F&B serves up new business recipes for a vastly changed setting

Singapore

DINING in is set to resume this Friday, but it is unlikely to be business as usual for the food and beverage (F&B) industry in Singapore.

For one, competition may heat up among restaurants trying to capture some of the pent-up consumer demand. This is especially as a five-people cap on social gatherings is likely to limit dine-in operations.

"Once we reopen, a lot of restaurants will try to go the extra mile and put out attractive promotions to attract diners again, so competition might be fiercer. Combine this with the economic recession, and there will be two major factors impacting us at the same time," said Ponte Group owner and managing director Martin Bem. He pointed out that government subsidies will start to taper off too.

Uncertainty over how long the initial spike in demand will last, and expectations of changes in consumer behaviour as a result of the novel coronavirus crisis, will also put the heat on food establishments to develop more permanent and profitable strategies for takeaways and deliveries.

Some local food operators are turning to cloud kitchens and virtual restaurants as low-cost means of testing out a new model.

Cloud kitchens and virtual restaurants are synonymous. A cloud kitchen is a centralised kitchen where food operators can rent space to prepare food specifically for delivery. A virtual kitchen is a food establishment that offers take-outs only and doesn't have a physical storefront.

Their immediate appeal is evident. Food operators can save on space and set-up costs; they may also be able to save on rent.

Singapore-listed seafood chain No Signboard Holdings, for instance, opened a cloud kitchen in April to cater to deliveries for its Little Sheep Hotpot and Mom's Touch brands.

It is "in the process of" opening a second cloud kitchen concept in Clementi, it told the Securities Investors Association of Singapore (Sias) in late May.

No Signboard said that it is part of the group's interim strategy to address the "existing limitation on the delivery radius through its third-party delivery partners" and will not have a material impact to its financial position, as the set-up cost is "low" and the kitchens are staffed with existing employees.

Koufu also intends to experiment with a cloud kitchen at its upcoming integrated facility as part of plans to diversify its current business model, it told Sias on June 3.

Meanwhile, New Ubin Group plans to launch UbinEats, a virtual restaurant targeted at individual diners.

Co-founder and chief operating officer SM Pang said the new concept had been in the works since last year, to cater to demand from solo diners that its "communal" zichar dining was not able to meet, but plans were sped up due to Covid-19.

The virtual restaurant is slated to launch at the end of June on GrabFood, and will operate out of New Ubin's existing kitchens.

"This allows us to embark on a new business model with relatively low overheads while relying on existing infrastructure," Mr Pang said.

It would join the ilLido group, which earlier this month launched Grammi, an Italian-Mediterranean food concept geared purely towards home delivery.

Without having to pay for a premium location, renovations or serving staff, "you can start with a high five-figure investment compared to a minimum S$500,000 for a brick-and-mortar restaurant," founder and chef Beppe De Vito had told BT ahead of the launch.

But market watchers cautioned against jumping on the bandwagon too quickly, as these concepts may not be suitable for everyone.

DBS Group Research analyst Alfie Yeo said delivery will be less relevant to restaurants where "commensality level is high". Also, "online is not necessarily more profitable as the spending per head is lower, and depreciation is largely fixed; not forgetting commissions that are shared with the online platforms, if any".

Ponte Group's Dr Bem thinks cloud kitchens may only be suitable for lower price segments, such as convenience food, as he estimates that most take-out meals cost up to under S$30 per person.

"Premium quality, experience and craftsmanship-based F&B, and the social aspect of dining together, cannot shift to delivery or cloud kitchens," said Dr Bem, whose group is behind F&B concepts such as Brotzeit (now divested) and LeVeL33.

"This is a space where Singapore has worked hard and very successfully to achieve international acclaim and attract high-spending customers."

For example, the Les Amis Group has said it may set up cloud kitchens for its mid-market brands and upcoming delivery-focused brands. But the restaurant Les Amis, which is positioned as fine dining, will cease takeaways and deliveries after this Sunday.

New Ubin's Mr Pang has also implied that the profitability of its virtual restaurant would hinge on volume. This is as UbinEats will offer local dishes that are typically served as meals for one, meaning, they will be priced lower than New Ubin's.

He said UbinEats will provide a product and service that's "low cost with low barrier-to-entry, and that customers would be happy to pay for in turn, allowing us to achieve profitability through mass".

Other restaurateurs look to strengthen their takeaway and delivery capabilities in other ways.

Spa Esprit Group plans to expand its range of consumer-ready products for delivery, including Do-It-Yourself meal sets and sourdough kits, noting demand for "comfort food" and high-quality food.

For example, there has been a three-fold increase in online sales to home brewers under the Common Man Coffee Roasters brand; bread delivery orders under Tiong Bahru Bakery have increased two-fold.

The experience is also showing that some brands, such as the coffee and bakery concepts, could be moved to a full takeaway model, said founder Cynthia Chua.

However, she has no plans to sell or close any of the group's restaurants in Singapore (Ding Dong was closed as its lease was ending).

For Caerus Holding, which is waiting to launch two new brick-and-mortar dining concepts, "e-commerce, delivery and food aggregator platforms now play a major part in the launch, rather than introduced at a later stage," said executive director Vijay Pillai.

It is setting up a central kitchen to support the two upcoming concepts, and to ensure that they can easily pivot to islandwide delivery if needed. It will also implement new operating procedures to manage inventory and reporting for delivery.

RE&S Holdings is increasing the range of products available for delivery by combining offerings from its various brands such as Ichiban Boshi and Kuriya Japanese Market.

Chief operating officer Lim Shyang Zheng added that to meet the customers' general expectations of takeaway food being priced lower than in restaurant settings, the group will need to "constantly develop more options that would allow them to subscribe on a regular basis while balancing the margins".

But Katrina Group CEO Alan Goh thinks that operating takeaways and deliveries ultimately still defeats the purpose of a restaurant.

If people want to dine at home, they can have home-cooked food, he said. "Restaurants are for people to come and dine in."

READ MORE: Listed F&B players review operations; analysts pick Kimly as most resilient