Costs, revenues ... money!

Many in the F&B industry have commented to Caterer Middle East about budgets available to freestanding restaurants as compared to those within a hotel operation. It affects elements like staff salaries, first and foremost, among other things. Triemer says: “Financially, people get different pay than they would in hotels so you get more skilled people in operations.”

Maadad agrees, saying: “I couldn’t agree more and that’s why I started by saying they are completely different businesses, you can’t even compare them. We recruit differently, we have a different payroll, we have a different food cost, a different beverage cost, a different rent factor.”

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The final P&L is also affected depending on what kind of third-party agreement has been struck. Maadad explains further: “When it’s a franchise, it is part of the hotel and they pay a fee for the operator for the brand, and they give you a set of SOP manuals and you run the business on their behalf.”

But when it comes to rent, Gicquel says there can be some financial agreements between both parties over things like alcohol licensing and a shared delivery bay.

But there is a fee applicable for anything extra the leased space reaches out for, says Maadad. “For example the hotel would say ‘if you want to use our laundry sure, but you need to pay 10% extra handling fee’. Or recruitment — they will recruit for you but there would be a fee because they’re using their resources on your behalf.”

Hartmann agrees and says: “Hotels make money through the HR department as well, because you take care of the visas, all the services, laundry, window cleaning.”

Kaya points out the available models are not always franchises or leases. He explains: “There’s also profit share, where if you’re an operator running a restaurant, you share profit, and depending on how much you get and what deal you have, you have certain involvement in the way they run the business.”

Wait, why did it all change?

Residents of this region for a decade or more will recognise this is a changed perspective, so having the conversation is a forward step in the evolution of F&B. The earlier perspective was all for having only in-house concepts — but now the third-party model is exploding.

What was the catalyst? And where is it going from here? The change was probably revenue concerns, says Kaya. “Eight or nine years ago, hotels were able to generate revenues based on in-house guests. That’s not the case anymore.”

Maadad also says the rise in population and the number of people who have the spending power to dine out regularly is also a factor. Gicquel spins this and says competition has also changed.

He explains: “There were fewer hotels and fewer restaurants, so you opened the door and you had thousands of people coming in. Also, 10-15 years ago there was a very, very limited number of operators in the market that could drive and run those types of third-party concepts. Brands were starting to arrive in Dubai as well, so the market has shifted.”

The unique position of the Middle East market when it comes to alcohol licences is also a contributor, says Kaya.
“In other cities, international brands wouldn’t operate within a hotel because they don’t have to. In Dubai, some brands coming with really great offers to operators have to be in a hotel because otherwise they can’t get the alcohol license. Because of that, the hotel brands are more and more open to having a third party operator within their hotel.”

So what happens next? Maadad says in the short term, he sees an 80/20 split of third-party versus in-house, where the market will eventually stabilise to a 60/40 split. He explains: “To justify that — it’s because ownership is now stepping in and saying ‘who is making more money per square metre for me?’ and this is the difference.”

Kaya says there will be rise in the number of consultancy firms working on new concepts, while Gicquel believes that the time of more than 15 outlets in one property is gone, so the aim is to provide quality over quantity. He says: “In that sense there’s probably going to be a good adjustment between in-house brands and external — whether franchise or rent.”

Triemer says the split will either be 50/50 or 60/40. “The market will mature and you’ll have fewer operators, so people can concentrate on a concept and understand what they’re doing and the hotel should focus on their properties.”

The third-party market is definitely one to explore, and all the expert comments are pointing to a continued influx — but perhaps in measured numbers, rather than an all-out assault.

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