How to survive the downturn

There are tactics that will help you survive the economic slump; sometimes it just takes a true recession veteran to point them out

As we all know, these are challenging times for the Middle East.

I’m no economist, so I can’t tell you if it’s worse here than anywhere else — although the worldwide press seems to show a degree of schadenfreude when reporting on the situation in this region, particularly in Dubai.

So how is the UAE hospitality sector performing? Hotel occupancy in both Dubai and Abu Dhabi is down — as are room rates. We hear tell of restaurants trading at 25-35% lower than last year, a drop accentuated by a weaker dollar affecting the cost of bought-in goods and depleting margins.

All restaurants have felt this decline in revenue. The reduced tourist numbers are a major factor, but even residents seem to have tightened their belts.

And how is the restaurant sector in the UAE responding to the reduction in revenue? By discounting, of course! A quick look through Time Out magazine will show you heaps of F&B promotions jostling for attention.

So what else can restaurant operators do in recessionary times?

I am lucky to be one of the survivors of three recessions in the UK — the first of which, in 1979, coined the phrase ‘Crisis? What Crisis?’ when prime minister James Callaghan allegedly ignored the state of the nation during the ‘Winter of Discontent’.

The recessions in 1981 and 1990 had a severe effect on retailing. I recall that the restaurant sector initially responded by doing what Dubai is doing now — discounting.

But this ‘quick fix’ didn’t work, so restaurateurs turned to an area which would have a more lasting effect: the supply chain.

Restaurant groups began to re-engineer their supply chains, releasing the value locked up in antiquated purchasing processes.

Supply chain consolidation was borne out of the recession; for the first time, restaurant groups and contract caterers leveraged their volumes and frequently joined purchasing consortia who bought on their behalf.

This consolidation helped improve margins and delivered sustained benefits.

Other methods used during the lean UK years included menu engineering, where a restaurant’s dishes were reviewed for cost efficiency; and careful sourcing from further afield — although we are now seeing the environmental backlash of this global purchasing.

Another survival tool was labour scheduling: for the first time, operators were using software to align their payroll to demand.

These years also saw many mergers and acquisitions (M&A) in the hospitality sector.

M&A has become the single most significant feature of the past 10-15 years of the western restaurant sector. There have been a huge number of acquisitions in the UK, including brands such as Pizza Express, Browns and even top-end names like The Ivy — and yet M&A remains a rarity in the Middle East.

The impact of these recessions also led to an increase in creative accounting techniques, such as securitising assets based on projected earnings.

So could these survival tactics have application in the UAE?

Supply chain engineering is clearly an opportunity, when, you consider the relative fragmentation of the region’s restaurant groups.

Labour scheduling is arguably less applicable in a market where payroll costs are lower than international benchmarks. However I remain amazed at how an owner can manage more than 20% of his cost base without using any analytical tools.

M&A is a huge opportunity here, although I suspect that culturally, there are barriers to overcome before operators start to think of buying or merging with each other: too many, too proud.

So if you don’t do the above, what then? Is it a case of ‘Crisis? What Crisis?’

Maybe not; but the F&B industry certainly needs to wake up to the opportunities available — and start managing creatively.

Stefan Breg is chief executive and ‘chief worrier’ at TRIBE Restaurant Creators. For more information, please visit: www.tribecreators.com