Event Preview: Caterer Food & Business Conference

Ahead of the Caterer Middle East Food & Business Conference on March 6, the expert panel met to discuss the issues and concerns facing the industry right now. From the supply of venues in the region to closures, and from the challenge of competing with developers to the legacy beyond Expo 2020, everything was on the table. Here’s a snapshot of the discussions tabled.

Duelling with developers

There are a number of developers working on massive real-estate projects in the region, and there are a number of specific challenges that accompany this trend. Gates Hospitality CEO Naim Maadad pointed out that restaurateurs shouldn’t be competing with developers who launch their own chocolate shop or café. “I can’t compete with them,” he said, frankly.

Alghanim Industries VP food & beverage Phil Broad commented that the bigger challenge is that Dubai is now a mature market, rather than a growth market, and that rent is the biggest issue in this market. “Landlords have not yet realised it’s now mature. You can’t even get rent-free with big developers now, they won’t talk about fit-out being rent-free. It’s just madness in any part of the world that you have to pay rent even before you open the door,” he noted.

The Maine Oyster Bar & Grill founder and managing partner Joey Ghazal believed that the tipping point is going to come from big developers “because you’re going to end up having people that just can’t survive, paying AED600 (US$163) per square foot”. Another roadblock is in the size of spaces being leased — which dictates the investment amount. With minimum sizes of 4,000-6,000 square feet being offered by developers, restaurateurs are looking at millions of dollars of investments – obviously not feasible for many an entrepreneur. Whereas, Ghazal pointed out, developers should actually be creating smaller spaces where younger entrepreneurs can create interesting concepts. That, of course, then raises logistical challenges around power and water usage. “What that says to everyone is that there’s a minimum investment to get into the market in Dubai of one to two million dollars, and that’s a lot of money to lose,” commented Ghazal. He lauded Dubai Design District as a landlord that has been giving leeway to its tenants over rent.

Jumeirah Restaurant Group general manager Emma Banks, however, said that developers are becoming more cognisant about this issue, and are doing something about it. The challenge, however, Ghazal said, was to “take everything that we do and compact it into half the space” due to current regulations on how kitchens and back-of-house services should be designed.

Discussions over the failure rate of F&B venues was, inevitably, raised, and Maadad commented that the adage of ‘build it and they will come’ doesn’t work with restaurants anymore due to the saturation in the market. Keane Brands group strategy director Stefan Breg dryly commented that it’s “an unreal world here, in a way” with some people willing to invest without worrying about getting a return.

“You don’t have the laws of natural selection working here, where the bad operators get flushed out. That’s bad for the city,” he added.

Creating a destination

Speaking about operators and giving entrepreneurs a chance in the F&B space, Broad asserted that the industry needs to figure out how to get “entrepreneurial flair back into the market”. He continued: “I work in Kuwait and the entrepreneurial flair is still there. They can create great brands and build them in areas that you think are downmarket. They go in there and create this new area to go to — where would you do that in Dubai? There’s no space and it’s too expensive to do.”

Figjam head of F&B operations Danio Von Lutterotti agreed with Broad and added that the entry barrier is too high.

Banks pointed out that the last example of what Broad is referring to happened in Dubai’s Al Quoz district. “To your point, the last natural entrepreneurial hub was Al Quoz. It happened organically, and now the big developers have seen it and tried to do it,” she said.

There are opportunities, only if entrepreneurs looked harder, asserted Ghazal, who firmly stated that it’s possible to find gaps in the market, with areas that are still under-serviced. In agreement with him was The First Group director of global food & beverage Duncan Fraser-Smith, who commented that concept creators are not being ‘forced’ to pay AED600 per square foot. There are, he claimed, spaces out there to be utilised, showcasing the inventiveness of the Media One Hotel team, which has leased out space to Q43, which converts its carpark into a house-party venue, and other such initiatives. “There are ways to boost the industry and create new concepts and ideas,” added Fraser-Smith.

Banks circled back to the point about developers and said these organisations are doing their bit to create what she terms “Destination Dubai”. She continued: “They are building Destination Dubai, and it’s very successful from a development point of view. The issue is just that there are not enough people to fill them all for every unit in these developments to be successful.”

Maadad agreed, but countered: “We should be part of that process, and we should be supported, because while we are small players, we are helping to put the destination on the map. I don’t think that’s being acknowledged.” 

