Can outlets outside hotels be successful?

Daniel During, managing partner at Thomas Klein Group, a professional turnkey consultancy in the hospitality, entertainment and leisure business, says outlets do not necessarily need a hotel location to be successful — but they do require passionate restaurateurs behind them.

Here in the UAE, we’re spoiled for choice when it comes to dining options — but how many of your favourite restaurants are located outside of hotels?

Fast food chains and coffee shops aside, why are there so few independent restaurants?

Part of the problem is that small, independent outlets don’t have the marketing budgets of their larger rivals, but that still doesn’t explain why we tend to gravitate to hotels for our dining.

There are some successful free-standing restaurants — More Café, Smiling BKK and Elements are all excellent examples of independent restaurants — but they are hugely outnumbered by those based in hotels.

It is a model that is quite contrary to other areas of the world, particularly in large, urban areas.

There are some barriers that make the establishment of independent restaurants challenging, but we find that in each instance, these barriers can be overcome through market experience, local business acumen and a good dose of creativity.

As independent restaurants cannot serve alcohol, that can prove challenging in attracting a certain segment of the population.

While the rules are not likely to change any time soon, the issue can be overcome if one considers that there are many segments of the population that would still find the venue attractive: families, non-drinkers or those visiting the outlet during times of day when the consumption of alcohol is less common.

Most independent restaurants in other parts of the world — let’s take Europe as an example — are run by one or two investors who probably work there, often for extremely long hours, and are absolutely passionate about what they do.

They have invested heavily in the business in terms of both time and money and, while they’re not running the restaurant as a charity, tend to understand that in the short term it is important to focus on the food rather than the financials.

Once a restaurant has got its concept right and established a reputation, profitability follows. Restaurants really need this crucial growth period in order to thrive in the long-term.

In the UAE, business laws require a local partner, thus adding an extra person to that critically-important launch team.

Finding someone who shares that passion for food and is prepared to support the concept through thick and thin can be difficult and time consuming.

A local partner can offer advantages in terms of pushing forward all the right funding, as well as easing some of the red tape and administrative work.

But as many hail from a pure business background, it can be hard for them to grasp that a revenue stream will not be immediate and when it comes to lifestyle products — hotels, fashion, food — and that heart is as important as head in these instances.

The UAE has been very successful at developing magnificent, jaw-dropping hotels, so there is passion out there for great concepts.

A hotel is a very large investment with a very long return, so if we can channel some of that passion into restaurant projects, it would bring a new dynamic to the UAE landscape.

Clearly a restaurant needs to make money, but it needs to be run by a true restaurateur.

Quality and reputation are not short term gains; today’s customer is savvy and while they may not all be expert chefs, they can still tell when corners have been cut with cheaper ingredients or sub-standard fittings.

If you’re running a fast food enterprise, customers expect value and realise that value prospect permeates every aspect of the business — from the food products to the types of seating used.

However, customers who are paying a higher premium expect the restaurant to deliver. If you don’t deliver, reputation suffers and your investment equity simply drops.

Another reason that hotel restaurants tend to dominate is that they are designed, built and managed by people who understand the industry.

Often, buildings such as office blocks and even shopping malls are built with space allotted to restaurants, but there is a lack of consideration in terms of how the outlets will actually operate.

Perhaps the best example I can give of this is a recently-opened shopping mall in Dubai, which mandates that all F&B outlets must use a particular brand of extractor fan.

The mall management fails to explain why this particular model must be used: in fact, it’s no better than most others on the market, except for being far more expensive.

These problems could be easily overcome by involving restaurant experts at the onset, when committing such large-scale developments to paper.

A well-planned space will make it less costly for an independent restaurateur to set up an enterprise and more efficient for the developer too — no developer wants to see empty units.

In any kind of global trade, the fewer the barriers there are, the more cooperation that exists, the higher volume of trade for all.

So how can we make conditions more conducive for the budding restaurateur?

• Reduce rents

Rents remain prohibitively high, forcing management to put too much emphasis on early profitability.

Thankfully the landscape is changing, but landlords do need to be patient and learn to incentivise.

Restaurants are rarely cash cows but they can add greatly to the value and the draw of the overall development.
 

• Landlords need to relax strict specifications for fit-outs

Too many rules lead to high start-up costs, which are often off-putting to independent businesses.

Making sure people don’t put an oven in front of the fire exit is important and necessary; choosing the brand of extractor fans is fruitless.

This is one area where the government could step in through the mandate of minimum requirements and by frequent inspections of premises.

• Investors need to be more realistic

Over the past few years, many business people in the UAE have been focused on making a quick return in lieu of a steady monthly income.

Hopefully changing economic conditions will make a steady but robust long-term growth model more attractive. Bearing that in mind, the choice of local partner is key.

Find a partner who shares your passion for food rather than one who is merely looking for another investment opportunity. It can mean the difference between success and failure.

I am greatly in favour of a change in the law that would allow 100% foreign ownership — I think it would create a climate in which the independent restaurant business could thrive.

• Don’t be afraid to enlist help

A good consultant will possess superb local business acumen.

While hiring a consultant may sound expensive, it can often save money and time as they can navigate through all the tricky areas successfully.

And a great consultant will be realistic and will always advocate the correct balance between passion and a solid business model.

 

For more information on Thomas Klein Group, click here.