Part 1: Malaysian restaurants are facing uncharted waters

Credit: Unsplash

In a three-part series, Business Today Malaysia explores the struggles and challenges the country’s F&B industry is currently going through amid the ongoing pandemic.

By Poovenraj Kanagaraj

The sight of crowded cafes and restaurants may soon be of a distant memory for most as many are grappled with fear of being in close proximity with one another. The ‘New Normal’ era that has been set in motion by the Covid-19 pandemic is changing industries one after another, and the F&B ecosystem is not exempted from the inevitable change.

As soon as the Movement Control Order (MCO) was implemented on March 18,  outlets across the country faced a similar predicament. If players in the industry are able to sustain themselves without having a steady stream of customers walk-in?

“It’s bad. We did our best sales in January and February but the moment the MCO hit, we decided to close the restaurant down for a time-period,” said Hsiao Tungwei, co-founder of Roost. The restaurant had recorded its highest sales in the last five years within the first two months of 2020. Business as Tungwei described was ‘fantastic’, until the Covid-19 outbreak arrived.

Credit: Roost, FB

It was only until mid-April, that Tungwei decided that the restaurant could not keep going the way it was. Salaries and rental were due every month, and so, Roost had no choice but to resort to takeaways and deliveries. Cash-flow stricken, many in the industry relied upon delivery services, which soon started to mushroom all over the city.

But the numbers were low. Delivery services and takeaways were not able to replicate the demand the restaurant had just two-months prior to the pandemic.

“Our food is not catered for deliveries, but we changed it up and we eventually got regular customers. Unfortunately, sales had dropped by 85 percent by then,” Tungwei tells Business Today. During the initial MCO phase, restaurants and cafes were not allowed to accept dine-in customers and it was during the same period, delivery services had seen a spike in demand.

Credit: Roost, FB

More and more services had popped up, it was not just GrabFood and Foodpanda dominating the market. Services such as BeepIt and DiineOut rose, in a show of support towards the struggling industry. But Roost was not working with any of the delivery partners. Instead, they organised their own delivery methods.

With a relatively low markup and decent profits, Tungwei says in terms of revenue, they barely make anything. But staying true to the restaurant’s origin proved to be essential for the founders of Roost. “The idea of Roost was to serve great food at relatively affordable price.”

Both Grab and Foodpanda were said to be charging their partners up to 30 percent in commission and with a limited delivery distance throughout the MCO, Tungwei says subscribing to the platforms would only mean limiting themselves to a certain number of areas they can deliver to.

Credit: Roost, FB

“At the end of the day, we are still a restaurant. We have to increase deliveries.” Tungwei said. As part of their efforts to re-strategise, Roost is in talks with companies in the vicinity to gauge the idea of having meals delivered directly to the offices for their employees. This comes after fear of being in crowded areas is still a sentiment that is at-large among communities across the city and the nation. But, the idea is not without its challenges.

“The easiest way would be the make the same dishes but with limitations such as dietary restrictions and not everyone would want to stay in the office for lunch,” he pointed out.

On the other end, Herwandi Saat, managing director of The Third Letter, a café in Shah Alam, was facing a similar set of challenges. “We were supposed to get Foodpanda and GrabFood as delivery partners last year but the charges were quite high,” he said. Herwandi, who is also a consultant in the industry foresaw back in January the impact the virus would have on the industry should it come to Malaysia.

Finding the right delivery partner was a challenge for the café, eventually Herwandi settled with fooddelivery, a platform by StoreHub that had aimed to help cafes and restaurants get discovered during the movement restriction order was in place. Listing was free and no commission was charged as well.

While sales had gradually increased, Herwandi told Business Today that expectations in terms of revenue for the year had to be re-managed. As the managing director, he had put in place a five-year plan for the restaurant, however due to the unexpected circumstances, Herwandi added an extra year to the plan in order to cushion the impact the café was going through.

Credit: The Third Letter, FB

“We have adapted to new policies as a means of adapting to the new changes. With the implementation of contactless payments, QR codes as well as sanitation, the café is ready to show its commitment to its customers,” Herwandi says.

Did the MCO amplify existing challenges?

“We weren’t facing much challenges prior to the MCO. Supply costs and labour rates were always going up every year but our sales were increasing as well,” Tungwei said. He further pointed out that tight cashflow problem was common when restaurants made investments.

“We have been around for five years. We have always re-invested back into our staff and with healthy accounts in recent years, we were doing relatively well,” he said.

