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Buying and Running a Restaurant in Singapore

Buying and Running a Restaurant in Singapore

Singapore has a vibrant, diverse restaurant scene – but high lease costs and restrictions on foreign labour pose formidable challenges for aspiring restaurateurs.

Affluent, cosmopolitan and business-friendly, Singapore in many ways is a great place to run a restaurant.

Nevertheless, the restaurant trade is a tough business the world over and long working hours, weekend work and intense competition apply in Singapore like anywhere else.

Plus the south-east Asian city-state has two extra problems: high lease costs and a recruitment crisis brought on by tight restrictions on foreign labour.

The value of experience

So it’s not an easy business in which to thrive. First you need to ask yourself whether this truly is the sector for you.

Even talented, experienced restaurateurs often fail – so what hope is there for someone lacking experience as a head chef or head waiter, let alone as proprietor?

If you’re possessed of enough naiveté/self-belief – not necessarily a bad trait in business – to proceed despite limited industry experience, then at least find a business partner with pedigree or raise enough capital to get in a top chef and/or restaurant manager.

Seth Lui, a food writer based in Singapore, recommends hiring a chef consultant too.

“You might have to spend a couple thousand up front,” he says on his blog, SETHLUI.com. “Consultants can save you from wasting thousands on inexperienced purchases and decisions, as well as earn you tens of thousands more from the right business decisions.”

Commercial acumen, in addition to culinary expertise, is vital.

You’re only as effective as the staff you employ and staff turnover is high in this sector. Attracting and retaining quality staff – both in the kitchen and front of house – can make or break you.

Are you calm and effective under pressure? When staff have called in sick, orders are piling up and customers are growing frustrated, strong leadership from the top can prevent a flurry of damaging TripAdvisor reviews.

Choosing the right restaurant

Before you start browsing restaurants for sale in Singapore, first establish your ‘must haves’ in your dream business and of course your budget – which may force you to compromise on the third component: the ‘nice to haves’.

These are the variables that typically matter most when assessing target restaurants:

  • Location and footfall – so important we’ve dedicated a section later on…
  • Amount and standard of local competition.
  • Revenues, costs and profits. The initial advert will not go into much detail. The picture will become clearer later, during due diligence.
  • Square footage and number of covers. “Anything smaller” than 1,200 square feet “is seldom viable for a restaurant,” says Ryan Ong on SingSaver.com. If there are regularly spare tables there’s obvious room for growing takings. If not, your hopes for increasing profits rest on lowering costs, raising prices or turning customers round more quickly.
  • Condition of the premises – kitchen, equipment, furniture, furnishings and so on. When was the space last refurbished?
  • Car parking facilities – less important in a city centre location near to rail terminals.
  • Local regeneration proposals in the pipeline.
  • Difficulty/expense of refashioning premises to fit your vision.
  • Cuisine. Relaunch your French restaurant as a Thai eatery and you’ll immediately lose all regular customers, as well as requiring new menus and hiring or retraining kitchen staff.
  • A struggling business will obviously be cheaper to buy. But remember: Problems like poor service, an ill-judged menu or poor marketing can be remedied; low footfall or stiff local competition are factors beyond your control.

Location and footfall

Shopping malls are hugely attractive locations because of plentiful parking and perennially high footfall. But there’s a reason chain outlets dominate there: sky-high lease costs.

Ryan Ong offers this advice when scouting a location: “New restaurateurs can use an old trick of relying on someone else’s research. The oldest way to do this is to look for locations that have a McDonald’s nearby; the fast food chain would have researched traffic and accessibility before opening there.”

Yet it’s arguably easier for a restaurant to thrive in an unfavourable location – albeit still not easy – in the age of TripAdvisor. Passing trade is less critical now that everyone has a smartphone. This is worth remembering given high commercial rates for prime locations in Singapore.

Licences and permits

Licences and permits required in this trade are myriad. They include:

  • Food shop licence from the National Environment Agency (NEA), costing S$195 a year at the time of writing
  • Basic food hygiene course for anyone in the business handling food. Several training centres offer courses at S$21.40 per head for Singaporeans or S$107 for foreigners. A refresher course must be taken five years after the initial certification, and every 10 years subsequently.
  • A second-class liquor licence, costing S$1,320 for two years, grants you permission to serve alcohol between 6am and 10pm. At S$1,760 every two years, a first-class licence takes your limit up to midnight.
  • Import licence if importing foods, obtained from the Food Control Division, Agri-Food & Veterinary Authority of Singapore (AVA).
  • Halal Licence if serving halal food.
  • Registering for Central Provident Fund (CPF), a social security savings plan through which all employers must contribute a percentage of monthly salary.
  • Non-Singaporean owners must apply for an Entrepass with the Ministry of Manpower as well as a Singpass – required by Singaporeans too – subsequently.

