond, bigger fish do have natural advantages.
"In this industry, it is not easy to grow revenue," says Mr Neo. "But, in terms of profits, if the company is big, then - with economies of scale - the profitability kicks in."
Central kitchens - which Mr Tjioe dubs "a must in the catering business" - are one example.
But as Mr Tjioe also notes: "The question is, how big should your central kitchen be? Operators would not want to have a central kitchen which is over-sized. It can be a double-edged sword if expenses are too high."
Besides industrial-size kitchens, larger caterers also have the piggy banks to invest in better technology.
Mr Neo tells BT: "Caterers are facing a lot of pressures, which is an advantage to our catering division because we are bigger and have strong technology. Many people do not understand that the catering business is about technology, which you need to spend time introducing."
Neo Group and Select Group won Business Excellence Awards in 2017, with both caterers' process automation initiatives commended by government agency Spring Singapore (now part of Enterprise Singapore).
Initiatives included automated potato peelers and egg breakers at Neo Group, which kept the manpower turnover rate below the industry average, as well as an L-shaped conveyor belt in a Select Group central kitchen and an e-procurement systems that boosted productivity.
Rasel's Mr Tan also notes: "Normally, high-end restaurants would fit about 50 to 60 people, so their capacity and kitchen staff are lean. Seldom would they close the restaurant and go out to do an event, unless it has really good margins and price. Our forte is that we have a central kitchen where we have good food systems in place."
That's the supply side taken care of.
As for demand, caterers have experimented with setting up and buying companies and brands for various segments - as Neo Group has done and as Rasel has hinted it might do.
The privately owned Select Group runs two dedicated catering arms - Select Catering and Stamford Catering - as well as a catering arm under Chinese restaurant chain Peach Garden.
These brands, which have contributed a stable one-tenth of the group's revenue, are aimed at mass-market consumers, a spokesperson tells BT. Select Group most recently reported S$187.7 million in full-year turnover.
"Select Group will continue to strengthen our presence in the Singapore catering market by offering new products that cater to the needs of the market," says the spokesperson.
She cites offerings that can cater to fewer than 20 people, "as we see an increased demand in the number of orders for smaller groups".
"We will also continue to study food trends to create new products - for example, Korean, Japanese and local cuisines," she says.
The Select spokesperson declines to give more details on the breakdown of the catering business across segments such as home and corporate events. But players such as Rasel's Ms Loh and Neo Group's Mr Neo tell BT that both corporate and private clients are increasingly willing to splurge on trappings for event set-up and ambience.
Mr Tan adds: "Dropping prices is not the only way to win and increase market share. In the context of Singapore today, such a high-cost space, dropping prices is like killing yourself. You have to reinvent your model and stay at the forefront in your products."
While consumer demand may grow, Mr Neo believes cost pressures and logistics challenges will force smaller players to throw in the towel.
"The number of caterers will slowly be reduced. Competition will not be as fierce... The expenses are huge. It is difficult to sustain, and the business is not one where you have the same volume every day."
Being selective and exclusive actually pays, say caterer Rasel
RASEL Catering, formerly known as Rasa Selera Food Service, became Singapore's second halal-certified caterer two years after opening in 1997. Over a decade later, co-owners Alan Tan and Chris Loh were toying with the idea of setting up a non-halal arm to add to the business.
But another opportunity fell into their laps instead: Boutique caterer Purple Sage came onto the market.
So Rasel bought Purple Sage in end-2014, in its push into the non-halal market, with Mr Tan and Ms Loh naming prominent architect Ong Tze Boon as the vendor. While they would not get into specifics, they say that the deal was for a "seven-figure sum".
Since then, Mr Tan and Ms Loh tell BT, they have turned Purple Sage around - by ruthlessly cutting customers who couldn't afford to pay top dollar.
About four-fifths of the business is corporate, with Rasel tending to local clients and Purple Sage targeting foreign visitors in the Mice market.
Executive chef Teo Yeow Siang uses international conferences as an example of the target clientele. "For events like these, we have a lot of requests for sustainable products for the ingredients that they want," he says. "So we are buying locally farmed fish (see amendment note). It's very difficult to get farm-to-table fish in Singapore to cater for 300 or 400.
"The cress and some of the vegetables we use are also locally grown. We also try to source from Malaysia, which is nearer, because when people do these events, they are also looking at reducing the carbon footprint... And we try to work out our menu and the whole event with them."
Competition at this end of the spectrum tends to come from hoteliers, says Ms Loh: "There is a perception among consumers that hotels can deliver better, higher-quality, premium."
But she believes that her brand can hold its own, as it has invested in an emphasis on personal touches (which don't come free, either).
Its office in Pandan Loop comes stocked with a live kitchen area, to wow potential clients, as well as fabric swatches in a plethora of hues for table and place setting mock-ups.
According to its latest publicly available records, Purple Sage made a post-tax profit of S$174,404 for the year to Dec 31, 2016, as revenue nearly tripled the year before, to S$2,035,126. This was after two straight years of six-figure losses.
Purple Sage recovered from earlier fiscal haemorrhages because its new owners decided to kick out blushing brides and bargain hunters, Ms Loh says: "The wedding market was a big chunk of what we've been cutting off... Institutions as well."
While Purple Sage still caters for weddings - with tea buffets at between S$18.80 and S$38.80 a pop - she adds, in a reference to the Hollywood hit about conspicuous consumption: "We realise that we can do only the more prestigious weddings... I'm not saying we want to do the Crazy Rich Asians kind, but we try to do that segment and we're getting quite a number of enquiries on that level."
Citing an earlier practice of giving discounts of 20 to 50 per cent, she blames mismanagement, rather than industry fundamentals, for Purple Sage's deterioration.
"Many clients from institutions like schools, which previously could not afford Purple Sage, now could," she says. "And there were a lot of big, lower-end companies."
Does this strategy mean that Rasel and Purple Sage will stay exclusively in the premium market segment?
Mr Tan responds: "We do not want to be a jack of all trades and master of none. At the end of the day, we came up from food, so whatever we do has to be food-related."
But as to whether the partners could buy more mass-market brands, Ms Loh says it's "not a definite no - to complete a holistic picture of catering". She adds that it has been embarrassing to redirect potential Purple Sage customers to other caterers.
"We will not deny the opportunity if it comes by, to do catering with no-frills, since we can already do it with a lot of frills," she says. For instance, she and Mr Tan are mulling over retail kiosks and institutional catering, as well as a "Simply Buffet" brand that "is in the pipeline (but) we have not decided when to launch it".
The Rasel co-owners say that they are working on a timeline of three to five years for the expansion, and added that the group's combined turnover is on track to cross S$10 million in the 2018 financial year.
- By Annabeth Leow
Amendment note: An earlier version of this article quoted executive chef Teo Yeow Siang as saying that "we are raising locally farmed fish". The company has since clarified that it buys the fish and does not rear them. The article has been corrected to reflect this.