All those who have ever nursed dreams of opening a small cafe business in Singapore ought to know that it is no walk in the park: Only six in 10 of such smaller food and beverage (F&B) businesses make it past the five-year mark. In raw numbers: almost half the 369 cafes, coffee houses and snack bars registered in 2011 have since closed down.
A study has also found that the average business runs at an annual loss of 8 per cent, and it takes an average of 2 1/2 years to recoup one’s initial investment.
The study of Singapore’s F&B landscape by Spring Singapore had entailed face-to-face interviews with 216 F&B businesses which pull in less than S$1 million in annual revenue. Interviewees were asked about their manpower, operations and practices and the challenges they faced. The study found that although such smaller F&B businesses made up 85 per cent of the enterprises in this sector, they earned only 21 per cent of industry revenues.
But even as nearly half (48 per cent) of those interviewed admitted they were struggling to stay afloat, two thirds of them claimed to be passionate about the industry, Spring reported at the Singapore Productivity Centre’s “Turning Passion into Profits” event on Monday.
Spring noted that the average smaller F&B business employs nine to 10 workers, accounting for about 31 per cent of employees in the F&B sector; larger F&B businesses, which register revenues of more than S$1 million a year, hire the remaining 69 per cent of employees in the sector – but are twice as productive.
The study found a positive relationship between the age of a business and its productivity level. F&B businesses less than a year old have on average a value-added (that is, total profits and labour costs) of about S$6,700 per worker; businesses that have been operating for more than 20 years have an average value-added exceeding S$17,000 per worker.
And in comparing the less successful outfits with successful ones, Spring found that F&B businesses that did well had greater focus on their core business – lean workflow, menu engineering and financial management – than on ancillary aspects such as the design of the outlet or its branding.
A statement from the “Turning Passion into Profits” event said that a lean workflow is achieved by redesigning the kitchen and the shopfront, or by introducing automation and technology. There was no significant difference in the number of workers employed by successful businesses and less successful ones.
Smaller F&B businesses that were successful tended to maximise the profitability of their menus by dropping the items that were performing poorly or which yielded low profit margins.
The design and presentation of the menus were found to be a factor in drawing customers’ attention as well.
Also key to the success of the business was how sound bookkeeping practices were, and whether vendors were regularly assessed.
In response to these findings, the SPC has introduced three packaged solutions in menu engineering, process redesign and financial management.
Financial assistance for F&B businesses is also available.
Sim Choon Siong, Spring Singapore’s Food Division director, said: “Companies can tap Spring’s Capability Development Grant (CDG) for financial support; (it has) a simplified application process for small-scale projects.”
CDG can fund up to 70 per cent of the cost of a project.