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Let’s talk about food prices in Phnom Penh, Cambodia. It’s cheap living, but let me give you some background before we dive in. I run a few small businesses including a cafe. In the six years since I moved to Cambodia the exchange rate hasn’t budged, floating around 1 US Dollar to 4000 Cambodian Riel the whole time. US Dollars are accepted everywhere in Cambodia (and often preferred) thus simplifying our discussion of prices.

The Cambodian economy is full-speed ahead with the standard of living improving across the board. Take a ride through any province and you’ll see new houses popping up everywhere as families graduate from shacks to cement structures. People have a habit of saving money here, usually in the form of land or gold, so I don’t suspect any such upgrades are being made on credit.

Consumers in Cambodia are highly sensitive to prices. Combine that with low barriers to entry for businesses and an inherently entrepreneurial society, and what you get is a very efficient system of price-discovery for any given good or service. Profit margins, as you might imagine, are razor thin. So, on the topic of razor thin margins, let me tell you about my experience with the cafe.

Coffee

We sell a cup of coffee for 2000 Riel (That’s 50 cents, but coins do not circulate so Riel notes are required for amounts under $1). Sounds cheap, right? Well, there is a girl with a stand around the corner from us who sells it for 1000 Riel (25 cents). There must be a dozen places that sell coffee within 3 blocks of us, and that would be true for any given location in Phnom Penh. It’s the Wild West of cafes!

Coffee is cheap, especially in Southeast Asia where Vietnam is the world’s second largest exporter. The primary growing regions in Cambodia, the mountainous provinces of Mondulkiri and Rattanakiri bordering Vietnam, have not enjoyed nearly the same renown as their neighbor. Having sampled several of the local varieties on a recent trip to Mondulkiri I can tell you it is not for lack of a delicious brew. Vietnamese brand coffee beans, however, enjoy greater ubiquity and lower prices than the domestic stuff. The distribution routes are set, production lines maintained, customers cajoled and border officials winked at and nudged. Vietnamese farming techniques are honed, investors are not in short supply and accounting practices are … available. In other words, domestic coffee farmers are at a disadvantage. The Cambodian coffee market, as with most other domestic production, is light-years behind the more mature markets of neighboring countries. As we’ll see below, more capital and expertise is required before Cambodian markets can achieve maturity.

Milk

Do you want fresh milk with your coffee? Well that’s a problem. All the fresh milk is imported from neighboring countries and 2 liters (half a gallon) will run you $4.30 from the supermarket. That’s expensive enough to preclude most eateries from keeping it on hand, especially smaller places like ours. Instead, we use sweetened condensed milk, which is widely used in Cambodia because of its longer shelf-life and cheaper price. I’ll admit that iced coffee with sweet milk can be a delicious treat but it troubles me that there is such a small market for the real deal, especially in largely agrarian Cambodia.

Cambodia lacks the expertise to produce domestic dairy products at a commercial level. Sadly, that is true for most of the agricultural supply chain. Even most rice must be exported for milling and processing before being imported back to Cambodia for consumption. Such is the sad story of a society still rebuilding from genocide 4 decades ago, a time when intelligence was considered so offensive to the elites (themselves often educated overseas) that wearing eye-glasses, a symbol of an education, could warrant immediate execution. Complement that with brain-drain from that period (educated and skilled workers fled the country) and you are left with a major void that takes generations to replete. Now, things are changing rapidly, and I’ve personally heard of a couple dairy operations being undertaken. Nevertheless, huge opportunities still exist for experts who can fill the food processing void. Vietnam and China are the ones currently undertaking to fill it.

Beer

Beer, our best seller at the cafe and possibly all of Cambodia at-large, sells for 3000 Riel. That’s right, a mere 75 cents will get you a can of the local brew and our lovely staff to open it for you, free of charge! We buy a case (24 cans) for $15. Do some math and that’s $3 profit per case. We have to sell 24 cans of beer just to make $3, and that is BEFORE subtracting other expenses! That sounds like a great deal for the consumer, right? Not so fast. If you are Khmer (the ethnicity of the native people who inhabit “Cambodia”), what is stopping you from buying a case yourself, or buying single beers from the convenience store for slightly less? The street where we operate is packed with cheap alternatives, and most people are outside drinking in packs of friends and family anyway (public drinking laws and liquor licenses do not exist in Cambodia).

I have to mention here that I can think of at least half-a-dozen major breweries that have come online just in the last 5 years. Remember how regulations are low, margins are tight, and society is entrepreneurial in Cambodia? Those factors are at play in the beer business keeping prices LOW. No wonder everyone is always smiling!

Beef

Let me tell you a bit about efficiency in Cambodia. Our menu is packed with delicious dishes, the ingredients for which we mostly keep tucked away in our fridge. But we couldn’t possibly maintain an inventory for all those sumptuous delights on-hand at all times; food spoils! If you were to order, say, mushroom-cream steak, chances are we probably don’t have the mushrooms, the creamer or even the steak available on-hand. No problem, we simply fire up the motorbike and go to one of the many markets nearby. The cost to you for this guaranteed freshness wouldn’t exceed 5 minutes. Isn’t that neat? This is how things work in Cambodia, take life as it comes.

Steak, of course, is the priciest dish we offer. But in Cambodia, all of the best beef is, say it with me, “imported”. The domestic beef industry consists mostly of family operations doing their butchering in open-air market stalls. The meat is usually tough and stringy but passable when cut into small pieces for stirfry or BBQ. So you won’t hear many locals complaining about poor quality steak right now, because that’s not how they usually eat their beef. And believe me, they eat plenty of it. Some of the best and most common pieces of local nightlife are the beer gardens. You can’t spit outside the tourist areas without hitting one. You can get a big plate of BBQ beef (with rice of course, this is Asia) and a pitcher of beer all for less than $5. What else would you need? Make it a priority on your next trip.

Conclusion

Turning a profit in a low-margin Cambodian business can be difficult, but living is easy when prices are low everywhere. Phnom Penh isn’t all cafes and beer gardens, however. In a follow-up piece I’ll discuss some of the other non-food prices in the neighborhood like energy and entertainment. You may be surprised at all the fun you’re missing out on as an investor and a traveler.  Please subscribe to our blog!