This article first appeared in The Edge Malaysia Weekly on May 24, 2021 - May 30, 2021

IT has been a tough year for most retail businesses, and the food and beverage (F&B) industry is no exception. Many have had to transform or reinvent themselves to survive, which has led to new restaurant or kitchen concepts.

Even as we hear stories of popular food outlets struggling and being forced to consolidate to stay afloat, some brands are continuing to expand and innovate.

In March, to the shock and surprise of many diehard fans of Chili’s, the operator announced it was shutting its flagship store at Bangsar Shopping Centre. Before that, in December, Ben & Jerry’s permanently closed its scoop shop in Sunway Pyramid.

Malaysia Retail Chain Association president Shirley Tay Bee Koo tells The Edge that bar a few, MRCA’s F&B members have been badly affected by the pandemic, with many experiencing a significant drop in sales and having to consolidate their businesses to survive.

Talk earlier in the year of a Covid-19 vaccination rollout had raised hopes that things would improve, but she points out that the outlook is less promising now given the escalating number of cases and a delay in the vaccination programme.

MRCA has 500 members operating a total of 30,000 outlets, of which 15% are in F&B.

Savills Malaysia associate director and head of retail services Murli Menon believes it is not all doom and gloom for F&B outlets as whenever dine-in has been allowed, there has been an immediate surge in customers at restaurants and bars.

“The bounce back in F&B was more significant compared to other retail categories, simply because this is always about the experience,” he says.

While consumers can survive on deliveries and takeaways, dining out is mainly about the service and experience, which cannot be replicated through delivery or takeaway.

“F&B is perhaps the only category where we are seeing spaces being booked and leases being signed,” Murli observes, adding that there are also new entrants in the market, including brands from China and Taiwan.

Noting that the pandemic and lockdown did result in a lot of losses for almost all operators — mostly because none were prepared for something like this — he says the current situation also opened up opportunities for the acquisition of well-established brands.

One example is The Qureshi Group, which plans to take up more space this year. Although the restaurant group shut three restaurants last year, it acquired the popular La Bodega chain two months ago. Its mentor Shiva Kumar draws inspiration from Albert Einstein’s famous quote.

“Our mantra is, ‘In the midst of every crisis, lies great opportunity’,” Shiva tells The Edge. After adding a La Bodega outlet earlier this month, he has identified two other locations for new openings this year, as well as the opening of Qureshi and Niji, which offer Lucknowi and Japanese cuisine respectively.

Another example is the Urban Ground group. Last December, its founder Datuk Vincent Choo opened a venue in Kelana Jaya, Petaling Jaya, offering four new F&B brands: Chic Ole (fried chicken), Belacan-Laa (nasi lemak, local cuisine), One Bite (halal dim sum) and Gratzi (speciality coffee). Since then, he has added another Chic Ole outlet in Metro Point Kajang and will open One Bite at the same mall in June. A Belacan-Laa outlet is targeted to open in July, Choo says, declining to reveal the location as discussions are ongoing with the landlord. These openings are a prelude to a bigger plan to add new brands and to expand regionally.

A former Subway development agent for 17 years, Choo explains his confidence in expanding in the current market: “There is always a demand for F&B. As long as you are able to develop a good product and plan well on the marketing and expansion, there is always an opportunity for growth.”

Some F&B retailers are doing well, while many are not, says Tan Hai Hsin, managing director of Retail Group Malaysia (RGM).

Data published by RGM on behalf of members of Malaysia Retailers Association and MRCA shows that in 2020, retail sales for the café and restaurant business contracted by 12.8%, while the kiosk and stall segment shrank by a larger 18.3%. From January to March this year, the segments were projected to contract 13.4% and 14.8% respectively.

According to Tan, F&B operators that have performed well during the pandemic are established fast food restaurants, takeaway food kiosks, casual dining cafés and bakery cafés. Others include convenience stores and food stores that offer takeaway food, coffee shops and hawker centres, cafeterias located below high-rise residential buildings, and home-based food businesses.

In contrast, those unable to generate decent profits include full-service restaurants that require time to prepare the ingredients and to cook, fine dining restaurants where preparation also takes longer and costs are higher, large restaurants that cater for weddings and gatherings, and dessert cafés and beverage outlets, which have had to offer meals to survive.

