Thursday, November 17, 2011

Higher business costs

I met the owner of a chain of coffee shops. He told me that his business is being squeezed by higher rentals and shortage of manpower. His employees keep resigning, as they can get better wages elsewhere, after the government clamped down on the work passes. He feels the pressure of squeezed margins.

I said that to look at this matter in a different perspective. The higher rentals and wages apply to all of his competitors, and does not hit him alone. So, the higher costs will have to be translated into higher retail prices for his products. As long as he is more efficient that his competitors - and he is selling this coffee and breakfast at lower prices - he will be able to do well. People will still need breakfast and coffee, so they will continue to patronize his outlets, even after he has adjusted his prices to cope with the higher costs.

Higher prices are bad for the consumers - but this has to be solved at the government level - to moderate the rentals for business outlets. It is good for wages to be adjusted upwards, as the workers need to earn enough to feed their family.

I welcome the move by the government to build more markets at HDB estates - and hope that these outlets will be rented at non-tender prices. If they are at moderate levels, it will help to moderate the rentals in the private sector as well.


passionfruit said...

Mr Tan, any idea why it took the PAP government 26 years to build more hawker centres? Were they trying to "move" diners to food courts like moving people from street hawkers to hawker centres like before? Or were they too busy and forgot that there are a lot of people out there who prefer to eat a hawker centres because food usually costs less than at private coffee shops & food courts?

Tan Kin Lian said...

Reply to passionfruit.
My guess is that the government earlier thought that the building and renting of stalls in food centers can be left to the free market and private sector. Recently, they must have realised that the HDB should build these stalls and rent them out at controlled rentals, so that the hawkers can keep their prices low. Anyway,t his is my guess only - and I welcome such a role by the government.

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