The Malaysian Insight

KUALA Lumpur, like many other Asian cities, used to enjoy a mix of international restaurant chains offering Western and Asian fare.

But that looks to be changing as Hong Kong’s Michelin-starred dim sum joint Tim Ho Wan has shut down, as have South Korean chains Bulgogi Brothers and Tous Les Jours.

Rising costs and tighter spending in a slowing economy, plus market fragmentation with more and more shopping malls in the Klang Valley are among reasons for the chains leaving Malaysia’s richest urban hub.

“The food and beverage industry in Malaysia has always been challenging, and the soft market outlook just rubbed salt into existing ‘wounds’,” said Alice Yong, a food marketing specialist and director at PR company Wyse Communications.

“Many F&B chains and restaurants have scaled back on expansion, closed non-performing outlets and reduced manpower on premise.”

“When times are bad, the marketing expenditure is the first to be cut and stricter cost control is enforced,” she said.

According to Yong, the reason for the closures have a lot to do with foreign chains’ lack of understanding of Malaysia’s consumer spending patterns, the economy and a fragmented market.

“Many foreign chains or franchises enter the local market thinking what works in Hong Kong or Singapore will probably work in Malaysia too and that is one of the biggest misconceptions potential F&B players ignore at their own peril,” said Yong, who is also a food writer.

“Klang Valley remains the main target market as folks here still have the highest spending power. The problem is the customer base now is geographically too spread out and fragmented,” she added.

For Y.P. Cheong, who manages four restaurants serving international cuisine in the Klang Valley, the continuous rise in cost of goods is the biggest threat to the industry.

“The rising costs, I believe, started being felt more acutely the moment GST (goods and services tax) hit. Because not everything is claimable and really, it also affects the end consumers’ spending budget,” Cheong told The Malaysian Insight.

“Consumers are more prudent about their spending, for example, instead of imported beer or a higher-end bottle, they tend to go for the cheaper packages or less expensive choice.

“Regulars will tell you straight out ‘no budget’ or ‘can’t afford’,” she said.

In April 2017, the Consumer Price Index rose to an eight year high of 4.4%, with an increase of 4.1% for Food & Non-Alcoholic Beverages, the second highest jump after Transport (16.7%).

Combined with the 6% GST imposed in 2015 contributing to higher prices for both businesses and consumers, costs have led to many in the industry to cut back.

Cheong admitted that the closure of the foreign franchises is worrisome as it shows investor sentiments, but the silver lining is that it opens up the market for local F&B establishments to expand.

“A lot of the more ‘happening’ homegrown chain stores are run by younger, more driven individuals while the older businesses have slowed down a bit,” Cheong said.

In spite of the challenging landscape, local brands such as popular ice cream parlour, Inside Scoop, Chinese noodle chain, Go Noodle House, and diner bar, Uncle Don’s, have grown in recent years.

Smaller business owners are also expanding their outlets.

For instance, Japanese toast café, Miru, and Australian-style brunch spot, J&D Espresso both have outlets in Damansara Uptown, Bandar Utama and in Bukit Bintang’s Pavilion Mall.

Eatomo, which serves Japanese-style poke bowls and fresh seafood, will open another outlet in Publika in addition to its Taman Desa store.

Eateries cashing in on current trends including healthy foods like poke and acai bowls, cheese tarts, Vietnamese and Thai street food and Korean fried chicken also continue to thrive. – July 8, 2017.