Many companies, especially those in the retail, tourism and F&B sectors, faced one of the biggest challenges of their lives when Covid-19 struck last year.
One of them was Japanese F&B operator RE&S Holdings. A day after its &Joy Dining Hall in Great World City opened, Singapore declared DORSCON Orange. Then came March with more controls in place and the lockdown in April, shutting down most of its restaurants.
“The only thing going for us in terms of cash flow were our retail shops. So, at that time, our focus was to control cash flow,” says Fenton Foo, CEO and executive director of RE&S.
Indeed, the pandemic has affected the company and the F&B industry in two key ways, says Foo.
Firstly, restaurants located in the CBD and industrial areas are seeing lower footfalls with work from home measures still in place. In contrast, F&B outlets located in heartland areas have seen higher footfalls.
Secondly, a restaurant with a “full house” is not the same as before Covid-19 because its seating capacity has been reduced due to social distancing measures.
Renewed appetite
In FY2020 ended June 2020, RE&S experienced its first year of loss, and its third straight year of earnings decline from the time the group was listed on the Catalist board in 2017.
However, in its latest 1HFY2021 results, RE&S reported earnings of $7.5 million, a reversal from the $3.9 million loss in 1HFY2020.
The positive bottom line was mainly due to government support and rental relief received in light of the Covid-19 pandemic and the company’s cost-cutting measures. However, revenue fell 3.7% y-o-y to $64 million as its full service restaurants (FSR) segment saw a 10.5% y-o-y drop in sales because of a 35% reduction in seating capacity. On the other hand, the quick service restaurants (QSR) segment saw an increase of 11.4% in sales.
The company also had to close three FSR and convert another three FSR to QSR.
Things are also looking up for its &Joy outlet which has seen a “good past few months”. The first &Joy Dining Hall opened in October 2019 in Jurong Point and promptly received “great” response from consumers. Now, footfalls in this outlet have resumed to pre-Covid-19 levels.
Indeed, FY2021 may be the year the group finally halts its decline although Foo declines to provide a guidance at this juncture.
“The government grants of $3.4 million became our extra income and we obviously expect this to taper down going forward. But if we continue to focus on our business in the same way, even taking away this amount, I think we still see ourselves in profit,” says Foo.
As of March 17, shares in RE&S are trading at 16.3 cents, up 60% year to date, giving it a market cap of $57.7 million. The stock is currently not covered by any research house.
Engineer with a taste for home
RE&S was founded in 1988 by Hiroshi Tatara, who had moved to Singapore a few years earlier as an engineer for a Japanese firm. Tatara discovered it was very costly to get good quality Japanese food in Singapore and when it came to finding a good Japanese restaurant, it seemed that the restaurants only catered to Japanese expats. The dishes were named in Japanese on the menus and had no description or pictures to give non-Japanese diners an idea of the dish.
With that in mind, Tatara decided to leave his job as an engineer to start RE&S to bring affordable, quality and authentic Japanese food that is easily accessible to the masses. Also dubbed as The Father of Sushi in Singapore, Tatara was the first to bring the conveyor belt sushi concept to Singapore in its first F&B outlet, Fiesta.
While RE&S may not be a household name, many of the F&B brands it operates, are. To date, the company has over 70 outlets in Singapore and Malaysia across more than 20 bands featuring different dining concepts, including Ichiban Boshi, Ichiban Sushi, Men-Ichi and Gokoku. Its corporate headquarters, which includes its corporate office, central kitchen and R&D facility, is located in Tai Seng and houses more than 1,600 employees.
Foo attributes the company’s longevity in the industry to its value proposition. “We have a variety of offerings and constantly renew the items in our menu to keep customers excited and coming back to enjoy the good value, quality and service,” says Foo, who was previously the company’s CFO and took over as CEO in July 2019.
Prepping the next meal
Although consumer confidence has increased in Singapore, the battle against Covid-19 is expected to be a long one.
Hence, RE&S has decided to shift its focus from regional expansion previously to concentrating on growing its existing stores and expanding in its existing markets until international borders are opened once again.
“Before Covid-19, we were looking to expand into nearby markets like Vietnam, China and Indonesia. We have since slowed down a lot on those plans because we have a lot to do to adjust to the new environment,” says Foo.
RE&S will also stick to Japanese cuisine and not venture into unfamiliar grounds just yet. The company has opened a new Japanese grill concept Yakiniku-Go, this year and aims to launch another three to four more outlets in Singapore by the end of 2021.
Finally, the group intends to expand its QSR segment.
“We are targeting the mid- and lowrange market by introducing more QSR concepts. We have put a lot of effort into this over the past two years to grow the number of outlets and business volume,” says Foo, adding that the central kitchen helps to take away about 30% of the food preparation job while the outlet only needs to concentrate on the “last mile” of cooking the dish. Hence, RE&S can serve consistently quality food quickly.
Although Foo admits that FSR offer better profit margins than QSR, the problem is labour shortage. “I think that if we continue to expand FSR, the difficulty of employing staff will be magnified,” adds Foo, who also notes that the FSR segment requires more skilled labour compared to QSR.
For 1HFY2021, RE&S has declared an interim dividend of 0.5 cent per share and a special dividend of 0.35 cent per share. In comparison, no interim dividend was paid out a year ago. Although the company lacks a formal dividend policy, Foo says its goal is to distribute a dividend of at least 40% of its profit after tax to shareholders.
