How Food & Beverage Business Suffers from COVID-19

The first quarter of 2020 slips through us in a 'killing-me-softly' manner. Q1 meant a lot for many people especially in embracing the CNY whether you are celebrating or not. The Chinese reuniting with their family & relative for the festive, citizens visiting homes of each other, and the hospitality & tourism business prepares to make the best season of the year. The two-week-long Chinese New Year holidays often is chart-breaking and become the annual-milestones-to-achieve for many food businesses. Amid the global crisis, most of the businesses are severely affected especially the F&B. Hotels, restaurants, cafes, pubs, these are places of celebration uniting people over fine food with an intangible dining experience. 

There are saddening news of F&B collapsing all over the world. Renowned celebrity chef Jamie Oliver and Gordon Ramsay suspending all business in HongKong, giant corporation The Cheesecake Factory issues official letter to all landowner their business couldn't sustain the rental cost, and countless of Small Medium Enterprise (SME) individually managed restaurants & outlets closing their business for now. How did the F&B got hit so hard?

Source: The Star Malaysia

The tourism industry is an intangible business making money by providing service. Airlines, hotel lodgers, restauranteurs, we exist at the expenses of people in seek of leisure. During the pandemic, restriction order has been in place and people are refrained from convening in an enclosed venue over a period of time. Tourism travelling is more of a non-essential purpose which happened to become the expendable-front. When residents are told to stay at home, travel itinerary was cancelled, refund collected per existing policy, and residents use the fund to stashing home-necessity supplies. Refund policy is never meant for a global crisis event like this one, no business has foreseen that coming. Even during MERS and SARS, there is a certain pattern as in which region is considered a hot-zone or which appears to be less likely affected by the event. By far, there is no formula accurately predicted how much damage COVID-19 can cause. 

Industry giant who has operations spread across locations at multi-regions may be able to resist a regional impact. As one or two locations may be temporarily suspended, business from other locations may be still operational and able to absorb the cost of certain closure. This explains for airline and lodger industry too. A global crisis like COVID-19 is never anticipated in modern history. Policy-maker thought about protecting labours and employees by issuing statements refrain employer from any termination during this crisis. While there is no substantial sign when this pandemic will be over, tourism business may not have the ability to sustain labour cost, period. 

Source: DriveYourSuccess

Taking F&B as an example. The cost of running a restaurant basically consists of 3 major components: labour cost, food (ingredient) cost, and fixed cost (such as utility, rental, management fee). In a monthly cycle, revenue from the past is used to fund the cost of operation for the present. Same as any enterprise, the company hold to a certain degree of 'cash liquidity' which can be used as a buffer in unexpected encounters, such as a restaurant-diner conflict, media war, or an internal settlement etc. The amount of cash liquidity reserved depends on scale of the company and the profitability. Assuming the business was affected severely due to restriction order, the business volume drops significantly and hence the monthly revenue wasn't enough to yield operation of the next month. The business owners have a huge decision to make as in to allocate more resources to keep the operation running, or to suspend the operation until the event is resolved. 

Source: CBCNews

The solution? Adopt or Abandon. Some establishment took the initiative of low profit-margin production catering. Pubs in HongKong utilize resources to produce take-away lunch boxes for residents and workers, There are airline company sending flight attendants to assists in medical establishments. In the event restaurant operations are suspended, labour force should be allocated to production or other sectors. Panic-buying of grocery happens world-wide. As people are advised to stay at home, the demand for certain grocery items such as bread and eggs has doubled. Increase of takeaway business is significant noted as well. Most residents transit around on a daily basis for both business and leisure requirements. Eating out is a normal routine. They are not used to spend so much time at home than ever. Ideally, the restaurant business can quickly come up with an adopted menu and reduced selling price for a sustainable package that caters to this special period. 5-Stars hotel in Taiwan have already demonstrated this approach, the others should follow.

Although COVID-19 strike us with no warning and still clueless when life will return to normal, we should be optimistic and maintain positive thinking. Everyone should learn something from this crisis. Adopt a more sustainable approach if you are a business owner. The great lesson learned in 2020 is no longer about who is the best, but about who survived the last. 

ZF

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