Local Food Services companies expressed cautious optimism about their future
Food Services | 21 Mar 2024
As we have now fully transitioned past pandemic measures in Singapore, IndSights Research’s Business Sentiments Survey (BSS) findings showed that local Food Services companies polled in FY2022 and FY2023 said that they experienced a modest improvement in profitability in the preceding year (see Figure 1).
However, these companies were not as optimistic about the future.
Since April 2022, more Food Services companies consistently anticipated that the future economic and business situation will be worse off in the coming year. This uncertainty is also reflected in their outlook in the more recent BSS (Oct-Dec’23) where their negative outlook is more prominent than the overall 23 sectors’ sentiments (see Figure 2a and 2b).
READ MORE Business Sentiments of Local Companies (Oct to Dec 2023)
Accessibility of manpower and hiring costs key business challenges
The rise in business costs and manpower-related challenges have emerged as top two concerns for the sector in BSS quarters conducted from May to September 2022, and also in October to December 2023 (see Figure 4).
Local Food Services companies from our IndSights industry chats also expressed their concern on the implementation of minimum wage for local employees under the Progressive Wage Model in May 2023. They worry that this may increase the risk of smaller businesses being insolvent from the increase of overhead cost caused by higher wages and inflation. An additional concern raised was that the different subsidised rates for training costs for foreign employees compared to local employees.
Food Services companies are most challenged by the inability to access sufficient skilled local manpower (see Figure 5) and this fuels the sector’s dependence on foreign manpower that exceeds the overall 23 sectors (see Figure 6). Instead of persisting in hiring additional work pass holders or facing the challenge of increasing employees’ salaries to attract more recruits, smaller businesses should prioritise the immediate integration of digitalisation into their workflows. This will allow them to streamline manual tasks and reassign existing employees to other responsibilities to maximise operational efficiency.
Additionally, tapping on available Government support is another possible solution. Schemes directly providing assistance to alleviate manpower constraints such as subsidising rising manpower costs proved to be the most popular with local Food Services companies. Polled respondents considered the Extension of Jobs Growth Incentive (JGI) to March 2023 and Enhancement to the Progressive Wage Credit Scheme (PWCS) as the top two useful schemes for their businesses (see Figure 7).
On this note, businesses will be glad to note that the Singapore Budget 2024 announced enhancements to the PWCS. The PWCS co-funds wage increases that employers will give to lower-wage employees with gross monthly wages of up to $3,000. To strengthen support for employers, the PWCS co-funding support will be enhanced for wage increases given in the qualifying year 2024. The gross monthly wage ceiling for PWCS co-funding will also be increased in qualifying years 2025 and 2026.
SHARE YOUR INSIGHTS: Participate in our latest surveys and receive a complimentary report
Digitalisation as a tool to mediate rising business cost
As part of the ongoing Industry Transformation Map (ITM) 2025 initiatives led by the Future Economy Council (FEC), the refreshed Food Services industry Transformation Map aims to cultivate an innovative and vibrant industry that fosters homegrown brands with potential to expand regionally. To achieve this, more attention is placed on strengthening digital competencies across the sector.
Notably, the sector has already started integrating digitalisation to streamline its workflows and increase customer demand. About 75 percent of Food Services companies used at least one digital platform for their business in Jan to Mar’22 (see Figure 8). The presence of digital platforms now is considered a norm and convenience among consumers, that businesses that do not use digital platforms find themselves losing out to their competitors in terms of revenue. Three in five businesses that did not use any digital platforms had decreased revenue in the previous quarter, Oct-Dec’21 (see Figure 8).
READ MORE: Is digital innovation the future for businesses?
The move to digitalise can be trickier for smaller businesses
The ability to digitalise will undoubtedly differ across different firm sizes. Near six in 10 local Food Services companies that expressed rise in business cost as one of their top concerns were small firms (see Figure 9). Smaller businesses are at a more disadvantageous position with less capital and resources to invest in digitalisation among other operational expenses. However, they cannot afford to disregard the growing presence of digitalisation as they face the possibility of being eroded out if they are unable to adapt to this trend.
READ ALSO: Cybersecurity firm redefines technology
Wide support for business to embark on digital transformation
While the move to adopt digital platforms has enabled businesses to increase their revenue, more can be done to conserve manpower resources to better manage business costs. For that, one noteworthy ongoing initiative is Start Digital. Jointly facilitated by IMDA and EnterpriseSG, this programme can be particularly beneficial for emerging businesses as it provides a clear roadmap by showing available functional solutions that cover critical business areas like cybersecurity, sales generation, and business efficiency to further establish and grow their business to reach stability.
As for both new and established SMEs in the local Food Services sector, a digital skills training roadmap from the current Food Services Industry Digital plan can act as a practical visualisation resource tool to empower their companies and employees with the suggested digital competencies at each stage of their business growth. Businesses interested in programmes that are included in the digital plan are able to access and participate in them along with Government incentives like ‘Enhanced Training Support for SMEs’.
The incentive to digitalise is also boosted by campaigns across different industries like the “5 Million Hawker Meals” scheme that DBS and POSB launched in February 2023. Scheduled to end in January 2024, it offered to pay for the first 100,000 diners’ meals who use the Paylah! App at hawker stalls. However, the bank till July 2024.
In addition, DPM and Finance Minister Lawrence Wong announced enhancements to the Energy Efficient Grant (EEG) in Budget 2024. The EEG was introduced in 2022 for companies in the Food Services, Food Manufacturing, and Retail sectors. From 1 April 2024 the EEG GoBusiness webpage will launch the shopfront for the Manufacturing (including Food Manufacturing), Food Services, and Retail sectors, and will fold in NEA’s Energy Efficiency Fund.
Furthermore, the EEG will be enhanced to provide two tiers of support (see end of the article for the link to EEG). The Base Tier will support pre-approved energy-efficient equipment up to $30,000; and an Advanced Tier to support companies that wish to make larger investments to drive greater energy efficiency.
READ ALSO: Singapore yellow biotech company creates new hope for sustainable food production
Looking ahead
Stiff global competition has become the new norm for Food Services companies. While the food services industry benefits from personalised human touch services, digitisation should be seen as enabler for businesses to streamline operational workflows and improve the profitability of their business models, to nurture stronger homegrown brands.
Apart from building the companies’ self-resilience, it is crucial to acknowledge that the move to digitalise can pose unique challenges for smaller businesses. We recognise that digitalisation is not a magic bullet. Yet, small enterprises cannot ignore the digital wave, and this calls for local Food Services companies of all sizes to be more meticulous in seeking tailored solutions according to their unique needs.
READ MORE: Trends, challenges and opportunities for Singapore’s food services industry
Available Resources
- Food Services Industry Digital plan: https://www.imda.gov.sg/-/media/imda/files/programme/smes-go-digital/industry-digital-plans/food-services-idp/food-services-idp.pdf
- Enhancements to the Progressive Wage Credit Scheme: https://go.gov.sg/PWCS
- Energy Efficiency Grant: https://www.enterprisesg.gov.sg/financial-support/energy-efficiency-grant
FIND OUT MORE: Business resources, schemes and grants
This article is contributed by Ellenie Liew, Research Consultant, IndSights Research.