Dubai: A majority of UAE’s F&B businesses plan to delay all decisions to hike prices on their menus until well after Ramadan and Eid to ensure minimum pain for their consumers. Foodstuff prices had been increasing steadily in recent months, but have shot up significantly since the start of the Russia-Ukraine conflict on February 24. What this has meant is that whether it is coffee or bread, the input costs for F&B businesses keep getting higher.
“This will not be the time to burden consumers – we did think about raising our product prices, but decided against it,” said a senior manager at one of UAE’s biggest dairy product brands. “Our competition too seem to be thinking on these same lines. The only option is to keep absorbing those higher costs, for now.”
The same discussions are being held at any business with direct or indirect connection to the food trade or at the retail end. “Despite this inflationary environment, we do not believe restaurants are in a position to pass on all - or a portion - of the rising costs to the consumer, especially given the relatively weak demand for dining-out going into summer,” said Hari Kaimal, CEO of Goldmead Hospitality. “We are tackling the situation through more stringent measures to control food cost. We are focusing on more practical solutions such as managing food wastage, better inventory management, and carefully balancing yield and variance.
“But it is unclear how much longer restaurants can hold off on passing a portion of the rising costs to the consumer.”
So, what’s gone up? Wheat and corn, as well as edible prices are on the up. Add in the price rise for sugar and cocoa and F&B businesses are confronting a situation they have not faced in more than 10 years. Sure, there have been the occasional increases in between, but there were limited to a commodity or two, not the whole lot.
Ramadan phase is priority
Retailers, as a rule, are loath to hike prices ahead of such a vitally important period such as during Ramadan. Especially where food products are concerns, it would come across as being insensitive to consumer needs.
The option then for these retailers and F&B operators is to look within. That’s what Pankaj Agarwal, Director at the Indian restaurant brand Bikanervala, is doing. “While inflation has led to cost increases cost, our economies of scale helped us to absorb the cost increase. Our centralised purchases help in cost-effective procurement.”
We also source from long-term associates and this helps us to get the best price. So, at the moment, there is no passing on the cost to the customer
Local farms to the rescue
This is something that the local food business will see a lot more of – source locally. This became a priority during the pandemic phase, and more areas in the country are being repurposed for farming. In the last year, there have been multiple food processing plants launched at Dubai Industrial City and at KIZAD zone in Abu Dhabi. At some point in the near future, these ventures – farming and local production – will help keep food supplies steady and at a price lower than the imported products.
We already monitor 420,000 data points per day for product availability. This allows us to see patterns and spikes. We work very closely with our supplier partners with regular updates to both our and their stock in hand to ensure the flow of goods, especially commodities, is kept at optimum levels. Where we see any changes, we will ensure that goods are brought in earlier to secure stocks as required
"We already have some local manufacturing of our private label products under the brand name 'Tous Les Jours'," said Mark Anthony Lack, CEO of Urban Foods, which operates the Geant supermarkets. "This enables us to be flexible not only with the production and receipt timeline but also as a primary source product within a given category.
"As we expand the Tous Les Jours assortment we will investigate where the best location for the ingredient source will come from, so that we can offer our customers a combination of quality and value."
“India along with Sri Lanka are major exporters of tea to Russia – but now, India has a double advantage because of the rouble-rupee link,” said Muralee M., Director at Barth Trading, which specialises in agro commodities and operates a corrugated packaging company in the south Indian city of Kochi.
“With the sanctions imposed on Russia, India will be looking to bring its trade commitments with Russia on a rupee-to-rouble basis.
“I think the tea exports from India will be a major beneficiary when that happens.”
Various ministries in India are expecting to give all necessary clearances, and if that happens, it will help traders in India compared to those suppliers to Russia who can only do so in dollars.
The impression among local businesses is that worst of the Russia-Ukraine crisis will blow over by early May. If they can absorb the costs for now, they think by summer the price and supply issues would have been greatly resolved. But a degree of pessimism is still in the air.
“All are worried about the consequences to their businesses such as squeezed margins, stock shortages, and the inability to ship the items on time,” said Nasheeda, Partner at Nishe Auditing on what her clients linked to the food trade plan to do. “In the short run, most seem to be in a reactive mode. Depending on the nature of the products, many are intending to pass on at least a part of the increased costs to customers as there is only so much squeeze on margins they can take. I have also seen businesses who have lost out on their pre-Ramadan season due to shipping delays.
“While it is not clear how long these uncertainties will continue, there are also worries that, even if the Russia-Ukraine crisis get resolved, some of the increased prices are here to stay in the long run. If that happens, it means many businesses will have to take a relook at their business strategies to remain buoyant.”
For now, though, they are only intent on seeing through the Ramadan and Eid phase. And deliver no price pain on their consumers.
While it is not clear how long these uncertainties will continue, there are also worries that, even if the Russia-Ukraine crisis get resolved, some of the increased prices are here to stay in the long run
With corn, wheat, soybeans, vegetable oils - which form the backbone of much of the world's diet - getting dramatically more expensive, alarm signals have been flashing for the world's shopping budgets.
World food prices jumped 28 per cent in 2021 to their highest level in a decade, and hopes for a return to more stable market conditions this year are slim, the UN’s food agency cautioned earlier this year. This latest jump is being closely watched because staple crops are a ubiquitous influence on grocery shelves - from bread and pizza dough to meat and even soda.
- Justin George Varghese