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Economic review of the restaurant, hospitality, and food business sector in Thailand in 2023
In 2023, Thailand’s restaurant, hospitality, and food service industry experienced a fantastic rebound, thanks to a 1.9% growth in the economy driven by strong tourism. Nonresident spending from tourists surged, with international arrivals soaring to 28.2 million, compared to just 11.2 million in 2022. This brought rapid growth to services like accommodations and restaurants, where spending increased by 11.1% in the first quarter.
While this recovery has been impressive, it wasn’t the same for everyone. Although resident consumption was strong, growing by 6.1%, businesses faced some tough challenges. A sharp drop in inflation to 1.2% and fierce competition made it hard to raise prices to cover increased labor and input costs. Despite these hurdles, the overall outlook remains optimistic as the industry continues to adapt and thrive!
Here’s a comparison of the economic situations for Thailand’s restaurant, hospitality, and food service sectors in 2022 and 2023, highlighting five key differences and trends that impacted these industries.
| Aspect | 2022 | 2023 |
| Overall National Economic Performance (GDP) | The Thai economy grew moderately by 2.6 percent, constrained by a slow reopening pace during the first half of the year. | National economic growth slowed significantly to 1.9 percent due to weak external exports and delays in government budget spending. |
| Nonresident Spending (Tourism) | The sector saw a strong initial rebound with international tourist arrivals rising significantly to 11.15 million as border restrictions were gradually relaxed. | Nonresident spending fueled a massive tourism boom, with arrivals surging to 28.2 million. Spending on services, including hotels and restaurants, jumped 11.1% in the first quarter. |
| National Inflation and Operating Costs | Businesses faced intense cost pressure due to high national inflation, which peaked at 7.9% year-on-year in August and averaged about 6.1 percent for the year, driven by rising energy import prices. | The primary cost threat subsided as national headline inflation fell sharply to an average of 1.2 percent. This relief on overall prices made it difficult for many businesses to raise their own prices. |
| Resident Spending (Domestic Demand) | Private consumption was robust, expanding by 6.3 percent and acting as a key support driver for the modest national growth. | Private consumption growth remained resilient at 6.1 percent but faced moderation risks due to issues like high household debt. |
| Status of Sector Recovery | The economy was still in an early recovery phase, with output in the service sector constrained by the slow pace of reopening. | The economy and the heavily affected service sector achieved a key milestone by surpassing pre-pandemic output levels early in the year, indicating a completed recovery phase. |
Top 10 Industry Challenges during 2023
| Challenge | Description |
| High Household Debt Constraining Spending | Local customers faced extremely high personal debt levels, which made them cautious and reduced the amount of money they were willing to spend on dining out. |
| Slow National Economic Growth | The overall Thai economy underperformed, growing weakly at only 1.9 percent, which limited broad support and job security for domestic consumers. |
| Inability to Raise Prepared Food Prices | Competition was fierce, keeping prices for prepared food unexpectedly low, which meant restaurants could not easily charge more to cover their rising costs. |
| Financial Strain for Small Businesses (SMEs) | Small and medium enterprises, which form the majority of the market, faced slow income recovery, making it difficult to service existing loans and manage rising credit risks. |
| Intense Market Saturation and Competition | The market experienced severe rivalry from new players and existing large chains expanding rapidly, making it challenging for businesses to maintain market share or profitability. |
| Risk of Weakened Tourism Momentum | Despite high tourist numbers, a potential slower recovery of key foreign markets, particularly China, remained a key risk that could hinder expected revenue growth. |
| Supply Chain Vulnerability and Input Cost Volatility | The sector was highly susceptible to climate shocks (like floods and droughts) and global issues, leading to unpredictable fluctuations in the cost and availability of ingredients. |
| High Operational Costs and Rent | Overhead expenses, including substantial rental costs in tourist and urban hubs, continued to be a heavy burden that compressed operating profit margins. |
| Sustained Shortage of Skilled Labor | Businesses continued to struggle to find and retain enough skilled staff, particularly for specialized and technology-related roles needed for long-term growth. |
| Rising Compliance Costs | The preparation for and implementation of increasingly stricter food safety and labeling standards required significant financial resources and training, which heavily burdened independent operators. |
Top 5 trends Thai Businesses use to Increase Profitability
| Focus Area | Details |
|---|---|
| Prioritizing Experiential and High-Value Dining | Restaurants, especially Full-Service Restaurants (FSRs), boosted profits by offering unique, high-quality dining experiences rather than competing solely on low prices. Tourists, who tend to pay more for memorable occasions, drove strong FSR growth and supported Thailand’s goal of deriving 20–25 percent of tourism revenue from food. |
| Expansion in Prime Tourist Locations | As international tourist arrivals surged (reaching 28.2 million), businesses maximized revenue by operating or expanding in high-traffic areas like city centers and tourist attractions where tourist spending on accommodation and food was concentrated. |
| Focus on High-Quality and Imported Ingredients | To meet the high expectations of international visitors regarding quality and safety, restaurants targeting this market often sourced premium, safe products, including imported proteins and specialty ingredients, which helped justify higher menu prices. |
| Catering to Specific International Cuisine Trends | Businesses specialized in cuisines highly popular among returning visitors. For example, Asian Full-Service Restaurants saw the most growth in value, partly due to the rising popularity of specific cuisines like Chinese mala hotpot among international travelers. |
| Adoption of Digital and Contactless Payments | Restaurants increased their use of digital tools, including contactless payment systems. This trend streamlined transactions and improved the overall service experience for international guests who prefer modern, efficient ways to pay. |
Business Strategy: Tourist Customer Economy
The profitability strategies used by Thailand’s restaurant and food service businesses targeting Tourists in 2023 focused intensely on capitalizing on the strong return of tourists, maximizing revenue per customer, and offering differentiated, high-quality experiences.
