Dubai: Dubai’s F&B sector is warming up nicely for 2020... and there’s still a good 10 months to go before Expo 2020 Dubai even opens its doors to visitors. For restaurant and cafe operators - and of course, the food delivery portals - the 2020 party has already started. And it’s going to be a long one.
F&B businesses are moving into spaces at newly delivered buildings, or picking up those vacated by other businesses at older buildings. Either way, landlords are satisfied with the outcome - it’s one less empty space they need to deal with. Some suggest that the only type of businesses picking up ground floor outlets are F&B operators.
It’s clear that the F&B players want to get everything in place well before the October 20 opening date for the Expo. And these businesses want to smooth out their processes well before the first of the 25 million visitors pass through the city. (The forecasts are that 11 million plus visitors to the Expo will be travelling to the country.)
Here’s a bit of official data to chew on - two new licenses were being issued a day for new F&B services across the UAE last year. Of these, 868 were for cafes, 755 for restaurants, and 671 for “dessert-focussed” servings. The numbers represent a clear spike after a “period of slowdown”. (How many of these were for Dubai specifically will be revealed in the coming days.)
And there are new destinations opening up that can take in more of them.
New and happening places
“Bluewaters when “Ain Dubai” opens (just ahead of the Expo), Nshama Town Square once fully occupied; the Dubai Hills community and Dubai Creek Harbor are projects we are watching closely,” said George Kunnappally, Managing Director of Nando’s UAE. “Dubai Design District is also an interesting community we would love to be a part of, not to forget DIFC and The Avenues at Atlantis Resort.
“We are taking into consideration the Expo-related spike in business and transaction volumes while planning our 2020 budgets. By the time the Expo starts, we would have 24 restaurants open in the UAE, 16 being in Dubai. We are investigating a number of “off-premise” solutions to take advantage of the Expo opportunity.”
A perfect combo
There’s more to the new found optimism in the F&B sector than the opening of the Expo. Across the city, including at malls, rents for F&B spaces have dipped. Not by much, but enough to offer some breathing space for operators.
“Most landlords are amiable to discussing terms with tenants so that they can come to a mutually beneficial agreement,” said Vikrant Rohatgi, Director - Advisory at KPMG Lower Gulf, the consultancy. “Increasingly, landlords are willing to consider structures with a lower base rent and a higher revenue share.”
There is also a realisation among F&B operators that being at malls needn’t be the only way to go about the business. Openings are not just driven by new malls,” Rohatgi added. “As new communities and neighborhoods develop, demand for F&B will shift to other locations.”
What the Expo - which runs from October to April 2021 - offers is a safety net for the sector, especially its more recent entrants. It gives them access to a captive audience... and 25 million visitors passing through the city do represent a sizable base to build their business on. In other words, it gives them the chance they wouldn’t have got in any other year.
Room for more?
But these businesses will also need to prepare for life after April 2021. As such, there exists an oversupply of F&B options, particularly in Dubai.
“It’s always a concern we have frequently voiced at industry forums,” said Kunnappally. “It’s a given that we need a lot more people in our malls and communities to sustain existing - and new - F&B players.
“Another matter of concern is the low entry barrier in our industry. Seemingly, anyone can open up an eatery. If not a committed operator, (it) can hurt a serious operator by eating into their business for a short period of time. that’s until the uncommitted operator goes out of business.
“But in the process, they have irreparably hurt the serious operator. This nuisance value if you may call it that is hurting our sector significantly.”
Closures and openings
Yousef Khattar, Managing Director of Tastebuds Group, reckons the cycle of F&B businesses closing and others coming into the breach will continue. This is something “I have noticed for the last two years,” said Khattar, who recently picked up the rights for Freddy’s Frozen Custard & Steakburgers in the GCC, Lebanon and Jordan.
“Anyone interested in entering this market would be wise to be very selective in working with a solid franchise that resonates well with UAE residents. Realizing the RoI (return on investment) is very relative to the scale the franchisee wishes to develop their brand. There are so many regional F&B franchise brands within their respective regions that are yet to enter the Middle East.”
Between now and April of 2021 would be a good time for them to come around.
So, when can Sunset expect a return from such an exposure? “It really depends on the market; in more mature cities such as London, we usually see paybacks of five years, sometimes even longer,” said Antonio Gonzalez, CEO, Sunset Hospitality Group. “In other cases of high-growth cities we can see paybacks in three years... some times even faster.
“This relates to the cost of building the restaurant, as well as how heavy the operating expenses are. Often, there is also a correlation between payback and risk - the quickest the payback, the highest is the risk. For me, an ideal lease is seven years, with an exit option mid-term. And renewable to an additional seven years.”
“As a result of the growing popularity of delivery, as many as 32 per cent of operators attribute more than a quarter of their revenue to this channel. A number of operators have seen double-digit growth in their delivery business year-on-year. This suggests that delivery is an increasingly vital component of the F&B business, as food-tech players and delivery platforms work to increase their presence and enhance customer experience.”