While the number of unemployment in the country had drastically increased, Roost had thus far not laid off any of their staff. “Our team is mainly made up of foreigners and if we were to lay them off, it would be impossible for them to get another job,” Tungwei says. However, cost-cutting measures were not entirely off the table. Salary deductions were made with the idea that once the business picks up, salaries will be restored to their original rates.

“It was impossible to maintain things as usual especially with the lack of customers,” he told Business Today. Roost like many others faced a series of cancellations from prior reservations, in which 50 percent were made up of groups of more than four.

As for The Third Letter, Herwandi expressed gratitude for an understanding landlord, hinting that rental was not an issue. Instead it was the fluctuating currency. “It affects our imported items, restaurants using imported beef as their ingredients would face rapidly fluctuating costs. Twice a month at times even,” Herwandi told Business Today.

Credit: The Third Letter, FB

The managing director however did express fear that industry players might increase prices in order to keep up. “We would like to maintain a competitive price, but we might not be able to do much if the fluctuation continues,” he says.

If there are any chances of a possible positive growth, Herwandi says The Third Letter could make 70 percent of the profits it made last year. However, due to how uncertain the environment is, he would have to assess the situation every three months, adapting the restaurant’s budget to changes coming along the way.

Re-opening in uncertain times

Starting May 5, the federal government had issued a more relaxed set of rules, resulting in the Conditional Movement Control Order (CMCO). Restaurants were allowed to accept dine-ins as long as the standard of procedures were followed strictly. Social-distancing had to be practiced at all times.

Credit: The Third Letter, FB

This was not the case for every restaurant across the nation as several states had decided to maintain the MCO set of rules in which dining areas were prohibited from accepting dine-ins. This further added onto the piling challenges owners across the industry were facing.

“It felt like a game of ping-pong,” Herwandi said. Despite having set up the required changes according to the SOP by Putrajaya, Herwandi chose not to open his doors for dine-in customers, despite the interest from customers returning to work that week.

Roost’s Tungwei had echoed a similar stance, choosing to wait for a few days before re-opening as the rules were changing cosntantly, and at one-point, on a daily basis. Only when neighbouring restaurants started re-opening, Roost was confident enough to be back in operation. Business proved to be decent during the first week, mainly due to  the ‘younger and braver’ customers as Tungwei put it.

“The following week it was quiet again. If we were lucky, we will get 2-3 tables a night. The dine-in environment was really not there,” Tungwei said.

As a means to practicing social distancing, F&B outlets have had to cut down their dine-in capacity by half. Roost brought the number down to 32 meanwhile The Third Letter, once capable of accommodating up 115 customers, only supports up to 45 diners at a time now.

While the Government issued stimulus packages to support businesses in the country, subsidising wages of workers in the process, this however did not extend to foreign workers. According to both Herwandi and Tsungwei, the subsidy aid only covered locals and not foreign workers.

And despite banks offering loans at lower-interest rates, both restaurant owners felt that with an uncertain future, applying for loans was not a smart move.

Tsungwei, however does hope for the Malaysian government to emulate a similar move by European governments where cash vouchers for F&B expenditure were handed out. This he believes will help to normalise the idea of dining out again.

The future of the industry

Herwandi believes the future of the industry currently relies on customer confidence. Fear of dining-in may still linger and this would go on to affect the future of  many in the industry. Until then, he believes that adapting would be the key to the industry’s sustainability.

“We have to be optimistic to a certain extent and we have to show that to our customers as well,” says Tungwei, in regards to what the future of the industry may look like in time to come. “People will still continue to order food but restaurants will have to look at alternatives,” he added.

The concept of shared and cloud kitchens has been among some of the rising trends in the industry. While some have successfully applied it to their business models, it may not serve a similar benefit to others. For Tungwei, he believes the food Roost specialises in may not be suitable for the concept and while he and his team are committed to providing an experience for their customers, the changing times may give them no choice but to adapt.

“If we need to rely on the new ways to feed ourselves, then by all means we will do it.”

As menus are starting to accommodate to the delivery demands, restaurants are somewhat pushed to re-innovate themselves. Roost for one, started offering family and corporate meals. Tungwei says, this even calls for altering the way restaurants are preparing their food.

“We are finding ways to localise our menu as well as to maintain consistency. Delivered food has to be consumed on the day itself and we are finding ways to maintain the experience our customers have had in the past, even if its through delivery,” he said.

 

 

 

 

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