Study on the above topic will help most hawkers. For example, cost components for average hawker stall and other information conducted by Ministry of Trade and Industry (MTI) is important (ref. 1).
It suggested that raw material played the most cost for average hawkers, whereas rental contributed about 12% and utility at 9.3% (both at 21.3%).
As mentioned previously, the average cost of rental is $1500 with a range of $5 to $5000 (as offered bids; ref. 2). If a business operates daily without rest, then this translates to $1500/30=$50 per day from rental. Assume 12% rental cost is true, then total cost is $50/0.12 = $416. If daily total cost is true, then the cost of utility and rental would be $416 * 0.21 = $87.36. If raw material is approximately 60%, the cost is $416 * 0.6 = $250. Daily, a hawker would be spending $337.36. The rest is manpower and other service fees at approximately 20% (which is variable, because manpower could be business owner’s fixed salary and other service fees are variable).
To break-even, a business needs to achieve $337.36. If a bowl of product is $3, then the business owner needs 113 bowls per day. Subsequent bowls would be operating profit.
If I am to start a business in a location selling a dish, I will first determine the following:
Average footfall in the location per day (and especially compared during weekends)
Average peak time per day in hour.
Number of competitors
Average price of similar product around the location
Type of customers, e.g. workers, students, or other market segment.
Other marketing strategies.
Operations consideration, e.g. storage, freezers, footprint (sqm), process area (or kitchen), payment method (cash or cashless), and stall service provider (their efficiency), stall hygiene level (study the NEA awarded hygiene level, should be above Silver level; ref. 3)
Bidding is a competitive process where contenders (i.e., bidders) express the price they are willing to pay for the item presented (with ask price). Anyone who expressed the highest bid price wins the item.
Singapore National Environmental Agency (NEA) is entity that offer the tender for bidders to express their highest price for monthly stall rental (ref. 1).
Bidding is susceptible to spikes and outliers, e.g. a lady who bidded $10,028 per month for a hawker stall to sell drink. According to NEA, the average price is $1,500 within a range of $5 to $5,000 (ref. 3). This would mean that the rental is $1,500 +/- 20% or from $1,200 to $1,800. So, the $10k monthly rental is considered very high for a drink stall.
The bidding process is also susceptible to those bidders who are out to win the bid and then sublet or assign the winning at higher price to others (in order to profit). NEA said they ensured that sublet and reassignment are not allowed, but did not elaborate how they will monitor and control this practice. I guess it would require stall operators to report this to the authorities.
CNA highlighted an article about profit margin of hawker. The piece was written by a Fishball noodle seller, who claimed that a bowl of his Fishball noodle had only 20-30 cents profit margin.
There was no sharing of his cost breakdowns, revenue and other financial data to help readers. For example, operating revenue is revenue – all costs. Costs included cost of goods sold (direct cost) and indirect costs (e.g. rental, utility and others).
If Desmond wanted to know his net profit, he would need to discount any loan interest, and subsequently income tax. That would be his net profit!
Profit is subjective
Desmond Ng does not represent all Fishball noodle sellers. That is because, to be a successful business owner, you have to be resourceful. That said, you need to reduce costs (either by sourcing for suppliers and drafting long-term contractual agreement with them), and operate more efficiently.
Instead of lamenting low profit margin, he should be differentiating his product. If he can differentiate his product to be more than just Fishball Noodle, he will be able to price his value-added plate higher.
Instead, he is attributing customers as the main reason his profit margin is low. His reasoning that customers are reluctant to pay more is flawed. Customers compare and select. If there are other Fishball noodle sellers selling at a particular price, they expect the price to be within that range, else they have avenue to select and abandon those who priced more. That is what supply and demand works.
To be able to assess and analyse the claim that hawkers’ profit margin is low, I have to get into the industry myself.