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8 May 2023


Hotel and restaurant businesses remain fragile due to cost pressure (Current Issue No.3406)


        KResearch holds the view that the service sector, a potential driver of Thailand’s economic growth in 2023, remains under pressure from persistently rising costs.

        Electricity costs of service-related businesses tend to increase in 2023 due to a rise in power tariff rates of 12-17 percent on average and increasing electricity consumption, relatively close to the previous year. Hotels, restaurants and nightclubs, apartments and guest houses, as well as department stores, are among the operators seeing a surge in power costs, in line with the recovery of economic activities following the improved COVID-19 situation. Plus, service businesses need to bear rising costs of water and food ingredients due to the impact of an intense El Niño weather pattern, particularly in the second half of the year. Meanwhile, other costs have also increased, such as wages, financial costs, rental fees, etc.

        KResearch assesses that hotel and restaurant businesses remain fragile due to cost pressure during the present time when income has not fully recovered. This is reflected by a forecast that revenue growth or market value in 2023 is yet to return to pre-pandemic levels. Regarding the hotel industry, costs of electricity and water account for more than 18 percent of the total cost, while the restaurant business has such costs at around 3 percent, higher than the industry average of 2.6 percent. Also, restaurant operators will need to deal with rising costs of raw materials due to the worse-than-expected effects of severe drought.

        When combined with other cost items, it is expected that the total cost of hotel and restaurant industries will increase by 9-16 percent in 2023. Hotel and restaurant businesses likely to face higher pressure are SME operators as they have low adaptability or less flexibility in managing service charges or sales prices, especially those with high levels of debts and unfavorable locations.

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