F&B arena heats up as malls mix up tenant offerings: analyst

The advent of delivery apps has also become a double-edged sword for F&B players.

Whilst the food and beverage (F&B) sector is considered to be more resilient to the emergence of e-commerce compared to brick-and-mortar retailers, they are not entirely immune, according to a report by RHB Research.

As physical retailers are threatened by e-commerce and their growing promotional deals, retail malls are increasingly raising the proportion of tenant mix from F&B players. Against a stagnant population and slow growth in F&B expenditure, the increase in the number of F&B establishments has greatly intensified competition in this field.

The advent of delivery apps like Deliveroo, Foodpanda and Grab Food has also become a double-edged sword for the F&B players. “Whilst they can help reach out to a wider range of customers, this often comes at a high cost, with some players saying that delivery apps charge as high as 25% of revenue,” RHB Research analyst Juliana Cai explained.

Also read: Deliveroo adds $302.7m in revenue to Singapore's economy: report

RHB Research analysis showed that the F&B services index has not grown significantly since the emergence of major food delivery apps in 2012-2016, indicating that the industry could be squeezed by both increases in fixed costs from more F&B establishments and delivery charges paid to delivery apps.

On top of that, the Singaporean Government could be tightening the foreign worker Dependency Ratio Ceiling (DRC) for the services sector to 38% in 2020 and 35% in 2021, from 40%.

Also read: Foreign worker policies spur short-term pains for food, retail, and rentals

“Companies that have not adequately prepared for automation should face further labour cost pressures or a labour crunch in the next two years,” Cai noted. “Given the lack of growth in overall F&B retail expenditure, firms with stronger attributes would be growing at the expense of weaker ones.”

The report notes that Jumbo’s FY 2019 earnings, driven by a strong brand name in the seafood space and is able to command strong gross margin, could do better on the back of new stores opening in Singapore and higher franchise income.

“On costs, we believe firms with central kitchens like Koufu and BreadTalk should be less affected by the tightening of foreign labour requirements, given the potential for their central kitchens to take on more processes and reduce manpower reliance,” she added.