How does Budget 2018 impact your F&B business?
The Budget announced on 19 February includes new grants and a rise in GST, among other things. What does this mean for food businesses? And what can you do about it?
Productivity Solutions Grant
With PIC (Productivity & Innovation Credit Scheme) ending, a new grant called the Productivity Solutions Grant (PSG), has emerged.
What you need to know about the PSG:
The grant is for up to 70% funding support
There will be a pre-approved list of off-the-shelf productivity-enhancing tech or solutions that you have to choose from
Application for this grant will be open on 1 April, via the Business Grants Portal
Enterprise Development Grant
The EDG is made up of two existing grants – the Capability Development Grant (CDG) under SPRING and the Global Company Partnership Grant (GCP) under IE Singapore.
What you need to know about the EDG:
Funding support for up to 70% of qualifying costs
Only applicable for company expansions overseas (as detailed in the Global Company Partnership Grant)
Launching in fourth quarter of 2018
Therefore CDG will not be available from the fourth quarter of 2018
SPRING and IE Singapore are merging to form Enterprise Singapore, the new statutory board under the Ministry of Trade and Industry administering the EDG
GST will go up from 7 to 9% sometime in the period between 2021 and 2025.
The exact timing of when the GST increase will kick in depends on the “state of the economy, how much our expenditures grow and how buoyant our existing taxes are”.
We know that the GST increase is something everyone has been dreading and the rising cost of ingredients is a bigger challenge than ever for F&B businesses.
What you can do about it
We have over 3 years before the GST is planned to increase and if you proactively prepare for the hike, it will be much smoother sailing for you when the time comes.
Of course, you can expect consumers to be more frugal initially. But that will only last until they grow used to the idea of the higher GST and it becomes the new norm. So the question is, can your business last through the penny pinching period and be around for when people are ready to spend?
1. Reduce your costs
This is a no-brainer when costs are going up. Many restaurants have failed because costs are not managed well even when there is not GST hike.
These are some ways you can keep costs consistent despite the GST increase:
Portion control. Monitor the amount of food left over when your diners leave – if there’s always excess, you can reduce the portion size.
Start charging for disposables like takeaway containers and cutlery. Many hawkers already do this to defray their costs, plus you would be supporting environmental health. In turn you can encourage customers to bring their own containers.
Buy in bulk. If you know other F&B business owners who use the same ingredients, you could make use of economies of scale and order together at a better price from suppliers.
2. Don’t cheapen your business, offer more value instead
With GST increasing, people will start looking for ways to “cut down” or save. That doesn’t mean you can’t still attract them; work on doing something different.
Cheaper cuts of meat or cheaper vegetables doesn’t mean less quality; show your customers they are still getting good value by investing in their preparation and cooking techniques.
Beyond just food, you can pay attention to details that determine the value your customers perceive, like the ambience and service standards.
3. Look after your staff
GST increasing will hurt your employees too. Make life a little easier for them by providing staff meals (if you don’t already) – it’s also a good way to minimise food wastage.
Incentivise a good work ethic or hitting a sales target with bonuses or transport vouchers.
4. Adjust your concept
Embrace the fact that people will try to do more home cooking. If you have decent branding and differentiated items, consider selling ready-made/ ready-to-eat food (like Soup Spoon), or condiments (like soup bases e.g. Hai Di Lao)
Gear your menu options toward people who have to eat out (busy professionals, gatherings, unavoidable big-budget spending like celebrations)
Cafes will suffer because people will reconsider shelling out $6 - 7 for a latte and opt for cheaper options like local kopi or getting a Nespresso machine. One option for cafes to continue being sustainable is to build on their ready-to-eat options (think Pret-a-Manger) with high quality meals.
5. Offset your GST
If your business is not GST registered yet, you may want to consider volunteering to register for GST (even if your annual turnover is below $1 million). The benefit of doing this is that you can claim the GST incurred on your purchases, subject to the conditions for claiming input tax.
6. Keep your regular customers
Make use of loyalty or reward points to give customers a reason to return and become regulars (check out iCHEF's Customer Cloning System – it's included in our F&B POS system)
Customer relationship management systems can help you keep track of your customer data such as previous orders and favourites so that each customer feels remembered and special
With good analytics from your POS system, you can tailor promotions that suit your most important customers best
7. Tweak your menu
Do basic menu engineering by identifying which of your items has the lowest profit margin and lowest order rates, and improve them or remove them.
Customisable foods like salad and grain bowls allow you to use cheaper ingredients for the standard and offer premium ingredients at a higher price. This way, the extra expense is entirely optional and passed on to the customer.
8. Increasing your menu prices should be your last resort
It’s better to do several rounds of smaller menu price changes than to make one dramatic change, which could drive customers away
Customers have thresholds for how much they are willing to pay at your establishment – increasing the price from $7.60 to $7.99 is usually more palatable than changing it to $8.10.
Cheryl Tay is the editor and marketer at iCHEF Singapore. She also manages iCHEF Club, a growing community of F&B owners in Singapore – organising events, the blog, an online newsletter and the F&B Entrepreneur Bootcamp, the only regular workshop on opening a new restaurant in the country. In her spare time, she attempts to read every book that’s ever won a literary prize and watches cat videos. Like any proper Singaporean, her love for food runs deep – especially spicy food. Chili is life.