Slower Growth Prospects as Coronavirus Hits Foodservice in Southeast Asia

In our previous note on the impact of the novel coronavirus (since named Covid-19) on foodservice, we highlighted how plummeting tourist numbers will necessitate a review of 2020’s foodservice growth prospects for Southeast Asia (see Coronavirus Brings Risks for Foodservice). Since the publication of that note, some of the tourism authorities in the region have revised their tourist arrival projections for 2020. While the evolving nature of the situation and the indirect impact that tourism has on the overall economy makes projections challenging, with these estimates now available, we can provide a preliminary view of how foodservice growth is likely to be impacted in 2020.

The Importance of Tourism to Foodservice in SEA

Domestic consumers and tourists contribute differently to foodservice consumption and growth in Southeast Asia (SEA). While an increase in per capita occasions and spending are the key drivers for domestic consumption growth, continuing increases in tourist arrivals has contributed to greater transactions for foodservice. Across SEA, with the exception of Malaysia, the average number of tourist arrivals has at least doubled between 2009 and 2019. Tourism also has an indirect impact on domestic foodservice consumption and growth, as fewer arrivals impact the discretionary spending power of the local population that is dependent on tourism for employment and income.

Figure 1: Tourism Impact on Southeast Asia

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Note: 2019 tourist arrivals for Malaysia are from January to September.
Source: World Travel & Tourism Council: Global Economic Impact & Issues 2018, National tourism ministries/authorities, Rabobank 2020

Less Sanguine Prospects for 2020

In our foodservice outlook 2020, published prior to the spread of coronavirus, we were optimistic about the prospects for foodservice operators in SEA. However, the continuing impact of coronavirus and the resulting tourist decline across the region will mean slower growth.

Estimating the impact on foodservice, we expect Singapore to be the worst-hit. We expect the foodservice industry in Singapore to contract in 2020 to 2019 levels. The Singapore Tourism Board is projecting a 25% to 30% decline in tourist arrivals. Furthermore, local consumers have stayed at home due to local transmission fears, which has further aggravated the impact.

Thailand will follow Singapore in the slowdown in foodservice growth, as international arrivals in the first half of 2020 are expected to drop by 50% from 1H 2019 levels. For the full year, tourist arrivals are expected to decline by 9.5% to 12%. As local transmission of the virus has been minimal, domestic foodservice consumption has not been directly impacted. However, tourism is a key contributor to total employment (6.2% in 2017), and as local income drops, so will discretionary spending. The cumulative effect will result in foodservice growth of 2% to 3%, considerably lower than the 6.4% predicted prior to coronavirus.

The impact of coronavirus on Vietnam’s tourism is expected to be significant, with the Vietnam National Administration of Tourism estimating USD 3bn to USD 4bn in lost revenue. Domestic foodservice has not been directly affected, as local transmission of the virus has been limited with no new cases reported since February 13. As such, Vietnam is expected to witness a drop in foodservice growth mainly due to fewer tourists and the indirect impact of tourism. While January 2020 arrivals to Vietnam were higher than January 2019, local tourism authorities expect arrivals from China to drop by 90% to 100% and from other countries by 50% to 70% over the next three months. Assuming arrivals for the remaining eight months stay the same as 2019, total arrivals in 2020 would be 15% less than 2019. The impact will be foodservice growth of 6% to 7% rather than the 7.8% previously expected.

Malaysian authorities believe that a shift in focus from tourist arrivals from China to arrivals from other countries and a push to grow domestic tourism will make up for any shortfall in foreign tourist arrivals and the resulting impact on the economy. If the country is indeed able to achieve this, the foodservice growth projection of 6.8% in 2020 can be achieved. However, international arrivals in Malaysia dropped more than 20% in 2003 during the SARS outbreak, and if a similar shortfall takes place in 2020, foodservice growth is likely to see considerable slowdown.

With only three cases of coronavirus reported so far in the Philippines, and no new cases reported since February 10, foodservice consumption by local consumers has been unaffected. However, the two key source countries for tourists (South Korea and China), which accounted for more than 40% of arrivals in 2019, have been severely hit by the virus. The impact on foodservice in the Philippines is expected to be mainly indirect, due to the importance of tourism to GDP and employment. While the impact is difficult to estimate at this point in time, initial expectations are for foodservice growth not to be as badly impacted as Singapore, Thailand, or Vietnam.

The impact of coronavirus on foodservice in Indonesia will be minimal, due to the substantial local population vis-à-vis tourists and the comparatively lower dependence of the country’s economy on tourism. While foodservice consumption in tourist centers in Indonesia, such as Bali, will be impacted, the impact on foodservice at the national level will be insignificant.

Table 1: Pre- and post-coronavirus foodservice growth, 2020

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Note: Low impact on growth expected in Indonesia, Malaysia, and the Philippines, based on information currently available.
Source: Rabobank 2020

Please note that these estimates are based on information available at the time of writing, and as the situation evolves, they may be revised further.

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