Saving Our Local F&B Businesses

Why F&B deserves a special focus

Sir, many—if not most—of us think of local food as a defining part of our national identity, and one of the things we crave most when we venture abroad. Unlike much of the world that eats to live, Singaporeans often live to eat. We routinely stand in line for hours if a place has a reputation for good food. We even elevated our hawker culture to World Heritage status. It is clear that F&B has a unique place in our hearts, as well as our stomachs. For this reason, I believe it is also worthy of a special place in our economy.

Moreover, the sector warrants consideration based on its unique and challenging economics alone. Unlike manufacturing or other tradeable services like finance or software, productivity gains are generally much lower for nontradable services like F&B. Think about how much cheaper it is to produce a highly-sophisticated computer or washing machine today, compared to 50 years ago, and contrast that to how little a concert or college experience has changed relative to a half-century past, even as prices have consistently crept up. This is inherently the case with F&B, too. After all, the last thing we want when we pay for a fancy meal is to feel like we’re being herded through and rushed to pay, just so that the restaurant may turn the table over, in the name of efficiency.

Nor is it easy to defray costs by either relocating preparation to cheaper locales, or simply scaling up operations. Most ingredients must be freshly prepared daily, and do not suffer travel well. And any Singaporean will tell you that franchised businesses, or those reliant on central kitchens for supply, often sacrifice quality when they expand their footprint.

Furthermore, the sector is almost entirely comprised of SMEs, many of which are wholly Singaporean-owned. It has, historically, also been a source of innovation and pride: think about our adaptation of Hainanese chicken rice, Katong-style laksa, chili or black pepper crab, and the world-famous Singapore Sling. Yet the sector’s already razor-thin margins have been forced to confront the double whammy of rising rent and costly labor more directly than most.

Finally, it has probably not escaped this government that many, many Singaporeans are essentially coping with nosebleed housing prices and the planet’s dearest private transportation costs by relying on affordable local food, especially from coffeeshops and hawker centers. Protecting local F&B amounts to keeping one of the remaining few outlets where we can credibly claim isn’t among the most expensive in the world.

Sir, the ingredients (pardon the pun) that any F&B operator must deal with are well known: to price competitively enough while eking out a profit, after accounting for the costs of ingredients, workers, and rent. As a country, we are almost entirely price-takers when it comes to almost all raw materials, which are largely imported. But land and labor are amenable to policy direction, and that is what I will focus on.

Easing manpower constraints for F&B

Manpower is the most common pain point faced by F&B operators. In my conversations with those in the sector, I repeatedly heard about how costly cooks, dishwashers, and waitstaff were exceedingly expensive to hire. This is unsurprising, given how average wages in Singapore are significantly higher than most other countries.

Operators also share that it is difficult to attract and retain locals in the sector. This is even the case when salaries are reasonably attractive—I’ve been told of positions at $4,000 or $5,000 that can go unfilled—and how, even after hiring, retention is an ongoing headache, with many choosing to quit after just a few weeks on the job.

To meet these labor needs, many turn to foreign staff. But even this faces problems; hiring is constrained by the dependency ratio ceiling (DRC), set at a ceiling of 35 percent foreigners, with an additional requirement of 9 locals for every 1 S-Pass, which is the most restrictive of any sector. Atop this is layered the local qualifying salary (LQS) and minimum wages in the sector’s Progressive Wage Model (PWM), along with a foreign worker levy, all of which further push up the wage bill.

Now, I fully understand the motivation behind the local quotas and minimum wages for locals—I have, after all, previously argued for such policies in this very House—and in general, I remain in favor of them. That said, the constraints faced by the F&B sector appear to be very binding, despite the best efforts of our establishments to recruit Singaporeans.

This has led to perverse outcomes, with reports of how certain operators have resorted to paying the CPF share of friends and family, just to register them into their local quotas. Or how restaurants may hire on an Employment Pass—which is not subject to the same quota—only to claw back excess salary thereafter. While I am uncertain of how pervasive such practices are, the sense that F&B operators need to skirt the edges of the law just to keep their business running helps no one.

One wonders, therefore, if the government has any plans to review DRCs in the sector. After all, the principle of sector-specific quotas is not novel. Indeed, while manufacturing and services are bound by DRCs of 60 and 35 percent, respectively, those in the construction and process sectors have a higher ratio of 83 percent, as do marine shipyards, at 75 percent. Backbenchers from the ruling party have also asked this question. Has the Ministry conducted any investigations on how pervasive such contorted reporting or creative accounting—just to ensure paper compliance—actually is?