F&B outlets in the central business district of Kuala Lumpur are also suffering because of the reduced number of office workers during the Movement Control Order (MCO), as are F&B outlets in hotels, airports, night entertainment outlets and outlets which depend on foreign tourists.

“Whenever dine-in was allowed, F&B operators with delivery services enjoyed better sales compared to when dine-in was not allowed. It shows that F&B outlets cannot stay profitable and survive in the long term without dine-in,” Tan observes.

Moreover, F&B operators have the disadvantage of not being able to “catch up” with lost sales, he notes. If a person, for example, visited a café every Sunday and the MCO curtailed his visits for a month, it does not mean that when the movement restriction is lifted, he would visit the place every Sunday and go back an extra four times to make up for the missed trips. “You cannot eat more. Therefore, F&B operators cannot recover the missed sales during a lockdown,” he says.

Many F&B outlets have had to reinvent themselves over the past year to survive as customers mostly stayed indoors and had food delivered to their homes.

“There is a focus on better efficiency of operations, optimum selection and utilisation of space, and being prepared for the worst. As in the case of other retail operators, F&B retailers have also realised that one cannot rely completely on any one channel. Businesses have to be flexible enough to cater for dine-in as well as takeaways,” Murli notes. Menus also had to be changed as many were not takeaway friendly.

According to Murli, malls and commercial complexes have realised the growing importance of F&B as a category to bring visitors back since it offers an experience that cannot be replicated entirely through e-commerce or online channels. Thus, he believes that retail will “never die”, more so F&B retail.

“The pandemic has provided a lot of opportunities to enterprising operators, especially those with a long-term view. Given the strong growth potential of this category, we are seeing, and will continue to see, interest from potential investors — be it at the institutional or individual level,” he says. This is especially so for strong operators with established credentials.

A new breed of F&B entrepreneurs may emerge, bringing in new concepts and ideas. For example, menus may focus on casual or all-day dining, and there is also a trend towards ensuring both food and ambience are social-media friendly.

Other popular concepts emerging are pop-up and mobile F&B, ranging from Underground Burger and Tea Thambi Café to mobile biryani vans. According to Murli, they have established a following that is strong enough that people are ready to follow and track them to get a taste of their offerings.

Yet another area of growth is cloud kitchens, which offer pure delivery or takeaway options. Given the much lower start-up costs, this has encouraged many F&B entrepreneurs to jump into this space.

Also known as ghost kitchens or virtual kitchens, these cloud kitchens include My Ghost Kitchen, Kitchen Connect, Cookhouse and Hawkr, says Tan. Even food delivery service provider Foodpanda has opened up a cloud kitchen.

Commenting on other changes in the industry, Tan says the pandemic has forced a significant number of F&B operators to digitise their operations. “Many have successfully done so, and many have not. Some are still using WhatsApp to receive orders and require their customers to bank in the money before they can proceed with preparing the food. In addition, there are still many F&B operators who do not offer credit card, debit card or e-wallet payment options.”

Another change has been the option of multiple channels of distribution. Apart from dine-in, takeaway and delivery, there are also drive-throughs and drive-ins. “The latest trend is drive-in. Numerous restaurants located in shopoffices have reserved parking lots in front of their outlets to allow customers to eat inside the car. Malls are allowing the setting up of external spots for shoppers to park their cars to order food from selected F&B outlets located within the malls,” says Tan.

In time, malls are also likely to change their layouts to make F&B takeaway friendly. “New mall designs and layouts are incorporating this at the drawing stage itself while some of the others are adapting as much as possible to facilitate this new dynamic,” says Murli.

Tan foresees that in the future, F&B outlets on the upper floors of shopping malls may choose to move to commercial centres and to have smaller dining areas.

The high cost of food delivery is an issue however, Tan notes. “[The] high commission charged by food delivery service providers depletes the profit margins of F&B operators.”

Murli concurs. “Currently, the biggest challenge [for the F&B industry] is the cost of delivery, which is unrealistically high because of the fees charged by some of the delivery service providers. This is prompting retailers to innovate to find more economical means of delivery,” he says.

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