Singapore – The Future of Foodservice to 2021

24/08/2017 - 13:58

Macroeconomic summary

Singapore is widely revered as an example of free-market economic success. Despite its small population of roughly 5.5 million people, it is the thirty seventh largest economy in the world. In 2016, its nominal GDP was over USD$ 290 billion in 2016, and grew by approximately 2.0%1.

The country has one of the world's lowest unemployment rates, at 2.1% in 20162. GDP per capita is over USD$ 50,000, and Singapore’s purchasing power parity value ranked fourth highest on the IMF global PPP list. This can be attributed to Singapore’s extensive trade network.

In addition to financial services, the economy is largely dependent on oil refinery and manufacturing exports, the largest of which are consumer electronics, IT products, optical devices, medical equipment, and pharmaceuticals.

Profit sector summary

The Singaporean foodservice profit sector generated a total revenue of over SGD 12 billion (USD $8.9 billion) in 2016. The value of the sector increased at a CAGR of 3.7% from 2014-2016, and growth is forecast to accelerate marginally to a CAGR of 3.9% during 2016-2021.

Growth across all profit sector channels is, and is forecast to continue being, primarily attributed to rising transaction numbers, rather the outlet number expansion, as the city-state approaches saturation and desirable locations become increasingly sparse.

The paradigm shift towards convenience driven purchases is becoming increasingly pervasive worldwide, and Singapore is no exception; growth in revenue generated from takeaway transactions is forecast to be strong in all channels.

Quick service restaurants summary

The QSR channel generates the largest revenue out all profit sector channels in Singapore. In 2016, its total sales value was approximately SGD 5.4 billion, and accounted for 43.2% of the total revenue generated in the foodservice profit sector. The channel grew at a CAGR of 3.8% between 2014-2016, and is forecast a marginally accelerated CAGR of 3.9% during 2016-2021.

Although over 20% of QSR outlets are owned by chain operators, which generate roughly a third of the channel revenue, the Singaporean QSR market is still relatively fragmented compared to other countries. This can be partially attributed to the large presence of hawker centers, large food courts that host a variety of independent operators and different cuisines.

The QSR channel will be one of the greatest beneficiaries of the advent of UberEATS and rival delivery services. Revenue generated by takeaway transactions is forecast to see a markedly stronger growth rate than that of dine-in transactions; a 7.3% CAGR over 2016-2021, compared to 2.6% over the same period. However, dine-in transactions will remain the primary source of revenue in the channel, given that 75% of revenue was generated by dine-in purchases in 2016.

In an effort to compete with the FSR and coffee and tea shop channels, an increasing number of chain QSR operators are ‘premiumizing’ their menu offerings. A similar trend can be observed by chain QSR operators worldwide. There were large portions of surveyed consumers that claimed to find healthy eating difficult outside of the home, despite their best efforts. This indicates there are growth opportunities to be found in offering ‘healthy indulgent’ options.

Full service restaurants summary

At a market valuation of SGD 3.0 billion in 2016, the FSR channel represents the second largest foodservice channel, accounting for 24.5% of the overall revenue generated within the profit sector. Between 2014 and 2016, FSR experienced the fastest value growth across the profit sector, with sales value reaching a CAGR of 4.0%. It is forecast a marginally accelerated CAGR of 4.3% during 2016-2021, retaining its position as the fastest growing channel.

Roughly a quarter of FSR outlets are owned by chain operators, which generate approximately 38.8% of the channel revenue. Revenue generated by chain operators is forecast to grow at a faster rate than that of independents over the next five years.

The majority of surveyed consumers stated a preference for casual dining formats within the FSR channel, rather than fine dining. Instead, consumers are increasingly interested in more experiential dining experiences. In addition, the advent of UberEATS and rival delivery services will mean that consumers no longer have to compromise between convenience and the quality of their meal. The FSR channel will be the greatest beneficiary of the paradigm shift towards takeaway, with a forecasted revenue CAGR of 7.5% during 2016-2021. However, for the foreseeable future, dine-in transactions will remain the primary source of revenue in the channel, given that over 93% of revenue was generated by dine-in purchases in 2016.

In future years, the FSR channel will face increasingly fierce competition from the QSR and coffee and tea shop channels, as they both expand their menus and ‘premiumize’ their offerings.

Coffee and tea shops summary

Valued at approximately SGD 646 million in 2016, the coffee and tea shop channel accounted for 5.2% share of the total Singaporean profit sector sales value. The channel grew at a CAGR of 3.7% over 2014-2016, and is forecast a marginally accelerated CAGR of 3.8% during 2016-2021.

The coffee and tea shop channel is the most consolidated major channel in the foodservice profit sector. Chain operators represented over 40% of the number of outlets and just under 60% of the total revenue generated within the channel. However, forecasts indicate that the rate of revenue growth from independent operators will match that of chain operators.

‘Third wave’ coffee shops are becoming increasingly popular in Singapore; the movement is based around an appreciation for coffee as an artisanal product, with value being placed on connoisseurship among consumers. Each stage of its production is disclosed, allowing consumers to have a better understanding of how specific flavours are achieved, and enabling them to develop a discerning taste for quality. Given that over of third of surveyed consumers claim to no longer consumer alcohol, the coffee and tea shop channel is well positioned to become the default channel in which these consumers socialize with friends, colleagues, partners and perhaps, family.

Although the growth in revenue generated by takeaway transactions is forecast to markedly stronger than that of dine-in transactions, at a CAGR of 5.2% during 2016- 2021, it will not be as strong as the revenue growth rates of takeaway transactions in the FSR and QSR channels.

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