Page 24 - FoodFocusThailand No.172 July 2020

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Restaurant Business to Adjust to ‘New Normal’…

A Reversal Expected for 2020 as Growth

Shrinks for the First Time in Eight Years

With the COVID-19 situation showing signs of easing, as reflected by a in order to accommodate additional revenue
continuous decline in the number of new infections, the government has streams or expenses in regard to cleaning
declared a rollback of virus control measures in several areas to allow tools, to name but a few. Such impacts are
expected to be felt by almost every type of
certain types of businesses to resume operations. restaurant, but vary in their degree of
severity.
• The groups that are likely to be
One of the businesses to see relaxed measures and part of the first group to be reopened on severely affected are the full-service
May 3, 2020, are standalone restaurants including typical restaurants, streetside eateries, food restaurants, limited service restaurants 1
carts and restaurants with outdoor seating (open-air restaurants). This relaxation of measures is which are located in department stores and
deemed crucial as there are a great number of restaurants in this group consisting of small to at tourist attractions, buffet-style restaurants
medium-sized enterprises (SMEs) with limited funds and working capital. For trends of the restaurant and open-air restaurants, since these
business in 2020, provided that the COVID-19 pandemic passes without any new waves for the restaurants have a high likelihood of facing
rest of the year, KResearch holds the following views: challenges in terms of income and
Restaurant Businesses Encounter Various Negative Factors expenses. Regarding income, no less than
65% of revenue generated by restaurants
As restaurant businesses encounter various negative factors, ranging from the spread of COVID-19 in this group comes from direct interactions
to a decline in both domestic and international tourists and weakened purchasing power, the value with consumers on the premises, including
of restaurant businesses for 2020 is projected to contract by 9.7% to 10.6% from the preceding significant income that is acquired through
year. service charges and beverages. This
The first series of announcements made in relation to easing of virus control measures began source of income is likely to experience a
on May 3, 2020, for standalone restaurants. Despite limitations, they are considered positive signs steady decline as a result of consumers’
for restaurant businesses as a whole. Not only does this help to restore the primary revenue stream tendencies to avoid or minimize participation
for restaurants, but it also helps to ease the stress of restaurant proprietors in the abovementioned in social events and get-togethers for the
group. However, the ambience of on-premise dining remains unlikely to return to normal, as time being. Moreover, there is the
consumers remain anxious and are therefore inclined to avoid social gatherings in public places; implementation of social distancing
they may continue to subscribe to food delivery services for household consumption on a growing measures to physically separate individuals,
scale. Hence, this remains a key issue pressuring the restaurant business for the rest of 2020. and limitations of customers per table, as
In addition, restaurant businesses must still contend with a handful of limitations which could well as a ban on consumption of alcoholic
further hinder their recovery, especially the economic recession resulting from the temporary closure beverages – a product category with high
of numerous business sectors. Such action has in turn affected confidence towards employment per-unit contribution – in restaurants during
and led to reduced purchasing power among consumers, as both businesses and household this initial period of lockdown relaxation.
consumers have become more cautious with their spending. In addition, a slowdown in tourism is Such conditions not only create limitations
evident due to a severe decline in the number of both domestic and international tourists. in generating revenue on restaurant
Based on the aforementioned details, KResearch has revised downward the projection of premises but also increase implicit costs in
restaurant businesses’ value in 2020 from the previous forecast made in early 2019, to be in the the form of opportunity costs and fluctuations
range of THB 385 to 389 billion, or a contraction of 9.7% to 10.6% from 2019 – which would be in the price of raw materials that restaurants
the first slump in eight years.
need to order.
Changes in the Business Environment Post-COVID-19 With regard to costs, restaurants in this
With changes in the business environment post-COVID-19, restaurant proprietors have sought to group have higher overhead burdens than
adjust to the ‘New Normal” in their business operations. Following any sign of resolution of the other types of restaurants during these
COVID-19 situation and the absence of new outbreaks, the government is likely to issue further atypical circumstances, including rents,
rollbacks of virus control measures to enable other types of restaurants to resume operations. employees’ salary and office maintenance
Nonetheless, restaurant proprietors would still need to confront difficult issues that must be adjusted fees. These operating expenses could
to, as consumers have now become more prudent in their spending. Not only is that likely to result proportionately account for as much as
in a decline in the number of restaurant-goers on average, but the value per meal is also expected 30-40% of total revenue for certain types of
to drop – thereby hurting the income of restaurateurs just as principal operating costs are on the restaurants and consequently lead to a
increase, having been influenced by implicit costs arising from changes made to business formats change in the break-even point and average

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