UAE's food and beverage sector bites off more than it can chew

From fast to casual to fine dining, eating out is a staple of the UAE lifestyle. But an industry expert says that after the rush to pump out new concepts, brands and outlets, up to a fifth of the UAE’s food and beverage companies will close by the end of next year.

“I see a lot of blood being shed in 2016, I think we will see 20 per cent of the current outlets in the UAE either closing or closed in 2017,” said Naim Maadad, the chief executive of the hospitality development company Gates Hospitality.

“I believe in the market and I am investing with the correct concepts in the correct locations, but it is a bubble with investors looking to join the party without doing the due diligence. It’s a bubble with positives because there are still opportunities in the market as operators find themselves in the wrong location with the wrong concept for the demographic.”

The growth in the sector has been stoked by developers, with a fifth of mall space expected to be taken up with food and beverage (F&B) within 10 years, says the property consultancy JLL. It expects the UAE to add more than 1,000 F&B outlets by 2018.

At the same time, the increasing number of outlets has led other consultants to question the business case.

“We will hit F&B saturation soon,” said Nicholas Couvaras, managing director of the food and beverage consultancy Kroma. “Restaurants are the new black and many people want to get involved. Rents are the No 1 problem because outlets are under pressure immediately.”

The UAE’s passion for dining out has convinced many oper­ators to expand. One such enterprise is Tom & Serg in Dubai, a casual dining outlet that opened in 2013. It will be opening its fourth outlet imminently, with more to come this year.

“When we opened Tom & Serg in 2013, we had 18 employees,” saids Sergio Lopez, a co-owner of Bull & Roo Hospitality and Investments. “Today, with three venues open, we’re lucky to have 220 unbeliev­able staff members. By the end of this year, we’ll be at around the 500 mark.

“We’ll be opening a number of other unique outlets throughout the city before the end of this year – each representing our commitment to and belief in our product and the longevity of the F&B industry in Dubai.”

Nakheel, which has developments under construction that will make it the biggest operator of retail space in the UAE, does not see clouds on the horizon for F&B.

“We continue to see a healthy interest in our retail developments from the F&B sector,” said Rebecca Rees, a Nakheel spokeswoman. “We signed three new concepts this week. Our current figures show that, in our large-scale projects, Ibn Battuta, Dragon Mart and Golden Mile, F&B makes up about 10 to 15 per cent of the retailers. At our community centres the ratio of F&B to other retail is considerably higher, nearer 40 to 50 per cent.”

Analysts say that after all that expansion, it might be time for a diet.

“In 2015, the total market size of all food service activities reached Dh57.8 billion, placing the UAE among the top 20 countries in the world,” said Diana Jarmalaite, a research analyst for Euromonitor International. “We do see signs of saturation in the market; however, a lot of food service businesses foresee expansion in their strategies in upcoming years. Unsustainable growth might create a correction in the market; however, we do not foresee huge changes in the demand.”

Still, business leaders say a good idea always has a chance.

“There are over 150 different nationalities in the UAE,” said Vikrant Rohatgi, associate director and lead – strategy group, deal advisory, KPMG. “However there are many cuisines that have not been catered for while others have been mined out.”

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