- Prioritizing High-Value and Experiential Dining
Restaurants are focusing on fine dining and unique culinary experiences to attract tourists looking for premium options. This strategy aims to increase spending per visitor and supports the national goal of generating 20–25% of tourism revenue from the food sector. - Strategic Expansion in Prime Tourist Locations
Businesses are maximizing revenue by operating or expanding in high-traffic areas, such as major resorts, hotels, and city centers. They are taking advantage of the large influx of international tourists during the recovery phase. - Investing in High-Quality and Safe Ingredients
To meet the expectations of international visitors and justify higher prices, restaurants are prioritizing high-quality and safe ingredients, including premium imported products that tourists trust. - Catering to Specific International Cuisine Trends
Restaurants are increasing profitability by tailoring dishes to the preferences of key returning markets. For example, Full-Service Asian Restaurants have seen strong growth thanks to the popularity of regional dishes like Chinese cuisine. - Streamlining Service via Digital and Contactless Payments
To enhance service efficiency and meet post-pandemic preferences, businesses are adopting digital tools, such as contactless payment systems. This speeds up transactions and improves the overall experience for foreign guests.
Business Strategy: Local Customer Economy
The profitability strategies aimed at Thai residents in 2023 were largely defensive, focusing on maintaining sales volume, controlling costs, and offering high value in a domestic market characterized by strong competition and consumer caution due to high household debt.
The Top 5 trends that restaurants and food service businesses used to increase profitability among resident customers in Thailand during 2023:
- Dominance of Quick Service Restaurants (QSRs) and Value:
QSRs maintained the largest share of the food service market by catering to the strong local preference for cost-effective and accessible dining solutions. This focus on affordability allowed them to secure steady sales volume from urban professionals and families dealing with high household debt. - Aggressive Use of Food Delivery Platforms:
Businesses heavily relied on digital delivery platforms to drive high-volume sales without incurring the high fixed costs of physical expansion. The food delivery market, dominated by players like Line Man and GrabFood, was critical for reaching busy residents who prioritized the convenience of quick and varied digital ordering. - Catering to Health and Wellness Trends:
Restaurants diversified their menus by expanding plant-based, vegetarian, and other health-conscious options. This trend allowed businesses to target health-aware residents, particularly younger consumers, who were often willing to pay a slight premium for products perceived as safe, high-quality, and environmentally sustainable. - Operational Streamlining via Technology:
To manage costs and compete effectively, QSR chains and efficient operators continued to invest in improving their business models, including store remodeling and incorporating technology for ordering and internal workflow. This focus on efficiency helped absorb high overhead and labor costs, which could not easily be passed on due to competitive pricing pressure. - Intense Price Competition and Value Promotions:
Due to severe market saturation and unexpectedly low prepared food prices, profitability was squeezed. Businesses were compelled to offer frequent value propositions and competitive pricing to win over price-sensitive domestic consumers, making fierce competition a necessity for securing customer loyalty and driving repeat visits.
The combination of these strategies allowed businesses to adapt their strategies accordingly, ultimately contributing to their profitability and sustainability in a dynamic market.
Utilization of Frozen Vegetables, Fruits, and Herbs in Thailand’s Restaurant and Food Services Industry in 2023
In 2023, 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
- 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.
- 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.
- 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.
- 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.
- 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.