Singapore is a famous food capital in Asia. According to Enterprise Singapore, the Food and Beverages(F&B) industry plays a vital role in Singapore's economy. The industry contributed 0.8% of Singapore's GDP and employed about 180,000 workers in 2016[1] .

However, this is an industry that is fret with challenges. On average, 28 per cent of food establishments are replaced yearly[2] .

Many industry analysts have identified the following as key challenges:

As the F&B sector is still heavily reliant on labour, getting the manpower required for daily operations is one of their most oft-heard challenges. Recent policies by the Government to reduce reliance on low-skilled workers by lowering foreign manpower quota have starved the industry of manpower. This has not only escalated labour costs but also made it extremely difficult to hire, train and retain good workers.

Besides manpower, rising costs in raw materials and rent are also other important issues that F&B businesses need to contend with.

This is also an industry with relatively low entry barrier. As a result, traditional F&B businesses have also to compete with new upstarts and changing consumer patterns. According to Mr Anthony Chan, the co-founder of Coffee-hive, businesses need to constantly "innovate to keep up with the recent trends such as making food more instagrammable and moving to online ordering platforms for food delivery."[2]

Hence, the general consensus is that besides good food, an ability to adopt technologies to improve customer services and the ability to implement effective cost control are the keys to survival in F&B industry. The first step to effective costs control is to understand and classify costs according to different purposes.

Sources:

[1] https://www.enterprisesg.gov.sg/industries/type/food-services/industry-profile

[2] The SME Magazine (May/June 2017) Pg 4 - 6.

Required: (a) Explain the meaning "Classify costs according to different purposes".