Thai Market insights 2019

Top 10 Industry Challenges during 2019

Challenge	Description
Sharp Rise in Raw Food Costs	Prices for fresh food accelerated significantly, increasing by an average of 4.4 percent in the first ten months of the year, which directly squeezed restaurant profit margins.
Significant National Economic Slowdown	The overall Thai economy slowed sharply, growing by only about 2.5 percent, which created a difficult business environment and moderated consumer activity across all sectors.
Slowing Tourist Spending Momentum	The growth rate of tourism income slowed, and foreign visitors notably decreased their spending per trip, reducing a crucial revenue source for the hospitality sector.
High Financial Risk for Small Businesses	The ability of Small and Medium Enterprises (SMEs) to repay loans deteriorated amid the slowdown, resulting in the ratio of bad SME loans remaining high and trending upward, reaching 4.8 percent.
Weakened Spending by Local Residents	Growth in local private consumption slowed down, reflecting a more cautious approach to spending and subdued demand for non-essential items like dining out.
Rising Value of the Thai Baht	The national currency appreciated at a higher rate than those of competing countries, making Thailand more expensive for international visitors and lowering their spending power.
Intense Competition and Pricing Pressure	Market saturation, combined with slower demand, made it hard for businesses to raise prices for goods and services, forcing them into price wars that compressed overall profit margins.
Structural Skilled Labor Shortages	Thai firms continued to face difficulty finding and hiring enough skilled labor, such as engineers and researchers, which is necessary for long-term growth and innovation.
Shrinking Domestic Workforce	Due to the rapid aging of the population, the country is experiencing a declining labor force, creating a structural headwind to economic expansion.
Increased E-commerce and Retail Rivalry	The expansion of online commerce and competition from highly efficient retail channels made it harder for traditional dine-in restaurants to secure market share and maintain profitability.

Top 5 trends Thai Businesses use to Increase Profitability

Strategy	Description
Strict Cost Control and Menu Engineering	With fresh food prices rising by an average of 4.4% due to drought, businesses focused on managing costs. They promoted popular and profitable dishes while removing items that wasted ingredients or required high labor costs, helping to stabilize profit margins.
Intensified Digital Integration and Food Delivery	As consumer demand slowed, businesses increasingly used digital platforms to maintain sales. They expanded their use of food delivery apps and online ordering systems to reach more customers without the high costs of physical dining spaces, aided by the rise of digital financial services in Thailand.
Targeted Value and Loyalty Programs for Residents	With local spending slowing, businesses launched promotional campaigns like “lunch set” specials and “happy hour” deals, along with loyalty discounts to attract value-conscious Thai customers and encourage repeat visits.
Focus on High-Value, Experience-Based Tourism	To combat the stronger Thai Baht, which reduced tourists’ spending power, and the overall slowdown in tourist spending, businesses prioritized providing top-quality service and unique dining experiences. This approach helped justify higher prices and attract tourists who sought memorable experiences.
Operational Efficiency via Technology Adoption	Businesses began using technologies like Point-of-Sale (POS) systems to track sales, manage inventory, and analyze customer trends. This focus on efficiency was vital for streamlining operations and managing rising costs, particularly in expensive urban areas.

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

• Digital Integration and Food Delivery Volume:
  To offset the need for expensive dine-in capacity and capitalize on the local preference for convenience, businesses aggressively focused on online sales. This involved partnering with food delivery platforms and using online ordering systems to drive high-volume transactions, thereby expanding customer reach efficiently and streamlining processes.
• Targeted Value and Loyalty Programs:
  Given that domestic consumption growth moderated and residents remained highly price-sensitive, businesses concentrated on securing repeat traffic. They utilized frequent promotions, such as competitive “lunch sets” or “happy hour” deals, and loyalty discounts to encourage regular visits from value-conscious patrons and build a reliable, long-term customer base.
• Strict Cost Management and Menu Engineering:
  The 4.4 percent rise in fresh food prices during 2019 made internal cost control paramount for survival. Restaurants implemented strict controls, including analyzing the profitability and popularity of menu items (Menu Engineering) to promote high-margin dishes, thus protecting the bottom line from volatile ingredient costs.
• Local Trend Adaptation and Menu Diversification:
  To capture discretionary spending, restaurants continuously innovated their menus based on fast-moving local consumer trends. This included introducing diverse and healthier options, such as vegetarian or vegan dishes, and incorporating popular global influences, particularly those from Korean and Japanese cuisine.
• Efficiency through Technology Adoption:
  Businesses invested in operational technology like Point-of-Sale (POS) systems and Customer Relationship Management (CRM) tools. This focus on digital efficiency improved internal workflow, helped manage inventory to minimize waste, and provided data necessary for creating targeted marketing communications via local platforms like LINE, securing a better return on marketing investment.

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 2019

In 2019, 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 2019 allowed Thailand’s restaurant and food service businesses to enhance their competitiveness, improve operations, and meet consumer expectations effectively.