Chained up

Undeterred by the economic downturn, chain outlets seem to be making steady progress in the Middle East. Some of the region’s top brand operators met at Frankie’s Bar and Grill this month to discuss pro-active plans for 2010, why the region is still a key growth area, and the real challenges facing their brands

Over the past 12 months, how have F&B operations been affected by the economic downturn?

Mahmoud Harb: We had some closures; it was the wisest move to close the few non-performing outlets, so we decided to bite the bullet and stop the bleeding.

We had two outlets that had been open for less than a year, so we had to basically write off the investment cost — and we’re talking about millions. But we knew in the long run it would be much better for business.

With the mall management, it was not easy to extricate ourselves; it took us six or seven months of negotiations, and we had to pay penalties.

Rob De Villiers: Things in malls are improving; I think Dubai Mall, for example, is certainly turning around, with regards to footfall. But the landlords aren’t negotiating. No matter what the situation, even if you are trading as well as you should be, they’re not prepared to change rates or negotiate.

Joe Van Jaarsveld: But looking at the impact of the downturn, we’ve had a down side and an up side: OK, the consistent growth we saw in our stores for many years has slowed down. But we’ve been fortunate in that we seem to be strong in the region — and now there are more purchasing opportunities, as we’re in a better position to negotiate with suppliers.

Penhaligan: Absolutely — before, suppliers wouldn’t give you the time of day. Now, they’re knocking on your door, looking out for good deals.

I think it’s also weeded out some of the more wishy-washy suppliers, who were trying to take advantage of the market, so we’re left with the established players with good quality products. And if you are a bit limited in other areas, this is exactly what you’re looking for: things that can make a difference to that bottom line.

Looking forward, do you have an expansion strategy in place for 2010?

Harb: I think we’ll wait and see how the first-quarter figures come out. They will give us the indication for how we should continue for the rest of the year.

Penhaligan: For us, as a hospitality company we obviously have different sections: we have the restaurants; we also do consultancy work, for example on the Dubai Pearl and we’re looking at other consultancy contracts.

We’re also looking to franchise out Frankie’s and we already have some interest within the region, in Muscat and Doha; so those are the main areas we’re focusing on. We’re also looking at management contracts as well, for hotels, so RMAL has the advantage of being a bit more diverse than just restaurants.

Van Jaarsveld: The Middle East is definitely still a growth point for us; there are a lot of possibilities. Our aim is to be in every area of the region, but right now we’re really focusing on consolidating our products and looking after our staff.

Khalil Fakih: For BinHendi in 2010, we think it’s the right time to start focusing more on finding exactly the right developments. In previous years we were just rushing out, trying to be present everywhere within every single development. Nowadays, we have to really think how we’re doing it, whether it’s the right place; so we will continue to grow in 2010 and 2011, but only through the right projects.

Penhaligan: That’s not to say there isn’t still huge competition for sites; prime places are still being snapped up around the region. I just think you have to look at the strategy, at the feasibility study, and decide whether the area is going to give you a return on investment and whether your brands can work in the area.

Fakih: When we invest in a restaurant, it’s a huge amount, so if a restaurant is not performing, we have to really think and find a way to make it work, before we take the final decision to close it.

But of course some sites have been affected by the downturn and the changing consumer market; we have the Duck King restaurant which opened last year in Jumeirah, but it’s around five-star hotel prices, so the theme really requires it to be a licensed venue as well.

I think we have to reconsider the costs in that restaurant. The quality of the food is amazing, but right now it’s AED 180 per person, so we certainly have to reconsider the pricing.

Harb: We had a location in the same mall as Duck King, which we closed down because it was really suffering. I think since JBR opened and so many Dubai Marina developments came up, Jumeirah has slowed down. We didn’t see any hope there for our outlet, so it had to close.

Has the changing economic climate forced changes in your marketing strategy?

Van Jaarsveld: We’ve always marketed our business internally. Our strategy has been to let our products, our people and our service do the talking, and rely on word-of-mouth, which for us is still the key. That’s why we focus on training and developing to ensure the staff make the customer’s experience memorable. You can’t buy the kind of marketing that gives you.

Penhaligan: But staffing is becoming something of an issue; we have got a lot of hotels coming up in this area that are looking to recruit decent staff with hospitality training, and if you have staff who have been with you for a couple of years and there’s no position available to give them a promotion, or no money to give salary increases, they do start looking around.

And over-promotion is still happening, which is ridiculous — like a commis moving to become chef de partie. If you promote someone and they jump way up the ladder, you’ve got to wonder how much they’ve actually learnt — and how much they’ve missed out on.

Fakih: That’s something we’ve seen as well. We have around 1% per month of people jumping ship for promises of a higher title or more money — sometimes double their salary, which of course we cannot compete with.

