- Operators are working on improving operational efficiency, revisiting their business strategy and rationalizing their F&B portfolios
- Driven by market conditions, quick-service restaurants appear to have outperformed other formats
- The sector remains cautiously optimistic in the run up to Expo 2020 Dubai
- Introduction of delivery kitchens in the UAE could further improve the delivery economics
Dubai, UAE; 26 February 2019: Food and Beverage operators in the UAE have responded to headwinds facing the industry by enhancing operations and rationalizing costs to maintain margins, closely reviewing and adjusting portfolios, and opting to exit loss-making outlets and struggling brands, KPMG’s 2018 F&B Report has found.
The UAE continues to lead the Food & Beverage market in the Middle East region, stimulated by a growing number of tourists. The sector’s growth is further supported by the entry of new international and regional brands. The restaurant footprint, number of restaurants per million residents in Dubai remains high, second only to Paris.
Anurag Bajpai, Partner and Head of Retail, KPMG Lower Gulf, said: “2018 was a challenging year for the F&B industry, in the face of increased competition, higher operating costs and comparatively tepid consumer sentiment. Despite this, the sector has demonstrated resilience as owners and operators have responded with measures to drive operational efficiencies, and take difficult but essential decisions. We step into 2019 with a cautiously optimistic medium-term outlook for the sector, bolstered by trends such as delivery-led revolution and expectations around Expo 2020 – over 4 out of 5 operators we surveyed expect growth in the medium-term.”
According to the report, among all formats in the UAE, quick-service restaurants (QSRs) were more popular in 2018 due to value-seeking customers. For premium dining outlets, relatively steady patronage for certain popular brands and concepts continued, with hotel-based premium licensed offerings facing increased competition from licensed non-hotel outlets.
The report also found that the delivery segment witnessed year-on-year growth and use of rental kitchens is a trend that is picking up in the UAE. As many as 32 percent of operators (versus 21 percent last year) attribute more than a quarter of their revenue to the delivery channel.
As opposed to 2017, when operators’ attention was focused on expansion into new markets and geographies, the broader theme for 2018 was to put the house in order. Many investments were aimed at operational improvements and local expansion of the winners in their existing portfolios.
At the same time, with the introduction of value added tax in the UAE, most F&B operators, like other retail businesses, continued to focus their attention on pricing strategy. Within the F&B industry, changes were primarily addressed through repricing and other strategies, such as combo offers and menu refreshes.
Vikrant Rohatgi, Director in the Advisory practice, KPMG Lower Gulf, added: “Looking ahead, operators are optimistic about the impact Expo 2020 Dubai will have on the industry. More than half of operators believe Expo 2020 will have a favorable impact and the event has the potential to provide a much-needed fillip to the industry. Further, more than one third of operators currently plan to directly participate by establishing a presence at the site.”