In hawker centers—where foreigners are almost entirely shut out—the government has also relaxed its rules to allow long-term visit pass (LTVP) and LTVP+ holders to work as stall assistants, and there are currently around 300 such individuals. While I agree with the premise that only Singaporeans and PRs be allowed to operate stalls, a helpful step may be to allow operators to hire Malaysians—who clearly share our hawker culture—as stall assistants.

In exchange for this targeted flexibility, operators could commit to certain targets, such as productivity improvements, workforce development, and fair employment practices. This ensures that the sector remains sensitive to the local manpower objectives pursued by MOM, in the absence of a blanket relaxation of rules.

In my conversations with representatives from the F&B sector, I also heard other manpower problems, which appear more systemic than idiosyncratic. More than a few lamented about how difficult it was to send employees for SkillsFuture training. They shared that the typical training window—of 1–2 days—was hardly sufficient to adequately prepare new workers. This is exacerbated by how those that have undergone more formal training—at our ITEs and SHATEC—tend to gravitate toward hotels and Western cuisine, rather than local ones. Some have questioned why subsidized SkillsFuture courses are not made available to their staff on a work permit, given how the Skills Development Levy is paid per worker, whether local or foreign. And given how cash-strapped the typical SME is, they hope that the reimbursement model for grants be revised, to one where invoicing is directly between the training provider and the SkillsFuture office.

Easing rental constraints for F&B

The other major challenge for F&B operators has to do with escalating rents. The government often appeals to the free market insofar as rents are concerned. Yet this stands in stark contrast to how the same government approaches manpower issues, where constraints and regulations abound.

There are two major classes of landlords in the F&B rental scene. The first is the government itself: through agencies such as NEA (for hawker centers), HDB (for coffeeshops), JTC (for canteens in industrial estates), and SLA (for restaurants in conservation estates).  The second are technically private, although many have close links to the state. CapitaLand and Mapletree, which are owned by Temasek, operate commercial food spaces in malls, business parks, and offices; and NTUC owns or operates food courts like Kopitiam and Food Republic.

The bottom line is that the arm of the state runs through the beating heart of most landlords in F&B. By extension, it would be naïve to believe that the government has little influence on the evolution of rents in the sector.

These public agencies and government affiliates can take the first step in bringing about alternative tenancy arrangements, such as adopting tender criteria that place a greater weight on food offerings, business quality, and innovation and productivity plans, rather than rental bids alone.

I had previously explained, in this House, why the current model of land pricing—which infers its value from transacted prices in HDB resale markets—may give rise to potentially excessive valuations. Without more proactive policy to contain price increases, unabated price appreciation in that market will inexorably pass through to land valuations, which in turn will pass through to rental prices, including for the F&B sector.

I had also previously explained why we need not be bound to this straitjacket of having land valuations tied to those handed down by the Chief Valuer, since we already depart from market pricing for transport infrastructure, community facilities, and places of worship. If we believe that hawker centers constitute essential infrastructure, we can impose valuation discounts on land that subsequently enable the rationalization of lower rental rates.

This would be an important step, but not the only one. Landlords presently have strong incentives to inflate rents, also for valuation reasons. Since property values depend not just on land prices but also the expected stream of rental income, landlords may choose to set rent at an unsustainably high price—perhaps even going as far as to leave storefronts empty—because the potential capital gains outweigh any short-term forgone rental.

To short circuit this pathology, we can target that rate of rent increases directly, by capping the maximum quantum that may increase every year. As I had suggested in this House previously, such controls on rental rate increases is practiced in other jurisdictions, such as Australia, Canada, China, France, Germany, and many states within the United States. The specific percentage increase can be calibrated for our local markets, based on average historical rate increases, and possibly further adjusted by property size, location, and lease duration.

Doing so would avoid situations, such as those widely reported in the press, where landlords hike rents as much as 30 to 50 percent in a single year. It will allow tenants time to react to a rental rate increase, but in a manner that does not inhibiting rents from eventually reaching their long-run market rate. It will also have the added benefit of dampening rental volatility—where landlords that overstretch in any given contract are forced to then sharply slash rates thereafter—which contributes to the health of the overall market, too. It is also a structural solution, as opposed to ad hoc corporate tax rebates that, while appreciated, are inherently temporary in nature.

In fact, MND has implicitly recognized that increases in rental rates, set by private landlords, are not always justified. In response to a parliamentary question filed two years ago, SMS Sim Ann explained that HDB strives to keep rents stable, in its role as a landlord, by not increasing the rent for virtually all its coffeeshops in recent years. And by ceasing the sale of coffeeshops to private owners since 1998, it has also conceded that a purely privately-owned coffeeshop landscape is undesirable.