Running costs

Ryan Ong offered the following rule-of-thumbs for lease costs in various regions of Singapore:

  • A restaurant in the ‘core central region’ (CCR): typically between S$12-18 per square foot.
  • Rest of central region (RCR): S$10-12 per square foot
  • Outside of central region (OCR): from S$6 per square foot
  • But footfall is obviously a big variable, he writes – so “a restaurant located in District 15 (East Coast area, in the OCR) might cost S$6 per square foot. Or it might cost S$10 per square foot in a desirable and busy area like Parkway Parade mall.”

The security deposit for a lease, which generally stretches to six months, is typically one to two months’ rent, says Ong.

He says that food costs typically should account for 20 percent of a small restaurant’s revenue, although this can be substantially lower for budget outlets and much higher where ingredients are expensive.

Running air-con non-stop and multiple power-hungry kitchen appliances, restaurants can expect energy bills to reach at least S$1,200-S$2,500 a month, explains Ong, a writer specialising in finance.

He suggests that your overall operating costs will be at least S$44,000 per month.

Recruitment and retention

Finding and recruiting quality staff is a formidable challenge given the limit on foreign workers and a foreign worker levy of between S$300-S$700 per worker. The affluent, highly educated indigenous population does not contribute enough workers to this low-wage sector.

One consolation is that your competitors must overcome this challenge too.

So there are few more important things to get right than recruitment.

Beyond local newspapers and job portals, Seth Lui suggests headhunting from other establishments. “Although questionable in ethics, this yields you the best results after you have personally seen them in action and the authentic service standards given,” he explains. “If you can offer a better work environment with better pay, why not?”

Once you get them to an interview, he says “it is always better to get amiable, naturally friendly personalities rather than train them to smile. Some people are born for the service line, others are thrown in because they have no other skill set. Choose the passionate ones carefully.”

Just as important as shrewd recruitment, you need to make the job compelling enough to keep them.

Offering above average wages is the obvious option, but this puts you under pressure to control costs elsewhere as well as bring in, and turn round quickly, plenty of customers.

This would mean going above – according to Ryan Ong – S$5-S$7 per hour for part-time workers or between S$1,800-S$2,200 per month for full-timers. The head chef typically earns between S$5,000-S$6,000 per month, while line cooks typically pick up between S$2,000-S$2,500 and porters and dishwashers earn S$1,200- S$1,500.

What other incentives can you offer? Forced to think outside the box some restaurants offer year-end bonuses linked to hitting certain targets, profit sharing, or a share in the business for the head chef.

Refurbishment

Have you acquired a restaurant with décor that is shabby or not in keeping with your vision?

Seth Lui warns that parsimony on this front can be a false economy. Cheap materials “are less durable and may need to be replaced or refurbished after a year, incurring more expenses.”

He suggests that spending around $100-$120 per square foot of area is reasonable, or around $100,000-S$120,000 on renovations and furniture (excluding kitchen equipment) for a 1,000 square foot establishment.

Ryan Ong offers a similar calculation: around S$100 per square foot for front-of-house renovations. But he does recommend building in a safety margin because “most interior designers tend to bust their budget by about 10 to 15 percent.”

Kitchen costs range between S$35,000-S$60,000, depending on the range and expense of the equipment your menu demands. He recommends Jackie’s, the famous supplier of second-hand equipment, if you want to keep costs down.

A restaurant would typically shell out S$1,000 on utensils – but high end silverware can set you back 10 times as much, says Ong.

Ready to buy a restaurant? Browse our restaurants for sale now.

Read our guide to buying, running and selling businesses in Singapore for more general information about the legal, regulatory and cultural issues affecting entrepreneurs in the country.



Faye Ferris

About the author

APAC Sales & Marketing Director for BusinessesForSale.com, the world’s most popular website for buying and selling businesses globally and attracting over 1.5 Million visitors each month. To contact Faye please email faye@BusinessesForSale.com

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