Changing business models for the better

Picture, if you will, your own food or drinks shop decorated in your style, furnished with tables and chairs to your liking, and serving delicacies you think will be a big hit among locals.

Now imagine uprooting all that hard work, and compressing it into a different business model – one that you think can better serve your target market.

An ever-changing landscape for F&B businesses is not uncommon as entrepreneurs seek to better present themselves to customers. This is prevalent in Malaysia’s scene, whereby restaurants often relocate, rebrand, or revamp themselves by offering new menus every so often.

However, how many would take that leap of faith and make that total change of business model? And what are the causes that lead to this change?

While some have observed that the overall cost of doing business should be fairly contained, others note that high commodities prices and intense competition on the local front have generally affected food and beverage (F&B) players.

Researchers with AmBank Bhd (AmBank Research) observed that overall cost of doing business in Malaysia remained fairly contained, supported by the firmer US dollar-ringgit and stabler commodity prices.

However, the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research in its fourth quarter of 2017 (4Q17) outlook sectoral for the consumer sector indicated otherwise.

“Despite the price correction shown in some commodities like raw sugar, milk powder and cocoa since the beginning of the year, F&B players’ gross profit margin were still depressed by the higher average overall raw material costs compared to the prior year,” it said.

Most F&B players recorded impressive gross profit margins in 2Q16, it recalled, due to the subdued commodities prices in the early part of 2016 before prices rose sharply in the second half of 2016 (2H16).

“In addition, the recent trough in international raw sugar price does not immediately translate into lower raw material costs as the selling price of refined sugar to the local F&B players is still fixed at a higher price,” the research arm added.

As such, gross profit margin will remain supressed at least until year end, before the effects of lower raw material and strengthening of the ringgit take effect.

The research arm has noted that for the time being, companies which started early on operation effictiency initiatives and diligent costs management are able to mitigate these temporary higher raw material costs as operating expenses drop.

According to MIDF Research, F&B players are facing intense competition locally as products being offered are homogenous in nature.

“Also, any increase in prices need to be done carefully due to the recently enacted AntiProfiteering Regulations,” the research arm said.

“As maintaining market share remains the priority in the current business environment, F&B players are also limited in their ability to increase prices in order to pass on the higher raw material costs to consumers.”

This, it noted that any top line growth can only be achieved on the back o f aggressive marketing and promotional activities as well as new product innovation. In the case of some local F&B players in Kuching, adopt new approaches or have a complete do-over of their business model to allow for more exposure