The Future of Restaurants

The Future of Restaurants – Jean Michel Fraisse

The Future of Restaurants

Jean Michel Fraisse, hospitality and tourism consultant, restaurateur and former director of studies of Taylors School of Hospitality & Tourism, shares an insider perspective on the future of restaurants post-Covid-19.

Jean Michel Fraisse – The Future of Restaurants

Following months of staying at home, we were all happy restaurants and retail stores were allowed to reopen again. While it’s a move welcomed by all, the business community returns with caution.

Many restaurants have opted not to reopen yet for some very valid reasons. Among them is that many diners still prefer to be careful and are not ready to eat in the confined space of a restaurant. Even restaurants in high-traffic malls are noting record-low table occupation.

Consider what it takes for a restaurant to resume operation. The kitchen has to spend a day or two to prep the food. Freezers and refrigerators have to be restocked and turned on, so too lights and air-conditioning. Not only kitchen staff, but service staff needs to be (re)engaged. We are easily looking at salaries for six to 12 employees a day for an average restaurant, coupled with high utility bills and rental being back to normal.

For restaurateurs doing the math, some preferred to delay reopening. Some were so severely affected that they didn’t have a choice to reopen; there simply wasn’t enough cash to restock the pantry. After a long period of closure, if you don’t have enough liquidity to pay your food suppliers, your supplies are simply cut off. Only the most robust and prudent restaurant will survive.

What Covid-19 has unleashed is a natural selection process. Before looking at the future, let’s analyse the path we were on. At a certain level, the city has been a stylish scene where form elbowed out function. Diners sometimes fawned over beautiful plating and interior more than the food itself. Some customers came, not to eat and drink, but to be seen or gain bragging rights or to snap photos. Others used a restaurant as a lifestyle meeting place or saw cafes as their mobile office.

This superficial preoccupation with looks has led restaurants and cafes to misjudge its importance in the real scheme of things and invest in doing up the outlet, spending millions in the process — an unfortunate decision that means it will take decades to recoup their investment.

Large capital outlay and high rentals have driven up the cost of dining. Today, the cost of dining out in KL is on par with dining out in France. For example, with an average check of RM250 for a 3-course meal with wine. Coupled with the fact that we are importing many products, the value for money in restaurants is lower. Consider meat, an item we are getting chilled and air-flown from overseas. Over the last three years, the price of beef has gone up by 50%. This adds to the bill of the customer. We are subject to the price fluctuations of global demand.

It’s an open secret in the industry that high rental is the number one restaurant killer. Just to give you an idea of the F&B rental rates in KL, we are looking at RM80-200,000 per month in some of the premium shopping malls. Imagine how many plates of char kway teow you’d have to sell just to cover rent!

What are you really paying for when you sit down to a restaurant meal in KL? A quarter (often more) of what you pay goes to the landlord, a quarter to food cost, another quarter to staff cost, and the rest, operating cost. The leftover, if any, is ‘profit’. It really doesn’t look like a profitable business from here, compared to other industries. So why are so many people getting into the business? The media and TV hype over being a chef, the food craze, or because the new investor just doesn’t know the truth about the market or has been fed romanticised fantasies? It always looks better on the outside.

If an investor pays attention to the front of house (interior) and little attention to the back of house (kitchen equipment, new technology), the end result will be problems of productivity and efficiency. The endeavour to provide exceptional service will also lead to issues of maintaining a large, unsustainable service staff on payroll.

These aspects combined have led to reduced profitability in the restaurant industry. After the oil crisis, many expatriates, the main spenders in western-style restaurants, especially, exited the country and the average cheques for restaurants dipped. Local diners tend to drink less or not at all and spend less in restaurants. Technically, it means even when your restaurant is full, you are getting half of the revenue now.

The Future of Restaurants

Going forward, one can already predict more outflow of expatriates due to loss of jobs and an economy in adjustment. Even locals are losing jobs and getting pay cuts. The spending power not just in Asia but everywhere has been slashed, and the full fury of the storm will be hitting us in the months to come. We all need to brace for even lower average spending.

What does this mean for the future of the restaurant scene? Dining with high operational costs will definitely find it harder to make their way out of the crisis. Belt-tightening customers will be looking for cheaper alternatives and make their way back to street food in lean times. When you lose that fat cushion, you need to be sharper with your decisions. People will be less adventurous with food choices and go for comfort food — an extension of the cocooning mandate. This may bode well for the revival of the traditional restaurant, and those focusing on honest food rather than fancy food.

The biggest health-check for the restaurant industry, however, will not depend on customer choice or how deep their pockets are, but the more significant issue of the willingness of landlords to adjust rentals to what the market can afford. As people in the heart of the industry know, in this scenario, even giving a 50% discount on the current rental may not be enough to guarantee the survival of the vast majority of restaurants.

This measure will need to rely on intervention to come to pass and be regulated. If the structure of real estate rentals does not change or change fast enough, we can expect a doomsday scenario in this sector, which will wipe out the progress we have made in the last decades. In no small way caused by unsustainably high rentals, the restaurant scene before Covid-19 was a bubble ready to burst. The crisis tipped the iceberg, ejecting us into the future.

I predict the same will happen to the retail market with its oversupply of shopping malls with over-inflated rentals. In the hotel industry, there was already an over-supply of hotels in the city. But we keep on building more. Room revenues have taken a beating over the years. In 1997, a 4-star hotel room was sold at between RM300 and RM350. Today the same room is selling at below RM200. It has been a while that dining in hotels is not regarded as fancy. Due to a combination of red tape and changes in consumer trends, hotels have failed to adapt to the fast-moving demand. The sector has managed to survive by relying on banqueting revenue. With the slowdown of the economy, this avenue, which depends on maintaining a large kitchen brigade, may cease to become a viable revenue contributor. Hotels will need to adapt fast to find new ways to attract customers, but low prices will certainly not help them to sustain their business. Hotels with many F&B outlets can choose to close some outlets and focus on revenue coming solely from the coffee house. Breakfast will become, eventually, the primary source of income. Basically, Malaysian hotels will become like those in Europe that offer only rooms and breakfast and banqueting.

The silver lining in this bad news is that, if in the past, the F&B industry had problems finding employees, the trend will change. It will become an employer’s market rather than an employee market. However, the struggles of the hospitality and F&B sector will necessitate a lower salary structure in the industry for the industry to address the issue of profitability and survival. Ultimately, the rental issue may cause job loss if not addressed promptly.

What is your opinion on the future of restaurants?

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  1. Yes, these are hard times, Most, if not all, have reopened but customers are few and far between, nothing like in the pre-COVID-19 days. Hopefully, things will get better.

  2. I feel bad for the small business restaurants that are unique and stand-alone operations (like those you highlight). I don’t feel bad for the restaurants that are part of a larger chain that oversaturate the market. Perhaps they should scale back how much of a presence they have in cities?

  3. Caning Jaramillo

    Great eye-opening article! We are so lucky here in Malaysia.

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