Sakae Sushi, owned by Sakae Holdings, has revealed that rising business costs have resulted in the closing of 10 of its 46 restaurants in the past few months, with plans to cut six more by the first half of the year.
Reports of Sakae’s growth struggles first appeared on The Straits Times, which added that despite the challenges, the company remains optimistic, as the brand looks to expand out of Singapore. In a statement to the local paper, Sakae founder Douglas Foo explained that the Singapore market has proven to be difficult due rising costs of operations, compared to other markets. He also cited increased competition in the F&B sector.
Marketing has reached out to Sakae Sushi for a statement.
Graham Hitchmough, CEO of Southeast Asia at Brand Union, said that to have remained a high street fixture in an escalating rental environment for so long commands a degree of respect for Sakae. This is especially so in a category where six out of 10 new operations do not make it past the first year.
However, he added Sakae Sushi's downfall could be because very little has changed in terms of customer experience for Sakae Sushi diners. The experience, he said, remains identical to almost a decade ago.
“Back then a fun, mass-market, tech-enabled, loyalty-carded sushi joint, dotted across popular city locations was a golden ticket," Hitchmough said. He added:
But if there is one truism to Singapore’s booming F&B scene, it’s that if you don’t evolve, you don’t survive.
While new entrants and other established players have innovated to appeal to increasingly adventurous and style-led consumers, Sakae’s gadget-led point of difference and sense of theatre have dimmed by comparison, he added.
“Standards seem to have become inconsistent across the remaining network and signs of cost-cutting or lack of attention to detail have eaten away at some of the features that made the chain a fun and reliable standby for young families,” Hitchmough said.
Agreeing with Hitchmough is Nick Foley, president of Southeast Asia Pacific and Japan at Landor, who brought up the examples of Uber, Airbnb and Netflix which are disruptors in their own sectors.
“Brands need to stand for something whilst never standing still. In a disruptive market, more now than ever, brands must adapt," Foley said, adding:
Sakae failed to read the market and did not adapt to changing tasting and preferences with a younger consumer. Just because you had a winning formula in the past does not guarantee you a robust future.
Drawing from the California Fitness analogy where the gym recently shut down due to bankrupcy, Foley added that those facing similar challenges also extend to the likes of brands such as Coca-Cola and McDonalds. This is because the forces of the market are ever changing.
Hence, marketers need to get better at cutting through the clutter, identifying genuine insights not just observations and turning this into brand activities that are engaging, appealing and relevant to the consumer.
Not the brand, but the business model
In contrary, Lau Kong Cheen, deputy CEO at A.S. Louken, said rather than the brand, it is the business model which is to be blamed.
“Sakae built its brand in the era where decent Japanese food was in demand and operations cost in terms of manpower and rentals were relatively low,” Lau said. Today, despite having a good brand, Sakae Sushi’s sheer number of outlets are not able to support the organisation due to high operations cost.
“For F&B businesses which are not catering to staple food, it is not as easy to scale and expand extensively like before. People cannot afford to consume and patronise these outlets at frequently enough to support their business, even though it is their favourite brand,” Lau explained. He added:
However, in terms of its brand power, Sakae is still a strong brand. That is why they are able to fill new market demands in other countries.
Lau added the brand is also able to succeed due to its association and reputation of being a recognised Singapore brand. With lower cost of operations that fit their business model and operations in other emerging markets, they will have a fertile business environment overseas for the expansion of their brand.
"Indeed, I do see good opportunities in the horizon for them outside of Singapore. This is why building a strong brand is important, it allows it to grow and move into new areas despite facing a challenging market in the home front,” Lau said.
Agreeing with Lau is Brand Union’s Hitchmough, who added that Sakae’s business model may serve it well in emerging markets such as Myanmar, just like how it proved to be successful in the early years in Singapore.
“But the management would do well to ensure they stay one step ahead of fast-changing consumer tastes and give due attention to the brand beneath the fixtures and fittings,” Hitchmough explained.
Meanwhile, Foley is of the view that moving forward, Sakae needs to look into understanding the Millennial demographic better, building more tangible relations with its brand community. This is because Millennials expect brands to anticipate and embrace change.
“Branding has never been so important and existing branding models never so obsolete. Today’s best brands thrive because they are agile. Where others see adversity, agile brands find opportunity. Such brands remain true to what they stand for and never stand still,” Foley added.
Meanwhile, the company has also in recent years diversified its revenue stream through investments in non F&B sectors such as beauty products and seafood trading. In 2014, it also launched the Sakae Corporate Advisory in a bid to build financial resources and branch out into the corporate advisory services sector.