Updated from : The Business Times, 17 Jun 2021
THE surge in online sales of food and beverage (F&B) is likely to slow down but prime mall space may, nonetheless, fall out of favour as cloud kitchens become more popular.
F&B retailers will probably have to rethink their operations and real estate footprint, said Lee Nai Jia, deputy director of the Institute of Real Estate and Urban Studies (IREUS) at the National University of Singapore.
He foresees greater reluctance by tenants to pay high rents for prime spaces in malls, “especially if it becomes a norm for social distancing to be implemented from time to time”, as the Phase 2 (Heightened Alert) restrictions have dealt yet another blow to dine-in revenues.
Food establishments may want to relocate to cheaper locations and use the rental savings on more aggressive digital marketing to expand their outreach, Dr Lee said. Besides malls, alternatives where rents are lower include HDB shops.Bottom of Form
This shift will be further encouraged by the continued rise in online orders for takeaways and deliveries.
“As part of risk management, in the immediate future, they are likely to divert resources to digital channels instead of paying more for prime locations,” he noted.
The leasing of cloud kitchens could also gain pace, while businesses open fewer full-service eateries.
Cloud kitchens are centralised premises where operators can rent space to prepare food for delivery.
“Rather than expanding their physical footprint, some F&B establishments may move into cloud kitchens to support their delivery business,” Dr Lee said.
“Additionally, cloud kitchens can support existing outlets in food preparation, thereby reducing the need for kitchen space in shops.”
However, this strategy may not be suitable for high-end restaurants, Dr Lee noted.
The cloud kitchen market is projected to keep expanding, with more spaces likely to be converted into such premises, The Business Times has reported.
Industrial properties, shophouses, older suburban malls and HDB shops could benefit from this trend, Cushman & Wakefield’s executive director for logistics and industrial, Brenda Ong, had said.
Edmund Tie, likewise, noted in its first-quarter 2021 research report that there is a preference for modern specifications in industrial buildings due to a rise in food logistics and e-commerce.
Online F&B sales are expected to increase again with Singapore’s latest measures under Phase 2 (Heightened Alert) and Phase 3 (Heightened Alert).
But the boost to online sales and food delivery this time round is likely to be flatter than during last year’s “circuit breaker”, Dr Lee said.
This is considering the increasingly crowded food-delivery space, consumer fatigue, and slimmer margins due to platform commissions.
A recent DBS survey of micro and small F&B and retail enterprises also found that their top business priorities are to ensure sufficient cash flow and manage overhead costs.
Digital transformation has therefore been “put on the back-burner for now”, with one-quarter of the respondents not planning to invest in the adoption of new technologies, as business owners are more likely to conserve working capital, DBS noted.
About half of the micro and small enterprises in the F&B sector also wanted government assistance to offset or lower commission costs charged by food delivery platforms, according to the poll.
Such support has included Enterprise Singapore’s Food Delivery Booster Package, which was extended by a month till July 15.
“High delivery costs and the need for face-to-face interaction will decelerate the uptrend of online F&B sales in the near future, and growth could taper off as online services strike a new equilibrium with traditional brick-and-mortar F&B,” Dr Lee said.
Online turnover is unlikely to soar beyond 47.5 per cent of the industry’s total sales value, which was a record high hit in May 2020 during the “circuit breaker”, he added.
In April 2020, when Singapore’s “circuit breaker” began, the proportion of online F&B sales to total sales jumped to 41.1 per cent, up from 16.8 per cent in the previous month.
That came amid a shrinking base as turnover at brick-and-mortar eateries suffered.
The proportion of online turnover subsequently decreased when social-distancing measures were relaxed, reaching 20.9 per cent last November before creeping back up to 24.4 per cent this April.
Even as more consumers and F&B retailers turn to digital platforms, Dr Lee expects dining-in to make a “robust comeback” in the post-pandemic new normal, after the majority of the population has been vaccinated, as the experience of dining-in “far outweighs the convenience of delivery”.