Thai Market insights 2018

Top 10 Industry Challenges during 2018

Challenge	Description and Impact on Profitability
Rising Labor Costs and Labor Shortages	A structural shortage of skilled and unskilled labor, especially in popular tourist areas, was a major concern. Competition for staff forced businesses to pay above the national minimum wage, significantly increasing fixed costs. Measures capping the proportion of foreign workers could also present a drag on firms, particularly in the hospitality sector.
Strengthening Thai Baht	The appreciation of the Thai Baht (THB) in 2018 posed a downside risk to growth. This appreciation made Thailand a more expensive destination for international tourists, diminishing their purchasing power and consequently reducing spending. It also increased the cost of imported ingredients needed by many restaurants.
Intense Competition and Market Saturation	Record tourism led to heavy investment and resulting market saturation in major urban and tourist areas, making it difficult for new entries to attract customers. This saturation led to intense price wars and discounting of menus and services, severely compressing profit margins.
Increasing Food Ingredient and Input Costs	Volatility in agricultural prices, sometimes due to unpredictable weather affecting domestic supply, combined with the higher cost of imported ingredients (driven by the strong Baht), directly squeezed profitability and food cost percentages for many restaurants.
High Operating Costs	Increased rent and utility expenses (such as electricity and water) were noted as substantial costs that strained operating margins, especially for establishments located in prime urban and tourist locations.
Vulnerability to External Shocks	Many businesses had become heavily reliant on tour groups from specific markets, like China.
Strict Regulatory and Compliance Costs	Following incidents like the 2018 disaster, regulations and safety inspections became more stringent. Compliance with new food safety, insurance, documentation, and facility upgrade requirements increased operational complexity and financial cost.
SME Financial Vulnerability and High Credit Risk	Small and Medium Enterprises (SMEs), which form the backbone of the food service sector, remained financially fragile. The protracted economic slowdown had previously led to a deterioration in loan quality, particularly among SMEs. This fragility limited their ability to obtain necessary financing for investment or cope with shocks.
General Inflationary Pressure	The exceptionally subdued inflation environment of 2017 (0.6 percent headline inflation) began to shift. Headline inflation accelerated to an annual average of 1.06 percent in 2018 (as noted in conversation history), pushed partly by higher oil/energy costs, which increased general business expenses.
Technology Adoption and Digital Integration	Many independent or smaller businesses struggled to effectively integrate essential technology, such as systems for online ordering, efficient payments, and digitized operations, impacting their ability to compete effectively against more digitally savvy chains.

Top 5 trends Thai Businesses use to Increase Profitability

Strategy	Description
Digital Transformation and Delivery Services	Businesses tapped into digital platforms to generate new revenue streams and reduce reliance on costly dine-in spaces. They implemented mobile apps and partnered with food delivery services like Line Man, Foodpanda, and GrabFood, allowing for a broader audience reach without the overhead of expensive dine-in locations. Although delivery services often had high commission fees, the increase in volume and lower operational costs helped offset reduced profit margins on individual orders.
Upscaling and Enhancing Customer Experiences (Value-Based Competition)	In a market characterized by price competition, many establishments shifted their focus from low prices to offering quality and unique experiences. They provided excellent service and created themed restaurants with visually appealing settings, perfect for social media exposure. Additionally, they incorporated unique activities like cooking classes or wellness retreats, enhancing their overall value proposition.
Operational Efficiency and Menu Engineering for Cost Control	To combat rising fixed costs, restaurants worked on improving efficiency and maximizing profitability. They utilized Menu Engineering to analyze and promote high-margin items while removing underperforming dishes. The adoption of technology tools, like Point-of-Sale (POS) systems and Customer Relationship Management (CRM) systems, streamlined operations and increased overall efficiency.
Targeted Promotional and Social Media Strategies	Marketing efforts became more aggressive and focused on capturing market share from both tourists and cost-conscious locals. Businesses collaborated with social media influencers and maintained active digital presences on platforms like Facebook and Instagram to attract trendy customers. They also introduced loyalty programs, such as stamp cards and member discounts, along with personalized communications via tools like LINE and email to encourage repeat visits.
Menu Diversification and Adaptation to Evolving Consumer Preferences	To attract a wider audience and respond to new market trends, restaurants quickly adapted their menus. They introduced healthier options, including vegetarian and vegan dishes, to meet the demand for health-conscious dining. Additionally, their offerings reflected popular trends, particularly those from Korean and Japanese cuisines, which were in high demand among local customers.