I am therefore unconvinced by claims—sometimes made by this government—that rental costs are secondary to the F&B business just because they are a small (and falling) share of total business costs, and do not directly affect food prices. After all, rents—when signed for contractual terms of several years—represent a fixed cost, and even if they constitute a small part of overall costs, they remain a real and present hurdle that must be overcome, month after month, regardless of economic conditions. This is even more so for small, single-store operators, who are able to pay themselves less to make ends meet, but cannot bear the burden of a non-negotiable spike in rent.

That said, capping rents would, in and of itself, likely be inadequate, if not matched by corresponding legislation that better protects against abuse. A recalcitrant landlord may simply choose to terminate the lease, and secure a new tenant, if it cannot increase it as much as they’d like. Tenants are then told to suck up the rent hike, or vacate, as there are other potential tenants in line. We can learn from jurisdictions like Australia, Japan, South Korea, and the UK, which offers statutory renewal rights for leases held by small commercial tenants, although the conditions to ensure extension vary.

This has often been the case of late, as chain concepts from foreign shores, especially China, have barged into the local market. These brands have deep pockets, which not only allow them to offer low (and possibly predatory) on their rental bids. Some enjoy subsidies from their home states, which allow them to bid aggressively. In extreme cases, they may even be willing to treat a Singapore-based operation as a loss leader, to establish their brand in the Southeast Asian market. When these operators fail to gain traction, they simply close, which isn’t an issue given their motivations and loss-absorbing capacity. But they leave, in their wake, an otherwise sustainable local restaurant, who may have been a mainstay in the neighborhood for years and years.

To be fair, not all hawker center and mall operators subscribe blindly to just profit. Many make a reasonable attempt to curate a tenant mix, and apply price-quality method to place weight on nonprice elements in their tenders. But the bottom line almost always ends up dominating the decision, and the proof is in the pudding: look around hawker centers and malls, and it is clear that the deck is stacked in favor of the larger, chain vendors, rather than new startups. 

I believe that we cannot allow our local F&B scene to be a guinea pig for the market-share aspirations of such foreign chain restaurants, lest we inadvertently surrender a core part of our intangible cultural heritage. We should hold mall, coffeeshop, and hawker center operators to a tenant mix that explicitly includes a minimum share of halal Nusantara options and local cuisine, failing which, an additional tax be applied to nonconforming operators. This will serve as a brake on the speed of absorption of foreign tenants in F&B, without imposing a hard quota.

What future for our F&B?

I opened with a vision of how we can transform our SME sector. Let me close with another thought experiment: imagine how we want our F&B landscape to look like in a decade or two.

When we walk into the food section of a mall in the future, what do we want to see? Big-box stores and large chains, peddling foreign brands and cuisines? Row upon row of only McDonald’s, Subways, Jollibees, Haidilaos, and Genki Sushis? Or do we want to also see local brands and local foods, our Ya Kuns and Old Chang Kee and Paradise,  proudly alongside? Do we hope to enjoy the serendipity of stumbling into a niche restaurant run by a local couple, based on recipes passed down from their grandparents? Do we want our meals to always be the result of reheated food prepared by anonymous cooks, solely from central kitchens?

This is why the time is right to adopt F&B as a pilot for wider-scale reform of our SME landscape. Such businesses are an excellent case study, because the pressures they face are familiar across SMEs: rising rents, labor shortages, increasing input costs, and intense competition.

Some have argued that what is dragging down our F&B is anemic productivity. I hope I have made it clear that the endgame to the pursuit of scale and efficiency may well be a narrower menu and diminished experience, which is the last thing folks hope for when they take their lunch breaks or head out to family dinner. And even the most cautious realists must acknowledge that productivity alone cannot outrun structural increases in business costs. The sector’s thin margins offer little room for experimentation or investment, because errors are costly. There makes a strong case for policy intervention.

F&B also reveals both sides of Singapore’s SME challenge. Existing operators struggle with business costs, yet would-be entrepreneurs struggle to enter the formal market altogether, since the scaling up from home-based efforts to commercial operation is often insurmountable without deep pockets.

Successful interventions in F&B will not only help existing operators become more productive. It should also create a more graduated pathway for new entrepreneurs to enter the market, test ideas and grow, without taking on excessive fixed costs from the start.

To be clear, there are already initiatives that have been rolled out that provide explicit support to the sector, including FoodX, the F&B Process Optimization Program, and the Food Services Industry Digital Plan. These programs are undeniably valuable, but they do not fully address the structural challenges that smaller operators face. A dedicated F&B Transformation Pilot—bringing together these productivity improvement programs, but also seriously tackling business costs—would offer the best opportunity for a real-world test of a more integrated approach.

A business-as-usual approach to policy in the F&B sector will all-but-guarantee that otherwise viable businesses will no longer be able to conduct business as usual. We must be more proactive in tackling business costs for our beleaguered hawkers, zi char, and small restaurant owners, or risk losing the soul of our delicious local food.

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