Restaurateurs Face Rent and Tax Woes

By Kyaw Hsu Mon 10 December 2014

Restaurants in Yangon are continuing to adjust as the hospitality industry expands to meet rising demand. Among several challenges facing locally-owned restaurants are sky-high rental prices, commercial tax hikes and the arrival of international chains. Despite the hurdles, Sein Lan So Pyay Garden restaurant—located near Yangon’s famous Inya Lake—continues to do a roaring trade. Nay Lin, managing director of Sein Lan Ka Bar Co. Ltd. and vice-chairman of the Myanmar Restaurants Association (MRA), spoke with The Irrawaddy’s Kyaw Hsu Mon on the outlook for the local industry.

Question: When did you open Sein Lan So Pyay Garden restaurant?

 

Answer: I opened this restaurant in 2004. At that time, we had only decided to create the garden and we leased the land from the Yangon City Development Committee on a short-term contract. Then, we began selling my sister’s homemade tea leaf salads and fresh fruit juice and coffee. After customers asked us for more variety, we began selling many different kinds of food. In the past, this area [where the restaurant is located] was untouched, but there were some drug users and crime. That’s why former government officials wanted to develop the area and assigned us to design a better garden. Since then we have managed to create a beautiful 3.6 acre garden.

Q: What are the major challenges in managing an outdoor garden restaurant in Myanmar?

A: Most of our clients want to sit by Inya Lake, so we need more waiters to serve them. We are always caring for our clients across a wide area. We have 110 staff. To be successful, we have to carefully manage our work. In peak season, about 3,000 people come here per day. We’re always careful to manage security, food quality and service. We have a big lawn which has overhead cover for 250 people and a small lawn which has cover for 100 people, so clients can hold events here. The rainy season in Myanmar lasts about six months, so we have to rely on the other six months for the bulk of customers.

Q: Why are there relatively few outdoor restaurants?

A: The main challenge is that the government has not allowed many outdoor restaurants to set up in public areas like this. We need more public spaces for people, but if the government only allows these areas for building condos, or housing projects, it will be hard. As you know, land prices in Yangon are rising. Developers will only focus on building infrastructure, not public spaces. There are only a few public spaces for residents in Yangon to relax—Kandawgyi Park, People’s Park and my garden. There are public parks in every single ward in other countries. Here, the number of garden restaurants is very small—I can count them—only two or three in Yangon.

Q: What is the situation for indoor restaurants in Myanmar? Is business declining?

A: The business model remains strong. But revenue is declining because employees’ wages are getting higher, the price of raw materials is increasing and—the biggest challenge that we’re facing now—rental costs have skyrocketed. Businesses normally rent land on a three-year contract, and we have to construct buildings and create designs during those three years. But it’s hard to get returns on the investment, that’s why earnings are declining. In terms of business development, now we can use new technologies and create new designs, as we are learning from other countries. We can update our businesses and the market is improving. Now, restaurant owners know how to manage their businesses.

Q: What is the impact of international investment in the industry? KFC will enter the market soon and other international food franchises have already opened shops here. Can all of them compete in the future?

A: It will have little impact on the market because, although when the international chains first step in, consumers will go and try them, in the long-term, people can’t regularly eat fast food. It will impact the local market [but] we have our own customers. We have to maintain [high standards of] food hygiene to compete with them. The MRA has about 400 members, from Yangon, Mandalay and Bagan, although this is not the total number of restaurants in Myanmar.

Q: Do you have any plans to advocate for food hygiene in Myanmar, since many foreign visitors complain about standards in the country?

A: We’re considering this issue. Many foreign visitors will continue to visit. MRA is recognized by the government but we’re not an official authority, just volunteers. So we need to work with the government. What we can do is create awareness [of the issue]. We can’t take action and push them.

Q: Do you agree that the government’s support for small and medium enterprises (SMEs) has been weak? What does the government need to do to support SMEs?

A: We face many challenges just to survive in this industry, for example, high rental costs. In Yangon, the better locations go to car showrooms now. They pay more money, which we can’t afford. Actually, these showrooms should be on the outskirts of the city. We can’t compete with them to pay higher costs.

And the government should create food stalls for clients in every single township. So customers can have whatever they want in one place. The MRA members could run these food stalls.

Another challenge we’re faced with is high commercial tax rates [30 percent of revenue]. We pay 25 percent and 5 percent is effectively paid by consumers. This percentage is a lot for us, and consumers don’t want to pay it either. When we import raw foods for the restaurant, we are charged again, so it is almost a case of double taxation. Ultimately, the consumers will carry this burden, that’s why we’re speaking with the government about the issue. Food prices in Myanmar are among the most expensive in Southeast Asia and prices are always increasing.

Q: Can local entrepreneurs compete with foreign traders after implementation of the ASEAN Free Trade Area in Myanmar next year?

A: I am worried about that. We local businessmen manage our own budgets, but foreign investors are backed by food chains that have a strong budget. We will definitely lose out, for example, over high rental costs—we can’t pay, but they can. So we will eventually disappear if this occurs [unchecked].

 

This interview was first published in the December issue of The Irrawaddy Magazine.