Member Login

UAE’s F&B businesses feel pinch of higher costs – but how much can they pass onto consumers?

Restaurants and cafes pass on some costs onto consumers, but more could be coming

UAE’s restaurant owners and F&B operators will still have a challenge with rising costs – and not just on food prices alone.

“When you consider everything – from rising rent and energy (tariffs) to increased food costs – we are seeing a double-digit increase,” said Naim Maadad, Chief Executive and founder of Gates Hospitality. “I fear that after summer, we might go further north towards a 22 per cent increase (overall).

“We should not forget other costs that are hitting profit and loss accounts, things like transport costs for products and which continue to rise. All these need to be serviced by F&B business somehow.”

The problem is that F&B businesses cannot pass on the full impact on their costs on to the consumer. If they do, they run the risk of losing those patrons for good. What businesses have done is absorb as much as possible and find savings elsewhere. If not pass on some of the increase (as was done to the base price of the hugely popular karak tea).

“Costs have risen, and we will need soon to implement a small price increase,” said Louay Ghandour, Group Managing Director at Cravia, which operates Cinnabon, Zaatar w Zeit, Seattle’s Best Coffee & Five Guys. “This increase will be limited, and we will showcase value meals to provide customers with good value for money. For us to maintain the highest quality, we will need to adjust prices, but we are confident that our customers will continue to enjoy the products they love.”

Clearly, the challenges are not going to end soon for the F&B sector, which in these two-and-a-half years have gone from extreme concern – during the pandemic and the restrictions placed on social dining – and the growth in virtual F&B businesses, where everything could be delivered to ravenous consumers. Once Covid subsided, dining in once again became a trend that seeded more restaurants and cafes, whether at malls, high-streets, or communities.

The pandemic and the Russia-Ukraine war have impacted our cost of sales. Commodity price increases have come up against strong demand

George Kunnappally, Managing Director of Nando’s UAE

But the pressure on costs since March have left many operators reeling. This is when food-related costs began to spiral, and a direct outcome of the Russia-Ukraine conflict. “This was also the time when some of our rental renewals were happening, and the lease rate hikes added to the overall burden,” said the CEO at a leading F&B operator specialising in Indian ethnic cuisines.

Local sourcing – and renegotiate

“Like businesses globally, the pandemic and the Russia-Ukraine war have impacted our cost of sales. Commodity price increases have come up against strong demand coupled with severe supply shortages across the board.

SME businesses like Nando’s UAE have taken a range of proactive measures to negate, as much as possible, the impact of these price increases and inflation in the long run. Increasing the menu price or reducing portion sizes, every time there is a price increase for a raw material, finished product or service, is widely seen as an ideal solution by the sector.

However, we believe these have very short term, if not adverse returns. Measures we have adopted include local sourcing, bulk buying, locking in prices, renegotiating commercial terms with suppliers, or even replacing uncooperative suppliers.

– George Kunnappally, Managing Director of Nando’s UAE

Reshaping menus to focus on ingredients that inflation hasn’t hit is an option, although you must be careful with that too. You don’t want to stray too far away from what made you successful in the first place. Expanding secondary revenue streams that are aligned with brand positioning is also an option

Naim Maadad of Gates Hospitality

Consumers cut back

Where possible, consumers are also cutting back on their non-essential spending. F&B operators talk about dents in the number of call-ins made for deliveries during the week days, though, for now, weekend volumes continue to run consistently high. (The lower numbers during week days could also be because of a sizeable number of residents being away on summer breaks. The next few days will confirm whether the weekday orders have been restored.)

But, in general, the mood among consumers is of caution. “Consumers are well aware of the reasons behind inflation – however, very few accept it blindly, especially in venues like ours where the focus is primarily on neighbourhood restaurants,” said Maadad. “And where repeaters make up a large percentage of our customer base.

“Most companies are simply unable to absorb further expenditure and have to pass cost onto consumers directly or indirectly.”

Tackling those inflation linked cost spirals

“Prices of most resources increased by as high as 70% on some items or components. Raising prices in response is rarely a one-off move, but it is full of unintended consequences and puts significant pressure on both us as a hotel and also our guests.

“That’s what we’re trying to avoid, so our first step was we started to control our expenses by prioritizing our spend and looking for competitively priced alternatives in addition to increasing our cooperation with local suppliers.”

– Sherif Madkour, General Manager of Media Rotana

Still more openings

F&B operators, existing and newbies, don’t seem too deterred when it comes to new outlet openings. “In the year-to-date, I’d say we’ve seen an addition of 2,000 new businesses, which brings us back to where we were pre-pandemic,” said Maadad. “However, it is only August and typically Q3 and Q4 are peak periods for new openings. We will see whether that is still the case this year, and hopefully gain many new restaurants. What we don’t to lose are existing restaurants which aren’t able to cope with inflation.”

We have not reduced the headcount at our outlets. Service is a key pillar and having well-trained staff is very important

Louay Ghandour of Cravia

Source: Gulf News

Leave a Reply

Your email address will not be published.