More restaurants could close - that could be good news!

3rd March 2013



By Daniel Yap

So we hear the Restaurant Association of Singapore (RAS) prophesying doom for the industry and pain for Singapore if the foreign worker tap is tightened. It is not the only association to do so. Maybe they are just trying to preempt the reaction to a price increase. Perhaps I am being sensitive, but what chilled me was how the RAS statement read almost like a veiled threat against their customers and the government.

The RAS statement read thus:

“Businesses may be forced to shut down or move their operations to other countries, a situation which will deprive the Singapore government of tax income; consumers can expect food prices to increase, due to high operating costs caused by artificial wage inflation, high-cost productivity drive and high rentals...”

“Consumers can expect higher food prices without a concomitant increase in quality and service standards due to lack of manpower. In fact, quality and service may decline...”

“This justifies the need for more manpower. If the dire situation persists, not only will revenue be channeled abroad, the reputation of Singapore as a global city and its F&B/restaurant sector as one of the most vibrant, could be severely affected.”

For real?

“Forced to shut down”

Pardon my ignorance (I’m no economist), but isn’t this how the market operates? Poorly managed restaurants will fold or be sold. Inefficient businesses will fail and well-run businesses will survive. When times are good, it is easier for weak businesses to survive, but lean times prove the strong. While there is room for “business lifeline” measures like increasing the supply of cheap foreign labour, subsidising operating costs, and absentee-payroll-funded training during downturns, it is very strange to have these “benefits” in place when companies are not at unusual risk of failure.

Being an SME owner myself, I have seen something of how these policies have made my own company “lazy” in our HR and hiring practices, although I do make efforts to change this.

Perhaps too many companies in Singapore have become reliant on “welfare” from our state and need to be weaned off this psychology. Sustainable profitability comes from improvements in skills, technology and processes, not from cheap labour. Since when should it ever be considered the norm that a government would import cheap foreign labour just so that companies could make better profits, or to impede the growth of wages?

“Depriving the government of tax income”

Why does RAS seem to be trying to hold state coffers for an imaginary ransom? For starters, I can’t imagine the impact of the new policies on government revenue (or at least on GDP) hasn’t been estimated already – as weak as the white paper was, it did make clear that we were going for slower growth, but still growth nonetheless. Moreover, I’m utterly confident that our government has planned for scenarios of reduced tax income. We’ll survive just fine, even if the restaurant industry does shed some profitability. In fact, a bunch of restaurants closing down or an increase in cost doesn't necessarily reduce total consumption (taxed by GST), so the tax revenue impact will be small. Inefficient businesses closing and efficient businesses picking up their clients actually means more tax revenue for the government because profit margins are better at better-run restaurants (corporate tax is based on profits).

“Caused by artificial wage inflation”

Shortsightedness helps the RAS to ignore the fact that wage stagnation has been happening for years because of the supply of artificially large numbers of cheap foreign workers. Sure, penny-pinching diners are partly to blame as well, but this is certainly not a case of “artificial wage inflation” - it is a market correction for the price of labour. It will hurt for sure since everyone has been operating on the assumption that you can underpay staff and still get everything you (didn't) pay for, but at least it will reflect reality.

“High-cost productivity drive”

Wikipedia defines productivity as the “ratio of production output to what is required to produce it”. Productivity is about making resources more efficient. If efforts at “productivity” result in the unit cost of the product being higher, as RAS seems to suggest, then you’re doing it wrong. Are customers expected to underwrite a productivity drive? I sure as heck am not going to pay more for my food just because your “productivity drive” was a dismal failure.

“High rentals”

Perhaps the only semi-valid factor listed so far is the cost of rentals. Market forces and government policies have done little to abate the rising cost of rentals. Yet, this would only be par for the course in business, so RAS would need to lobby for cheaper rentals or raise prices.

“Higher food prices without a concomitant increase in quality”

RAS talks about this like it is news. It’s called inflation and we had 4.6% of it last year, without a concomitant increase in quality. Prices at restaurants (and everywhere else) are always going up without any improvement in quality, and patrons already expect this. When the price of a cup of kopi went up by $0.10 or $0.20, did anyone expect better kopi? We just assumed that down the line, someone got greedy or was getting shafted and had had enough of it, so the consumer had to foot the bill.

Same thing here – staff have been underpaid for too long and somebody is going to have to pay so that some justice can be done. It has nothing to do with quality. If the customer is footing the bill for higher wages, we expect that standards remain the same or get better (because you will attract better workers, or because they have higher morale). The restaurant isn’t hiring fewer staff; staff wages just cost more. If you cut staff, then you shouldn’t increase prices.

“Singapore’s F&B reputation will be affected”

I’m just going to call their bluff here and say that they’re trying to scare us. If our F&B industry is built on the premise of undervalued labour and the concomitant lackadaisical service that we have been experiencing to date, then perhaps that reputation hit is deserved. I for one would rather make an effort to do it right than to do it cheap and plenty. I wouldn’t equate “cheap and plenty” with “vibrant” either.

During the 2008 global downturn, even star restaurateurs like Gordon Ramsey had to close restaurants in order to survive. Does the RAS expect its members’ businesses to be immune? That is an entitlement attitude of the worst kind.

What I hope will happen

RAS is missing out on an opportunity for long-term growth by being fixated on short-term profits. I had hoped for a statement along the lines of “we are ready for a shift from a low-pay, low-skill industry to becoming one that delivers better value-add and professionalism, and are prepared to bite the bullet in the short term to reform and revitalise the industry”. But no, RAS does not have that vision for restaurants in Singapore, and that is a crying shame. Instead of whining about rising costs, RAS should welcome the opportunity to raise the quality and status of the people in their industry.

The “dire labour shortage” is a symptom. The labour pool exists, but the work is hard, hours are long and the pay is low when compared with an equivalent-paying job that is less physically demanding in another industry. I hope that a representative union will step forward to help negotiate a win-win equilibrium for those who work in the F&B industry.

With slower growth in our foreign labour force, I hope to see companies (and staff) taking a long-term view. Retain and train workers, pay them well, encourage stability and familiarity. Mutual respect between employer and employee will contribute more to productivity than some fancy robot wok-frying machine. In the short stint I did as a waiter for a restaurant chain back when I was 18, I saw examples of how training was vital and gained a healthy respect for the hardened veterans of the restaurant business.

I hope we learn that respect too – for F&B workers and for all professions – because a man who works to put food on the table (pardon the pun) is ultimately always worthy of respect, no matter how much he earns or if he is wiping your spittle off your table with a cloth.


Source: IPS