Singapore: can the global F&B retailers’ interest be sustained?

November 8, 2013 / By  

The number of restaurants or “food shops” in Singapore, defined by the National Environment Agency (NEA) as establishments licensed to retail food, has been steadily growing over the years. According to the NEA, there were 14,642 food shops in 2012, an increase of 47.3% from the 9,940 food shops a decade ago. That is an average annual growth of 3.7% in the number of restaurants since 2002. This is partially attributed to the on-going demand from international retailers, as Singapore continues to enjoy steady and sustained interest from global brands looking to have increased exposure within the South East Asia region. In 3Q13 alone, Singapore welcomed 20 international food and beverage brands in the Prime and Secondary market, including New York’s Mille Crêpe cake café, Lady M, and the Los Angeles originated Korean barbecue chain, E!ght Korean BBQ. In recent months, American doughnut chain Krispy Kreme opened its doors, with much attention from the local media and devoted fans.

However, the well-known doughnut chain quickly met with much criticism, as many consumers complained the doughnuts cost twice as much as their American counterparts. To compare, the original glazed doughnut retails at SGD 2.60, but the same doughnut in the USA is priced at USD 0.99 (SGD 1.20), a price increase of more than 117%. Lawry’s, a gourmet restaurant chain from Los Angeles, retails its famous Lawry’s cut prime rib for USD 37 (SGD 45.75). At Mandarin Gallery, the same cut is priced at SGD 88, a near 92% increase in price.

The high discrepancy in consumer price may be attributed to many factors: rising rents, rising labour costs due to the lowering of the ratio of foreigners to each local employee, the importing of ingredients and the varying franchise fees, amongst many. Occupancy cost of retailers already takes up about 16% of the total operating revenue. Rents are expected to continue increasing, as most new-to-market retailers look to launch in the Prime and Secondary sub-markets, and the majority of the upcoming 5,721,037 sq ft of new retail space from 2013-17 is to be concentrated in the suburban sub-market.

So how will the interest of international retailers be sustained? In the short term, demand is expected to be robust, with two international brands already booked to open in 1Q14. Further, with rising GDP per capita and with government’s continuous effort to increase tourist arrivals from 14.4 million in 2012 to 14.8-15.5 million by end-2013, Singapore is an attractive market for now. However, a continuous innovative stand and a gradual release of foreigner-tightening measures to help lower expenditure costs may be needed to maintain its competitive edge amongst growing regional competition. Further, there is a greater pressure for the landlords to play a bigger role in the businesses of their tenants by perhaps adopting a simpler rental model- i.e. a percentage cut of the business revenue- and dropping the base rent model, providing a more competitive retail environment for Singapore.

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