From its mouthwatering delicacies to its fine dining establishments and restaurants, Singapore has seen its food and beverage (F&B) sector take an ascent as one of the greatest food industries in the world. Perhaps this explains the rising number of Singaporeans who are venturing into entrepreneurship; bringing novel concepts, international flavours, remarkable interiors, and other fresh ideas to the game.
It is a truly heartening thing to see many entrepreneurs invested in contributing to one of the pillars of Singapore’s social identity-food.
But even with the excitement that surrounds its fabled food culture, it is hard to deny the intense competition and other challenges that the food and beverage industry is being faced with today. Apparently, great food alone no longer serves as a recipe for success.
The fact that only 60% of minor F&B businesses make it past 5 years and that 28% of similar outlets get replaced yearly begs the question, why the plunge?
Well, we can attribute the 40% of micro food enterprises that barely make it beyond the five-year mark to a couple of challenges that face the sector including:
- A shortage of manpower that results from tight foreign worker quotas and changing career aspirations for younger Singaporeans locals.
- Rising manpower costs as a result of not utilizing machinery and automation- The cost of labour has grown faster as compared to revenues at 8.6% versus 7.3% yearly, over the last five years.
- A low-barrier-to-entry that encourages innovation and entrepreneurship- This is great, but it means that many businesspeople plunge into the sector without adequate preparation and understanding of the business.
- Maintaining customer loyalty - Hong Kong diners have not nearly as many dining options as those in Singapore. As such, food and beverage operators often find themselves in competition for the palates of critical and selective consumers, necessitating solid customer value propositions to appeal to consumers and retain them.
- The rising cost of renting and real estate - Supply of commercial real estate in Singapore is adamant. However, the desire for suitable locations has resulted in some competition among operators leading to an overall increase in real estate costs.
Image from Food & Beverage Services Industry by Statistics Singapore
Moving forward, soon-to-be restaurateurs will often fail to conduct enough market research before venturing into the business. In many parts of Singapore, you’ll meet young, eager entrepreneurs who are bent on establishing their business operations with nothing but their deep pockets and burning passion.
It isn’t until much later that they are faced with the possibility of letting go, not just because of their failing businesses, but a variety of other reasons as well. Cody McLain, founder of SupportNinja and WireFuse, describes such a time as,
As a tool that helps F&B merchants to streamline their backend operations, we found it upon us to educate you on knowing when to give up your venture in a bid to save you the additional heartbreak and the large amounts of money that are usually on the line. Here are five signs that point to the end:
Signs it’s time to exit your F&B business
It takes an average of two years for food and beverage businesses in Singapore to break even.
Cautiously monitor the profitability of your restaurant, café, fast food, food truck, or any other business format and analyze your findings. If you find yourself needing to reinvest to expand operations, you can term your business as healthy and functioning progressively.
However, if you’re making an operational loss, then it’s best to devise a plan to change the current operating mechanism of your enterprise or consider getting out.
Another possible sign that it may be time to move on is if you start to forget why you started your company in the first place. This could mean either of two things; that your mission is not clear or you’ve lost the passion for your mission. Unfortunately, both of these scenarios usually result in the same unfavourable conclusion.
It’s no surprise that F&B entrepreneurs who are driven by passion are the ones that fall prey to the repercussions of failing to exit at opportune moments. An important question to ask yourself before you plunge into the Singapore food industry is:
There’s nothing wrong with wanting others to conform to your wants and beliefs about a product, but if you’re not receiving positive feedback through sustainable profits, it may be time to cease production altogether.
Coming up with an exit strategy
A few mechanisms that you can set up early to minimize charges, should you decide to terminate operations include:
- Lease contracts - Leases in Singapore typically exist in three-year negotiation terms. Naturally, these act as milestones under which the sustainability of your processes is evaluated. Keep an eye out for harsh lease termination penalties. You don’t want to find yourself in long lock-in periods.
- Minimising start-up fixed costs - A proof-of-concept in a standard format such as an online channel, pop-up store, or a food stall allows you to manage costs before throwing in a full-fledged investment by letting you test your commodity directly with your customers. Starting small and investing incrementally as volume picks up works every time.
- An IPO - This involves selling a portion of your business in the public markets.
- A strategic acquisition - In this exit strategy, another business buys your business. Once this happens, it is up to the acquirer whether or not to retain you and your team and to make fundamental changes to the operations of the business.
Considerations in selecting an exit
Your reasons for starting your food and beverage venture play a massive part in deciding your exit strategy.
- Part of your decision will rest upon your aspirations to continue managing your business when it’s gone; hence it’s important to consider your prospective role in the establishment.
- Evaluate your liquidity needs. Not every exit strategy is a chance to harvest the benefits of your hard work and to raise your liquidity. The final price isn’t determined up until an earn-out period completes. This can last from six months to several years, depending on the size of your F&B business.
- Consider your company’s future potential. Singapore’s food and beverage industry is challenging. Your business may not show any signs of life now, but it doesn’t mean it’ll remain that way. If you believe that it has future growth potential and wish to participate in it, then you’d best select an exit strategy that lets you retain an ownership interest.
No one knows the disasters that loom ahead of time, but you’re often given clues, sometimes, all around you. It falls upon you to become aware of those signs and choose an exit strategy that fits your personal goals and those of your F&B business.
Whether you’re interested in walking away with the money or seeing the continuity of your business, planning for an exit in advance provides you with a chance to do it correct-and maximize your returns.