Singapore’s F&B sector provides opportunities for entrepreneurial and M&A activity

Visual from the Singapore Food Festival Wikipedia page

The food & beverage (F&B) sector is an industry that is never short of demand from consumers, making it an ideal investment opportunity. The city state of Singapore is renowned for its food scene, but below the surface, the dynamics are changing. And the change is rapid. A recent report in Nikkei Asian  Review (NKR), highlighted the threat posed to Singapore’s food heritage  by the economic pressures of high rentals and changing demographics.

Reflecting its mixed ethnic heritage, Singapore’s traditional F&B sector is now threatened by increasing economic prosperity and shifting demographics.

 

Singapore’s Market Context

Singaporean street cuisine has a socioeconomic and cultural dimension. Rooted in a larger social policy designed to allow Singaporeans to build sustainable businesses while providing affordable food to the masses. This tradition has thrived for decades, till now.

The age demographics are impacting the traditional street food industry; the elderly hawkers of the baby boomer generation (born from 1948 to 1964) retire and exit the trade.

A combination of social, economic, cultural, human capital and demographic factors are making food vendor business, in the hawker segment of the F&B ecosystem, unsustainable.

On one hand they are Impacted by the National Environment Authority’s (NEA’s) policy of pegging rentals to market rates. At the same time, the younger generations apparently places less value on the food heritage, as not many have stepped forward to take up the profession, in this segment .

Singapore’s street food culture is threatened by the shifting demographics, socioeconomic pressures and public perception of the job of hawker as being unglamorous, requiring disproportionate work to generate viable returns.

Long hours, scarce labour and high business costs pose challenges to hawkers who have been a key part of the Singaporean cultural landscape. Regardless of the pressures, it’s a robust public policy outcome that has endured from the 1960’s to the mid 2000’s, running into problems, only now.

Writing about a terminally ill hawker fabled for his satay beehoon — rice noodles served in a spicy satay gravy — food blogger KF Seetoh says: “There is no culture of institutional continuity in this lucrative and well-loved food industry. Every old master who is calling it quits is like a few million living cells dying in our body without regeneration.”

Hawker centres served as a social levellers, community aggregators, generating and preserving the culinary heritage of society-at-large and enabling entrepreneurship for new immigrants. It’s an institution and practice worth keeping, with the various changes its undergoing creating opportunities for discerning entrepreneurs and investors.

Also Read: Foodpanda raises $110m in latest round, Rocket gets controlling stake

 

The Opportunities

Massimo Banzi, a co-founder of the Arduino project, stated in an interview with Makezine “…as hardware becomes more and more of a commodity, business models must evolve towards services, cloud platforms, education, and the whole process of helping makers become pros.”

Food, more than any other product, is the ultimate commodity. The shifts in Singapore’s larger F&B market and hawker space makes it a domain where M&A and entrepreneurial venture opportunities co-exist. Preserving Singapore’s hawker heritage is a goal of a government, through both training, education and other avenues. And Singapore’s government has proven its commitment to growing the entrepreneurial ecosystem in the city-state and encouraging sustainable innovation.

The key innovation needed in F&B entrepreneurship here? Sustaining innovation, in which “Sustaining ideas have to do with improving the current product by developing generations 2, 3, 4, 5 and so on until the product reaches the end of it’s life cycle” according to Innovation Excellence. It comes down to innovation that adds features, reduces costs and expands product portfolios.

So in which segments do these opportunities lie? What are the solutions that can alleviate the pain points of the hawker space?

For M&A, it lies in the dance to make bolt-on acquisitions of brands with strong market validation, excellent customer relationships and trans-generational appeal, franchising opportunities and the chance to license intellectual property (IP) with recipes for production and distribution.

An example is Cheng’s 27 of Tiong Bahru, which has declined offers of between S$6 million to S$12 million for their home-style Hainanese coffeeshop along Yong Siak Street.

These same conditions also present tuck-in and add-on acquisition opportunities for firms looking to enter the Singaporean F&B sector, which is a highly competitive market with significant volume, despite the small size of the domestic market.Food products can be validated in its multi-cultural society, along with further investment to grow the brand.

In an e27 featureMayuresh Godse, CEO of Medialink, stated “I think Singapore is a multicultural society, and it’s a very good test market to validate a business hypothesis. You get people from all over, resulting in a microcosm of the world. In terms of expertise, you get different perspectives of how your brand is perceived. And in terms of connectivity, it’s so easy to get access to any financial market.”

For young entrepreneurs, a space exists to develop a micro-enterprise leveraging on social media for growth hacking, marketing and advertising. Catering and delivery opportunities are also available for scaling, courtesy of the growth of e-commerce and logistics ventures in the city-state like RedMart.

Impact investment are available in building self-sustaning social enterprises  addressing un-addressed and overlooked consumer segments in Singapore, such as foreign workers in the domestic help, construction and shipyard sectors. For instance, deficient nutrition provided to foreign workers in the construction sector requires addressing, With a significant population of foreign workers living in company dormitories, this un-addressed need provides a business opportunity.

Also Read: VN’s Pan Food, Korea’s Lotte vie for controlling stake in Bibica

 

The Solutions

The solutions that seem to fit the Singapore market lies in the food-related industries. These include automation and labour-saving devices like food-based 3d printers and other FoodTech solutions, including food delivery, food replacement and restaurant technology firms. The US market has witnessed significant investment, with VC-backed foodtech companies raising $1.07 billion in 2014, according to CB Insights.

Image Credit: CB Insights

The most active investors in this space were Khosla Ventures, followed by First Round Capital and 500 Startups in third place. Training & development, as well as recruitment, are HR-related areas where solutions that integrate e-learning with a practicum element and apprenticeship, can be built, addressing the problem of labour scarcity and training.

Given the high rentals and the demand for space to rent, as well as land plots within the city centre unsuitable for construction, the use of shipping containers to create short-to-medium-term spaces for use as hawker centres with low rentals.

Projects like Keetwonen in Amsterdam and Container City in London validate the case for it. More long-term solutions like floating structures also present opportunities indirectly related to this issue.

With the government’s initiative to grow innovation and Singapore’s external economy, there’s also the possibility for entrepreneurs to collaborate and build strategic partnerships. Two examples of publicly-listed Singaporean firms that have successfully expanded abroad are consumer staples manufacturers like Food Empire and Super Groupwhich have a strong market presence in CIS markets and Southeast Asia respectively.

Entities like the Association of Small & Medium Enterprises (ASME),  Singapore Tourism Board (STB) and IE Singapore are approachable for such collaboration, given their goal of driving the growth of the Singapore brand within the region and further afield.

There’s many opportunities presented by the exit of older hawkers. The solution is simply a matter of imagination and investment.

Related Story: Snapshot of ASEAN M&A trends: Early indicator of business confidence

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.