Expanding despite the recession

Source : Straits Times – 29 Jun 2009

LOWER rents and operating costs are luring some entrepreneurs into expanding their food and beverage businesses, even in a recession year.

But because it is a recession year, they are going for mid-priced bistros, cafes and bars which are easier on the pocket than fine dining restaurants.

The next few months will see more new eateries opening, as more retail space comes onstream, said Restaurant Association of Singapore president Ang Kiam Meng, although he could not give exact figures.

Ion Orchard alone, for example, will have over 60 F&B outlets when it opens next month. At Orchard Central, about 35 per cent of its tenants are F&B outlets.

Mr Eric Cheng, executive director of real estate company HSR, estimated that rents for F&B tenants have dropped by about 16 per cent, with downtown rates ranging from $12 per sq ft (psf) to $25 psf, and $7 psf to $15 psf in the heartlands.

It was the softening rents downtown that led AC2 Group, which runs the Gelare chain of ice-cream cafes and steakhouse The Prime Society, to expand.

It opened Society Bistro at One Fullerton at the end of last month. Next month, it will open Society Bar at Chulia Street, and a casual dining seafood restaurant called The Nautical Project at Ion Orchard.

AC2’s director Ingrid Prasatya estimated she is paying about 10 per cent less in rent with the new outlets than if she had expanded last year.

Renovation and equipment costs have also come down. Restaurateur Michel Lu, for instance, reckons he has saved about 20 per cent on the cost of setting up his latest outlet, Hacienda Cafe, at Tanglin Village next month. It has also helped that some of his competition has closed or downsized, freeing up good culinary and managerial talent, he said.

Figures from the Statistics Department’s Catering Sales Index also show a general year-on-year increase in restaurant receipts every month since September last year.

A survey of 1,200 Singaporeans conducted between April and last month by UM Consulting also found nearly 60 per cent of respondents projecting they would spend the same amount, or more, on dining out in May, June and July.

Still, a recent Nielsen survey said spending on fresh food last year had gone up as more people ate at home to save money.

Trends are reflecting consumers’ desire to stretch their dollar. For example dishes cost from $8 to $20 at Society Bistro, while a gourmet sandwich at Hacienda Cafe will not cost more than $15, in line with Mr Lu’s other cafe, Prive.

‘During this recession, you don’t open $2 million restaurants, but something that has more cross-market appeal, and is more efficient to open,’ said Ms Shareen Khattar, managing director of the Marmalade Group, which is moving its Marmalade Pantry outlet at Palais Renaissance to a bigger space at Ion Orchard. The group is also looking to open two more Toast cafe outlets by the year-end.

Mr Ang of the Restaurant Association said landlords may slash rates even more. Also, the perennial manpower shortage has not been eased even with the economic crisis triggering job losses. Mr Ang, who owns the Jumbo seafood chain, said it had been difficult to find staff for two new eateries which opened this month, and another opening next month.

But for restaurateurs with the stomach for taking the plunge, Singaporeans still have an appetite for dining out. ‘People aren’t going to buy a Bentley but they still need to eat and drink,’ said Mr Lu.

Diners such as Ms Amizadai Lee, 31, a wedding video producer, are looking forward to a wider spread: ‘I think, particularly in a time like this, people would appreciate having more affordable options without compromising on quality and ambience.’