Food & Beverage (F&B) businesses have always sought to capitalise on the technology of their time to improve the efficiency of their operations.
Examples that spring to mind include the invention of the microwave in 1946 and the boom of fast food restaurants in the 50s, on the back of radically changed kitchens and supply chains.
Today, almost half of new F&B establishments in Singapore don’t survive beyond 5 years, and the average business runs at an annual loss of 8 per cent. The ruthlessness of the F&B industry has led to a proliferation of businesses utilising mobile and online services catered to the industry, as they fight to remain competitive. These range from delivery service apps and reservation services, to cloud-based POS systems and even queuing systems.
Despite these advancements, the F&B industry still operates at a point far from full efficiency. As of 2016, the global dine-in market was operating at a mere 30 to 35% of its full capacity utilisation, despite being valued at over US$2 trillion. In stark contrast, hotels traditionally reach levels of around 70% and above. The marked disparity in efficiency of both industries is appalling – in fact, inefficiency is quite possibly the single biggest pain point in the F&B industry.
So what exactly are hotels doing right that restaurants could emulate?
The answer: yield management strategies.
Huge untapped potential
Simply put, yield management is a variable pricing strategy intended to anticipate or influence consumer behavior to maximise revenue from a fixed resource. The strategy has been around since the 70s, when American Airlines pioneered it with their ticket pricing. Hotels and car rental companies followed suit, and more recently “sharing economy” apps such as Uber and Airbnb have integrated similar dynamic pricing models, with substantial success.
In F&B, yield management can be used to manage capacities to help contribute to fixed costs. Restaurants effectively sell perishable goods - vacant seats can’t be stored and sold later, food products have a limited lifespan and electricity bills, and rental costs and staff wages are still incurred when a restaurant is empty. In fact, estimates suggest that when incorporated globally, just a mere 5% improvement in capacity brought about by yield management could add over $250 billion in additional revenue to the F&B industry – a testament to its huge latent potential.
It’s an effective concept: by shifting some of the high flow during peak periods, when potential customers are often put off by long waiting times, to off-peak hours when restaurants are largely idle, yield management allows restaurants to maximise their profitability. Restaurant reservation apps, for instance, could entice its users to frequent partner restaurants during lull hours by utilising yield management strategies to offer discounts for reservations made for these times.
In full force, yield management thus becomes mutually beneficial. The customers enjoy discounts, and vendors benefit from an improved optimisation of their businesses.
There for the taking
Despite the low risk and obvious financial benefits, yield management is a largely underutilised strategy in the F&B industry. This is especially peculiar given the cutthroat nature of the industry.
Apprehensive businesses can take heart from the success stories of businesses who have utilised yield management strategies. Suki-Ya, for instance, a Japanese restaurant in Singapore’s Marina Square Mall, saw a six-fold growth in off-peak diners since offering discounted reservations for off-peak hours via an app.
Food delivery apps may be generating all the hype in the F&B tech space today, but consider this: the dining out business is eight times bigger than its food delivery counterpart, a testament to the sheer untapped potential of yield management in the industry. With today’s consumers growing increasingly comfortable making financial decisions on mobile apps, the next wave in F&B apps is set to reach unprecedented heights.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
Do you know more about this story? Contact us anonymously through this link.
Born in Germany in 1973, Michael has enjoyed a multinational career as a business leader across 4 continents and 4 industries.
After graduating from the oldest university in Germany (Heidelberg University) with a Master of Arts in Economics in 1999, Michael went on a journey that took him to Switzerland, Germany, Thailand, China, Paraguay, Lao PDR, Vietnam, the Caribbean and back to Thailand.
After accumulating a wealth of experience working for Global Fortune 500 companies, like Coca-Cola (Food & Beverages), Henkel (Cosmetics) and Vimpelcom (Telecommunications), Michael became a CEO at just 33 years of age. He quickly carved out a reputation for himself as a creative, charismatic and highly successful business leader running businesses that had yearly turnovers of up to 700M USD.
Michael is currently the co-founder and CEO of Eatigo, the leading online reservation platform for restaurants in Thailand and Singapore. Eatigo connects empty stomachs with empty tables via time-based discounts and with the help of yield management algorithms. A relentless visionary in business, Michael unwinds by playing golf, running Marathons and spending time with his wife, Aimee, and his two children, MJ and Aiana.