Restaurant Industry UAE http://www.pkfuae.com/site/content/updates/200910/index.php?link=restaurant-industry.

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THE RESTAURANT INDUSTRY IN THE U.A.E.

The UAE casual dining sector The restaurant industry in the UAE, particularly in Dubai and Abu Dhabi, has been experiencing dynamic growth as large international chains established restaurants that have been attracting an increasing populace from around the city. Some of the key reasons for the strong growth in restaurant numbers have been the lifestyle changes that accompanied economic development, changes in the Middle Eastern eating habits influenced by ever-increasing globalization, the influx of expatriates into the country and franchise availability. Restaurant industry structure Restaurant Industry Segmentation Fast food Casual Fine dining Concept dining concept concept Fast-food restaurants, also known as quick-service concepts, emphasise on the speed of service and low cost over other considerations. Fast-food operations range from small-scale street vendors with carts to franchised mega-corporations like McDonald's and KFC. Fine dining restaurants serve quality food in a formal setting with a high service level and high prices. These restaurants generally tend to be stand-alone or one-off in nature. However, fine dining restaurants are also beginning to be franchised and are established in different cities around the globe (e.g. Blue Elephant Chain). According to industry experts, with the saturation of fast food restaurants and the cost of fine dining restaurants in Dubai, new trends indicate that consumers are now favouring a "smart/casual" dining concept. The casual dining concept The casual dining concept found its way onto the market through a niche somewhere in between fast-food outlets and the fine dining restaurants. They are designed to appeal to a broad customer base by featuring moderate prices and a comfortable dining ambience. Casual dining restaurants lend themselves to replication. Once a successful format has been developed, it can be quickly

replicated in other areas and countries, after minor tweaks to cater to local tastes, preferences and culture. Local versus global franchising Casual dining restaurants (CDR) can be categorised into local brands and global franchises, based on the origin of the concept. Local brand: The UAE is a promising market for food and beverage entrepreneurs. In recent years, the industry has seen a number of 'home-grown' brands develop concepts and experiences that would more than stand their ground when set against an international arena. A number of these brands have expanded regionally using a franchise formula and it is anticipated that in some cases these concepts will reach the international arena. Local brands that operate casual dining restaurants in the UAE are Manga Sushi, Bella Donna, Inferno Grill, Saj Express, Haru, Da-Shi-Dai and Pane Caldo among others. Franchising is growing at a rapid pace. This is evidenced throughout the UAE by the number of restaurants opening in the country. According to industry experts, franchises are becoming more and more popular in the UAE, because they provide local entrepreneurs with an opportunity of a tried and tested formula - a shortcut to creating a profitable business environment. Some CDR franchisors that operate casual dine-in restaurants in the UAE are Chilis, Nandos, Fuddruckers, Ruby Tuesday, BristoRomain, and The Leon De Bruxelles among others. The CDR profile Services offered: Casual dining restaurants offer la carte and buffet services. However, la carte services tend to be more popular as compared to buffet as they offer flexibility to reflect specific preferences and dietetic requirements. Turnaround period: Depending on the nature of the restaurant, customers stay for different lengths of time. Turnaround times are a very important part of running a successful restaurant business. According to industry sources, on average the time spent by a customer in a CDR varies between 1-2 hours for dinner, depending on the group size.

(Source: PKF research)

Consumer spending: Average cheque per cover varies based on the type of dining experience. On an average, a casual dining restaurant generates a per-person average of AED 70 for lunch and AED 90 for dinner (excluding alcoholic drinks).

(Source: PKF research)

Seasonality: The seasonality of demand in the restaurant industry has been becoming less volatile, largely on account of the local population which is increasingly dining out. However, there are certain months when the demand is higher, which can be attributed to the rise in the number of tourist arrivals due to Dubai Shopping Festival and Dubai Summer Surprises. Profit margins :Established restaurants have reported a tightening of margins in recent times with raw material costs, manpower costs, overheads and other expenses increasing. Based on our recent survey, the gross margins for casual dining restaurants range between 65%-75%, with a net profit margin between 15%-25%. Average daily turnover: The daily turnover of a CDR varies depending upon the location, total covers and the type of cuisine offered by the restaurant. Accordingly, the daily turnover of a CDR is estimated to be in the range of AED 6,000 to AED 15,000. Marketing: Most CDRs do not spend extensively on specific advertising or ongoing marketing efforts and find word-of-mouth publicity the best approach to selling. However, initiatives that are undertaken include print media coverage, radio advertisements, sponsoring of programs, bus wrapping, listing in UAE complimentary monthly guides such as Connector, FYI guide to Dubai etc., and direct marketing through brochures and promotional flyers. Preference of cuisine :Based on the diverse cuisines available in Dubai, Continental, Indian, and Chinese are currently rated among the most preferred cuisines by restaurant visitors. According to industry sources and recent market research, different cuisines were ranked between 1 and 8, 1 being highest. Ranking based on choice of cuisine

(Source: PKF research, Forbes Industry report - Hotels, restaurant & leisure, DTCM, Global Travel Industry News.)

Outlook for the CDR Demand generators: A growing population, thriving economy, high disposable income, booming tourism and hospitality sectors and infrastructure development have had a positive impact on the restaurant industry in the UAE.

With the downturn in global markets affecting the MENA region and layoffs in key sectors like real estate and construction gaining momentum, some expect Dubai to experience negative population growth in 2009-2010. This, combined with the fact that many travellers in the major feeder markets to Dubai, such as the UK and many other European countries, are suffering from significant pressures on their spending due to weakening economies, the outlook for leisure travel to Dubai does not look rosy in the short term.

(Source: PKF research)

These developments have caused a ripple effect on demand for casual dining restaurants in general, with a marginal drop in sales figures noted by restaurant operators especially between November 2008 and early March 2009. Industry experts however, believe that the restaurant industry will be one of the first to recover from an economic downturn. Challenges facing the industry: Increased competition, higher business costs, stringent labour laws, and demanding consumers are some of the prime challenges faced by the restaurant operators.

Although the market is highly competitive, significant opportunities still exist for well thought out foodservice concepts that deliver consistently on service and quality in this demanding marketplace. We can also expect a significant increase in competition in the coming years as new market entrants seek a share of the attractive opportunities available. (This article has been contributed by Ms. PriyaKapoor, an Assistant Manager in our Management Consulting Department.)