Dubai: Whatever be the state of the marketplace, mall operators in the UAE want their food and beverage tenants to keep serving up more... rents. Unlike any other category represented in malls, F&B continues to face the brunt of demands.
“There’s been no corrections or changes in rental terms for F&B... it continues to be stuck in the high 30s or 40s [rents expressed as a percentage of monthly/annual sales],” said Abdul Hakeem Kamkar, Director at Al Danah Capital and part of GCP Group that owns multiple quick-serve outlets.
“At those rent terms, it is becoming increasingly unsustainable for F&B operators to maintain profitability.
“It is more so in the current circumstances when local per capita consumer spending is seeing a bit of a drop. More so, when base rents at a high traffic mega-mall would be Dh1,000 a square foot and more.” (More non-mall locations are cropping up in Dubai where the going rate would be Dh250-Dh350 a square foot.)
But can F&B operators afford to walk away from malls and set up somewhere on the high-street? A report released by the property services firm CBRE on F&B sector trends states that, for UAE consumers, the food court and dining offerings at malls matter as much as the shopping. For 47 per cent of the respondents in the survey, their intent was to spend “more time shopping if I have something to eat or drink”. Another 31 per cent suggested they visit a shopping centre just to eat and drink, while 55 per cent are likely to stop at an F&B counter on the “spur of the moment”.
These are the ingredients mall developers pick on to compel F&B brands to come in and stay put at their assigned locations, be it at the food court or other designated areas. Malls contend that they are the ones pulling in the prospective diners or takeaway orders while the F&B brands hardly do any heavy advertising unlike their counterparts in apparel or homeware.
“This, in their opinion, justifies the higher percentage of sales they can command from F&B,” said Namir Hourani, CEO of Marj Group and the local franchise of Just Salad. “But for a quick-service F&B offering, rents as a percentage of sales should not be more than 15 per cent if they are to create a sustainable business. Anything in the 30 per cent or more requires heavy consumer traffic to justify a mall location.
“With the exception of the big F&B labels, I wonder whether there are many able to generate such a degree of sales to meet the rent requirements.”
According to industry sources, the big F&B anchor tenants come in at a lower rental arrangement, much like the situation in the other retail categories.
Such has been the rate of new F&B openings in the last four years, both in malls and on the high-street, that some sort of levelling off is imminent.
“Operators will have to search out for more niche options if they have to gain visibility, claim a better than average margin and stay around in business,” said Hourani.
“Margins are bound to come under tremendous pressure if the same sort of options are being provided to consumers. It is exactly what’s happening in burgers, by being all over the place.”