Costs, costs, costs

While the F&B market is definitely bringing the Middle East to the attention of the global market — think of all the international brands and globally acclaimed chefs who choose to put down roots in this region — the experts think the supply chain will prove to be a challenge, across a variety of elements. One of them includes labour cost.

Broad commented frankly: “I don’t think labour [cost] is going down any time in the future… It’s not a low-cost market. We recruit people from the same places, but the cost of labour is high. You might as well be in Europe.”

Naturally, the topic of part-time workforce came up and Von Lutterotti added that seasonality is a good reason to have this system, especially during low-traffic times such as the summer. Broad commented that there is typically a low-end market in the hot season, where F&B outlets aren’t getting the same revenue as during the high-volume months, but the rent stays the same — which obviously also adds costs. “That’s a very high fixed cost, he pointed out.

Another cost that’s recently entered the region’s minds is tax. With the introduction of the soda tax and now value added tax (VAT), even restaurateurs are grappling with the initial ramifications. Von Lutterotti noted: “The main person that is suffering is really the client, and is really bearing the brunt of all of this: 10% municipality fee, 10% service charge, 5% VAT and 15% liquor charge.”

Broad said that the market has become a little too expensive and due to the rise in labour costs, high rents, and introduction of taxes, everyone is looking at prices again. Folly by Nick & Scott chef patron Nick Alvis said that it’s too early to tell the effect of VAT on chefs, especially when it comes to running a kitchen, but he did say that all the food invoices from suppliers thus far have been standard, with no surprises. Folly by Nick & Scott chef patron Scott Price said he felt tourists would feel the difference in prices more than residents. 

Banks commented: “VAT doesn’t impact margin per se. We pay 5% more into the kitchen, then we pass it on. VAT impacts cash flow, so the only impact is on cash flow. I agree, the end consumer is going to perceive us as more expensive because the VAT is included in the price on the menu.” She continued to say that in the run-up to launching VAT, many people were discussing whether they would absorb the cost, pass it on, or work with a mixture of both methods — but ultimately, passing it on was the only thing to do. 

Maadad commented: “This issue is that it’s changing the country’s positioning, it is no longer tax-free.”

Consumer trends

In the last few years, menus have changed to reflect the demands of the consumer, including moving away from fine dining towards more casual concepts with sharing menus. There’s a niche that has been successful in the region, which is between the completely casual and formal outlets. Banks called them “premium casual” or “upscale”, and added: “All your Zumas or Hakkasans or Rüyas — they are not fine dining. They are upscale. They are lifestyle venues. People are looking for places that are cool — they want to be seen there — and have great atmosphere. Nobody wants stuffy fine dining.” However, Breg disagreed slightly and said in markets such as New York — one the Middle East looks to for inspiration — has lately seen the resurgence of the cloche.

Ghazal did not agree and said the fine-dining market is appropriately serviced and said there are two interesting markets for F&B operators to target: one was the young couples between 21-35 years of age, with our without children and with higher disposable income; and families living in suburbs that tend to stay within their area for lunch or brunch.

Broad said the move to upscale or premium casual happened also because of operators’ tussle with rising cost of labour. “Casual or fast casual enables you to reduce the amount of labour. We have steered people towards that,” he said. Banks responded: “The consumer has driven it as well and we have driven it with them. Because the consumer now wants to eat out four times a week, minimum.”

Delivery plays a role onto this, and Ghazal said that while he is surprised by the types of restaurants that are going in for delivery, the amount of money being made through this business is substantial and “nothing to laugh at”.

Banks agreed and commented: “Home delivery is for certain cuisines and certain markets. Noodle House is the market leader in home delivery here but there are certain dishes even we won’t deliver.”

A vehement opponent of delivery is Fraser-Smith, who declared, as he has in the past: “Delivery is one of the things that is killing our industry. From an entrepreneur/restaurateur perspective, you lose 100% control over your customers’ experience. You know nothing about them, you don’t know what they do once they take the food home.” 

Banks, however, said that consumers are demanding it as well, which is allowing companies working with delivery to tap into an additional revenue stream.

What do you think are the biggest issues facing the industry today? Let us know via our social media feeds (@CatererME on Twitter and Instagram, @CatererMiddleEast on Facebook) or contact our editor.