Business Strategy: Tourist Customer Economy

• Emphasis on High-Value, Experience-Based Offerings:
  Instead of competing mainly on price, establishments focused on offering upscale and experience-based services to justify higher profit margins. This included investing in excellent service and a pleasant atmosphere, as well as providing unique experiences like cooking classes or themed dining. These efforts aimed to attract tourists looking for memorable, “Instagrammable” moments, emphasizing the quality of service rather than just cost.
• Aggressive Online Reputation Management:
  A restaurant’s profitability was closely linked to its online reputation, as tourists often rely on reviews to make dining decisions. Businesses actively managed their presence on platforms like TripAdvisor, Google, and Agoda, striving for positive reviews to attract more visitors. For them, maintaining a strong digital reputation became a crucial goal.
• Targeting Independent and High-Spending Travelers:
  In response to increased competition and market shocks, businesses shifted their focus from mass-market tour groups to Free Independent Travelers (FITs) from regions like Europe, Australia, and ASEAN. Upscale venues also aimed to attract high-spending customers, including expatriates.
• Implementing Higher, Experience-Based Pricing:
  Restaurants in tourist areas adopted a generally higher pricing strategy, leveraging tourists’ willingness to pay for quality experiences. The hospitality sector, including hotels, optimized revenue through dynamic pricing models designed for peak and off-peak tourist seasons.
• Specialization in Traditional and International Cuisine:
  To cater to varied tourist preferences, restaurants specialized their menus. They featured traditional Thai dishes as well as ingredients that appealed to international tastes and popular global cuisines. This specialization helped differentiate their offerings based on quality and authenticity, allowing for higher price points.

Business Strategy: Local Customer Economy

• Targeted Value and Loyalty Programs:
  Businesses implemented promotions and loyalty programs to encourage repeat visits, essential for sustained profitability. They offered competitive pricing, frequent promotions like “lunch sets” and “happy hours,” and loyalty discounts to attract price-sensitive customers.
• Digital Ordering and Delivery Integration:
  Restaurants expanded their reach and sales volume without relying on expensive physical spaces by embracing technology. They partnered with food delivery platforms and provided quick service and take-out options to meet the local demand for convenience and efficiency.
• Localized Menu Diversification and Trend Adoption:
  To capture market share and justify higher prices, restaurants adapted their menus to reflect local consumer trends. They introduced healthier options, such as vegetarian and vegan dishes, and drew inspiration from popular cuisines, particularly Korean and Japanese.
• Operational Efficiency via Technology and Supply Chain:
  To maximize profit margins, businesses focused on reducing costs and streamlining operations. They implemented Point-of-Sale (POS) and Customer Relationship Management (CRM) systems for better efficiency and optimized their supply chains by sourcing ingredients directly from local farmers.
• Hyper-Local Digital Marketing:
  Marketing efforts shifted towards building long-term relationships with local customers. Businesses used apps like LINE and local social media platforms for personalized marketing, special offers, and direct communication with patrons. This approach reduced the need for expensive prime locations to attract walk-in tourist traffic.

The combination of these strategies allowed businesses to adapt their strategies accordingly, ultimately contributing to their profitability and sustainability in a dynamic market.

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Utilization of Frozen Vegetables, Fruits, and Herbs in Thailand’s Restaurant and Food Services Industry in 2018

In 2018, the restaurant and food service industry in Thailand increasingly leveraged frozen vegetables, fruits, and herbs to enhance competitiveness. This strategy addressed various challenges, streamlined operations, and met consumer demands for quality and consistency.

Key Advantages of Using Frozen Products

Advantage	Details
Cost Control	Reduced waste due to longer shelf life compared to fresh produce, allowing for better inventory management.
Year-Round Availability	Access to seasonal fruits, vegetables, and herbs throughout the year, ensuring consistency in menu offerings.
Quality Retention	Flash-freezing methods preserve nutrients and flavors, maintaining quality comparable to fresh products.
Labor Efficiency	Pre-prepared and portioned frozen items reduce preparation time, allowing staff to focus on service and customer experience.
Menu Consistency	Standardized ingredients improve dish consistency, crucial for customer satisfaction and repeat business.
Supplier Reliability	Partnerships with suppliers specializing in frozen produce ensured a steady supply chain, minimizing disruptions.
Sustainability	Lowered food waste aligns with sustainability goals, as leftover frozen items can be saved for later use.
Operational Flexibility	Temporarily reduced reliance on local fresh supply fluctuations, particularly during adverse weather conditions or market volatility.
Product Diversification	Enabled restaurants to experiment with a broader range of international cuisines and menu items, appealing to diverse customer demographics.
Health Conscious Options	Frozen options catered to the growing demand for healthy, ready-to-use ingredients, attracting health-conscious diners.

Impact on Competitiveness

1. Enhanced Menu Diversity: Restaurants could offer a wider variety of dishes, integrating frozen items that appeal to both local and tourist customers. This allowed them to adapt quickly to changing trends.
2. Streamlined Operations: Using frozen produce simplified kitchen processes, enabling staff to focus on customer service and ensuring faster meal preparation. This efficiency was crucial for handling peak dining times.
3. Nutritional Value: Frozen fruits, vegetables, and herbs maintained essential nutrients, addressing health trends prevalent among both locals and tourists. This contributed to a more attractive menu for health-focused customers.
4. Cost Management: Sourcing frozen goods allowed establishments to better manage their food costs, minimizing losses due to spoilage and allowing for strategic pricing without compromising quality.
5. Competitive Edge: Restaurants that successfully integrated frozen produce notably improved their ability to compete in a saturated market, standing out through quality, efficiency, and diverse offerings.

In summary, the strategic use of frozen vegetables, fruits, and herbs during 2018 allowed Thailand’s restaurant and food service businesses to enhance their competitiveness, improve operations, and meet consumer expectations effectively.