Van Jaarsveld: I think we’ve been quite successful with our policy of promoting from within, which certainly makes people feel it’s worthwhile staying with the company. When staff see colleagues climb the ladder, it inspires others to persevere. So our focus on our people has really paid off, and honestly we’ve got hardly any staff turnaround — in the single figures, internationally.

Harb: We do the same. In Zaatar w Zeit, we have around 26 managers who were all promoted from within. We don’t have a single manager from outside. It reduces turnover, it increases staff commitment to the brand, and it’s really a very important thing to do.

Is there anything you anticipate will be a major challenge for outlets over the coming months?

Fakih: We believe the biggest challenge this year will be the cost of rent, which is really too high for the current sitaution in the market.

Unfortunately we are locked into long-term agreements. We are renegotiating our expired agreements, but many of the major ones — such as those at Dubai Mall — we are locked into for a longer period.

De Villiers: I think even though residential and some commercial office space rents have come down, from a retail, shopping centre or mall perspective, it won’t change.

Van Jaarsveld: But it does depend on the situation; if you have a site that you’ve been in for a number of years successfully, and the time comes to renegotiate the lease ahead, if you’re doing well, they’re going to make sure you pay for that. You’re not about to give up a great site, and they know that.

Penhaligan: I think there are some locations where an independent outlet does well, and the hotel group or development owner or whoever might consider shifting the brand out and put in one of their own concepts.

But it’s important to understand that there is a power in brands, and for developments to recognise just how much business these names bring in, as well.

Fakih: Of course the other issue at the moment is the service charge ban. We cut it off the menu, but unfortunately we will not be able to waive it — we will have to put it somewhere and work it into the menu, because these prices were set based on the labour cost, rents, operations and so on.

A percentage of this 10% went to the staff; then the rest went towards supplementing price changes, for example of purchased foodstuffs.

Penhaligan: We went and had meetings with Dubai Municipality to clarify this, and the law says if you are a restaurant that pays the 10% Municipality fee, then you are entitled to add the 10% charge onto your bill. So basically that’s any hotel or free-standing restaurant where you have alcohol; those are the ones paying a Municipality fee.

Even for us, this has had an impact though; our Wagamama outlet at The Greens is not licensed, so there we cannot add a service charge.

Harb: It basically takes 10% directly from your bottom line. The only plus for us is that in Zaatar w Zeit, Cinnabon and Seattle’s Best Coffee, we didn’t have that service charge in place anyway. But Roadster Diner had it, so we had to cut that and now we’re looking for other ways to recoup the 10%.

We think though if we increase our prices, we have to add value, and we have a plan for that — a new menu, a wider selection of dishes and so on.

Van Jaarsveld: I think the ambiguity of it all was the worst part of what we’ve had to deal with, because there were a lot of newspapers publishing contradictory reports. I’d like to see those publications now telling it how it is, so guests have a clear understanding of what is happening.

We found it quite difficult to get the story straight, and had to make phone calls to several different departments before they could confirm exactly what the law was. Even now, customers are still asking us about it, and people don’t seem to be sure.

Are there any particular trends you’re seeing coming up at the moment?

Penhaligan: Well people are still going out, but they’re watching what they spend. They’re not going for the full three courses, or expensive beverages, but they are still looking for a good meal experience. Also we’re seeing the average check remaining a bit lower in the week than it is at weekends.

Harb: I think consumer confidence is getting better though. You cannot stay at home for six months or a year, worrying about money.

Admittedly at first, everyone panicked and was afraid to spend, but you cannot just stay at home doing nothing forever. And proof of this is what happened in Eid al-Adha; we had record-breaking sales in most of our outlets. People went out, they spent money, and since then things have been getting steadily better.

Fakih: The good thing about this area is that the infrastructure is there, there is huge potential, and it will get on track again.

We will never get back up to where we were a couple of years ago, but certainly for those who work hard and smart in terms of building real brands, real presence and strategies for development, they will benefit, for sure.

RMAL Hospitality
Brand portfolio includes: Trader Vic’s Madinat, Trader Vic’s Mai Tai, Frankie’s Bar and Grill, Wagamamas, and the newly-launched Marco Pierre White Steakhouse and Grill.

Cravia
Brand portfolio includes: Zaatar w Zeit, Roadster Diner, Cinnabon, Seattle’s Best Coffee

BinHendi Hospitality
Brand portfolio includes: Bella Donna, Business Café, Cacao Sampaka, Café Havana, China Times, Duck King, Japengo Café, Ruby Tuesday and Inferno Grill.

The Meat Co
Brand portfolio includes: The Meat Co, Ribs & Rumps and new brand to the region Tribes, to be launched in the UAE later this year.