When the F&B industry gets tough, there is nothing to stop firms from diversifying into Fintech.
Sakae Holding is an established F&B company based in Singapore. Sakae started off as Apex-Pal International Limited in 1996. It has since expanded and had its initial public offering (IPO) in 2003. Sakae Sushi has been the main generator of then Apex-Pal’s revenue. Thus, the company’s name changed to Sakae Holdings in 2010. Its brands are available in eight countries. The countries are Singapore, Japan, Indonesia, Malaysia, Vietnam, Philippines, China and Chile.
Back then, its vision was to provide good quality food and excellent service at best value. Now, its vision is to build global brands. The company has evolved over the years. Sakae’s entrepreneurial founder Douglas Foo has set a vital strategic direction. Sakae is no longer a mere F&B company. It has expanded into the financial technology industry through Sakae Fintech. It also has food trading businesses through Cocosa in Singapore and Chile.
Sakae is developing Southeast Asia’s first F&B digital token
Together with e-payment solutions provider Mobile Credit Payment, Sakae is developing Bitecoin. If it succeeds, this digital token will mark the start of revolutionary changes in the F&B industry. It will be able to capture end-to-end information in the complex F&B value chains. Also, it can provide reliable and secure peer-to-peer transaction between consumers and merchants.
Source: Business Insider
Unfortunately, investors do not seem impressed. Share price remains unchanged at S$0.32 (US$0.24) after the announcement. This move may be a little too unconventional. Breadtalk, another multinational F&B company, chose to invest in research and development. It continued its expansion plans in bid to maximise growth opportunities. It is reasonable to presume that Sakae may be better off learning from Breadtalk. But, only time will tell.
Another possible plan behind Bitecoin could be working capital. Through an initial coin offering, buyers can purchase the digital token. This helps firms to raise money. With Bitecoin as a pioneer, Sakae stands a chance to boost its cash flow. Sakae’s previous IPO brought in about S$3.4 million (US$2.6 million). The additional wealth helped to finance the opening of new Sakae outlets.
Singapore’s F&B environment is fraught with challenges
In Singapore alone, the number of food establishments stands at 7,260. The industry is getting more saturated. Yet, the gross domestic product contribution remains around 0.8%. The increased number of players pushes down the prices and profit margins. Compared to the fast food outlets, the restaurants’ sales are disappointing.
In 2017, Sakae has closed at least 10 of its 46 restaurants. In its annual report, these closures fit into their rationalisation strategy. However, early termination of leases increases the company’s operating expense. Sakae is not alone in the struggle for profitability. Singapore’s high rental and operating costs make it hard for restaurants to thrive. This is especially hard during economic downturns. F&B retail company, Dairy Farm, has closed its underperforming stores too.
Sakae’s financials are not looking great
When a firm moves away from its core competency, it impacts its finances. In the case of Sakae, closure of restaurants means lower revenue. Although its consultancy fee income rose by 6% in 2016, it is a small proportion compared to revenue. Its 2017 unaudited financial statements show profitability after two years of losses.
Food trading promises higher profit margin and future revenue. However, things are more uncertain for its digital coin. Bitecoin does not guarantee a steady revenue stream. It will be tricky to put a value to Bitecoin until there is more certainty.
All in all, Sakae has made bold moves away from its home ground. The results are not showing in its revenue yet. Nonetheless, amidst tough times, its diversification in non-core businesses offers hopes. It shows the possibility of an F&B company evolving into something more.