COVID-19 fallout: Heat is being turned up on UAE’s F&B industry

The UAE’s restaurant industry has been reeling under the impact of COVID-19 since the third week of February. And since mid-March, restaurants are limited to having delivery as their only mode of operations.

While many restaurants are keeping themselves busy by remaining open to generate whatever revenue they can, many have closed because the cost does not justify keeping a location open for namesake revenue.

As a chain operating 18 restaurants, we are finding it difficult to survive with such a sharp drop in revenue. If the COVID-19 pandemic ends in the coming months, a full market recovery is unlikely until before end of the year.

Question of survival

As a brand that relied heavily on tourists, it is going to be even more challenging to survive until end of the year. As a retail space operator, rent and staff salaries make up the bulk of our fixed costs.

We are exploring the possibility of sending some of our staff on long leave until the market returns to normal. We have also reached out to our landlords seeking some rent relief.

We are going through a crisis none of us have ever experienced in our lifetime. For us to survive as a society, we all need to share the pain of this crisis. It is better for all of us to suffer a little … rather than a few suffering a lot.

Although the government has announced several measures to help businesses affected by the crisis, private landlords need to come forward with measures to support their tenants.

We may have to permanently shut down some of our outlets if no such support is extended by the landlords.

Another major concern of restaurants are the commissions charged by food aggregators. None of the aggregators have indicated their willingness to reduce commission as a gesture of support during these times.

Problem with aggregators

Food aggregators charge anywhere between 25-35 per cent of the order value as commission. In addition, they charge marketing fees to boost visibility of the brands on their marketplace app. Despite our marketing spend, it is difficult to generate desired volumes if a restaurant does not offer discounts.

As it is, most restaurants in UAE are working on a paper-thin margin. For an average order worth Dh45-Dh50, a typical restaurant spends around Dh20 on food and packaging and around Dh15 go towards aggregators’ commission.

If no discounts are offered, a restaurant is unlikely to make a margin of not more than Dh15 from a typical order. This margin will not suffice to meet overheads like rent, staff cost, utility etc.

However, this is unlikely when you operate on an aggregators’ platform because a restaurant not taking part in discount campaigns — often going up to 50 per cent throughout the year — will be left out.

The average order value thus drops to Dh30 when discounts are applied and the restaurant ends up not making any margin. Most restaurant operators did not have full visibility of this costing because revenue from deliveries (20-30 per cent) made up only a part of the overall revenue until now.

Many of the brands keep their menu prices high — think of Dh45 for a plate of biryani — and then continue offering discounts through the year.

So you can see how aggregators are pushing restaurants into the ground by encouraging unsustainable discounting practices and unreasonable commissions.

– Shanavas Mohammed is Managing Director of Golden Fork Restaurant.