Cambodia Investment Review
The Cambodian restaurant sector, encompassing casual dining, fine dining, fast food, cafes, and bistros, is facing significant challenges amid an evolving economic landscape. A recent survey, which covered a wide array of restaurants primarily located in Phnom Penh, Siem Reap, Sihanoukville, and Battambang, indicated that despite many establishments having been operational for over five years, 44.1% of respondents reported substantial revenue declines over the past year.
According to the Cambodia Economic Update by the World Bank, the country’s recovery has been largely driven by goods and services exports. However, domestic demand remains weak due to slow credit growth and tighter financial conditions, leading to increased operational costs for businesses, including those in the restaurant sector. This economic backdrop has significantly impacted the restaurant industry, with many businesses struggling to maintain profitability amid rising costs and supply chain disruptions.
Competition Within The Restaurant Sector Has Intensified
The survey revealed that competition within the restaurant sector has intensified, with 37.3% of respondents noting a significant increase in competitors. Additionally, 83.1% observed a decrease in customer spending, further straining the financial health of these establishments. Supply chain issues have also been a major concern, with 70.3% of respondents facing increased costs and import/export restrictions, making it challenging to source ingredients and maintain menu prices.
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The increasing debt burden is another critical issue highlighted by the survey, with 60.2% of respondents indicating higher debt levels. This aligns with the World Bank’s findings on Cambodia’s private sector debt levels, emphasizing the need for intensified bank supervision and stress testing to ensure financial stability. The growing debt levels among restaurant owners underscore the financial pressures they face in an uncertain economic environment.
The urgency to formalize the restaurant sector cannot be overstated. Formal businesses benefit from better access to financial support, regulatory compliance, government relief programs, and data-driven decision-making. Enhancing regulatory compliance and access to financial resources will be critical for navigating these challenging times. Formalization could provide a pathway to greater stability and resilience for many restaurant owners, offering them the tools and support needed to weather economic fluctuations.
Lack Of Skilled Labor Remains A Significant Challenge
The lack of skilled labor remains a significant challenge for the sector. To address this issue, the industry can establish in-house training programs, partner with educational institutions to create tailored courses, provide apprenticeship and internship opportunities, and develop certification and accreditation programs to encourage continuous professional development. Investing in the development of skilled labor is essential for the sustainability of the industry, ensuring that restaurants can maintain high service standards and operational efficiency.
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Analyzing the pace of tourism recovery in Cambodia, particularly air arrivals, reveals promising signs. Although air arrivals in 2023 doubled compared to 2022, they remain 58% below 2019 levels. Strategic marketing, improved visitor experiences, and strong partnerships with airlines are crucial for sustaining this recovery. The recovery of tourism is vital for the restaurant sector, as increased tourist arrivals can significantly boost customer traffic and revenue.
Despite the challenges, there is cautious optimism about the future. Government support is indispensable, with respondents suggesting tax relief, marketing support, and financial aid. Specifically, reducing VAT from 10% to 5% could encourage formalization and support the sector without lowering government income but rather increasing it through formalized activities. This proposed tax relief could provide much-needed financial breathing room for many businesses, allowing them to invest in growth and sustainability.
Advocate For Policies That Address The Industry’s Challenges
Cambodia has seen robust economic growth and significant poverty reduction since the beginning of 2010. However, the COVID-19 pandemic temporarily slowed this progress. Despite these challenges, Cambodia managed to reduce its poverty rate significantly and saw consumption growth among the poorest 40% of households. To ensure the sustainability and growth of the restaurant sector, it is crucial to advocate for policies that address the industry’s challenges.
Public-Private Partnerships (PPPs) in key areas, like tourism infrastructure, are essential. For example, constructing an international convention center in Phnom Penh could catalyze economic diversification, job creation, and enhanced global competitiveness. Strategic infrastructure investments through PPPs are not just investments in tourism infrastructure but in the future prosperity and resilience of Cambodia’s economy.
Reflecting on the survey, Arnaud Darc, President of the Cambodia Restaurant Association told Cambodia Investment Review: “Through resilience and innovation, we can navigate these challenging times and build a brighter future for Cambodia’s restaurant sector. By investing in skill development, formalizing our businesses, and fostering strong public-private partnerships, we will not only recover but thrive.”
