Franchising in F&B Singapore

Issues facing F&B Industry8 1 Small Size of Singapore Market The market for food products in Singapore is small. This makes it hard for local manufacturers to expand and reap the benefits of economies of scale. It makes it harder to justify throwing money into research and development to come out with new products. A small domestic market makes it hard to test new food products on the endconsumers. Ultimately, it also makes it hard to expand and sell Singapore-made food products in the global markets. 8 Based on surveys of SMa Food and Beverage Industry Group 10 2 Cheaper Imports from Malaysia . 1 The main obstacle facing our local FBT manufacturers are the massive inflows of cheap imports coming from Malaysia. This has a tremendous negative impact on their abilities to sell their products to consumers. 2. 2 Almost all the F&B manufacturers SMa surveyed said that their costs of production in Singapore were higher than in countries such as Malaysia and China. These push up their selling prices. 2. 3 Singapore manufacturers become uncompetitive because buyers (supermarkets) usually aim for the lowest prices possible when they source products for their shelves. 2. The problem is compounded because the food products coming out of our neighbouring countries do not have to go through the same stringent health and safety checks (HACCP requirements) as in Singapore. Our F&B manufacturers wonder whether the government can assist in this area where an uneven playing field has been in existence for such a long time. 3 Supermarkets ‘stifling’ manufacturers 3. 1 Another one of the major obstacles facing manufacturers here is not their ultimate consumers, but their go-betweens, i. e. the supermarket chains handling and distributing their products to the end-consumers. . 2 F&B manufacturers say that the big supermarkets are squeezing their profit margins very tightly. This is through their excessive listing fees, trade margins, rebates, merchandising allowances, etc. etc. This is making it almost unprofitable for F&B manufacturers to carry on. 3. 3 On top of this, the international trend is towards supermarket house brands. Instead of selling branded F&B products, supermarkets prefer to sell products bearing their house brands. In accommodating this development, F&B manufacturers are becoming contract manufacturers for the supermarkets.

Unfortunately, this trend is not conducive to developing Singapore-made brands of food products. 3. 4 F&B manufacturers would like the weight of this supermarket burden to be lifted from them. But they also understand that it may not be practical for the government to tell (or legislate) the big supermarkets that they should do something to ensure the profitability of Singapore food manufacturers. 3. 5 But if the government wants the domestic F&B industry to grow, and domestic brands to proliferate, perhaps it could do something to help F&B manufacturers, even if these policies appear to contradict each other.

XI Outlook for the Singapore F&B Industry 1 Right now, if a Singapore F&B manufacturer is a niche player, he enjoys some advantages in Singapore. This is helped by the duty-free nature of the Singapore system. Going forward, as more of our neighbouring countries remove their tariff barriers and set up more duty-free trade zones, Singapore’s competitors in the F&B industry will be able to gain the upper hand even in niche markets. 11 2 Despite the many difficulties faced by Singapore F&B manufacturers, they are still plenty of them around.

Those surveyed by SMa said that they were still here because they had no choice. They had already sunk their capital assets in Singapore. 3 Going forward, they are not planning to invest more capital into manufacturing plants in Singapore. In the long run, fewer and fewer manufacturing plants will operate in Singapore. 4 Many big-name Singapore companies (such as Yeo Hiap Seng, Gardenia and Tee Yih Jia) have gone regional and have shown that it can be done. But most of the F&B manufacturers are small players.

The perception of smaller F&B manufacturers is that the Singapore government has concentrated its efforts on assisting high-profile firms or multinationals. Having said that, they would welcome assistance in these areas: (1) Increase shelf-life of products; (2) Automating factory production process; (3) Packaging and design; (4) Branding; (5) Upgrade workers’ skills; (6) To attain the HACCP (Hazard Analysis Critical Control Point) requirement; (7) Research and development of new products; (8) Marketing strategies; (9) Lower operational costs like rent, transport, utilities. ooo000ooo