Expo 2020 Dubai a potential bright spot for struggling UAE F&B sector

KPMG’s annual UAE Food & Beverage has revealed a local sector continuing to struggle, with one of the largest restaurant footprints in the world – although a growing number of tourists and the upcoming Expo 2020 Dubai showcase give cause for cautious optimism.

In its fourth annual survey report into the food & beverage sector of the UAE – far and away the largest of the Middle East – KPMG has found a sector continuing to struggle against a number of challenges, yet demonstrating resilience with a cautiously optimistic medium-term outlook; an increasing number of visitors and next year’s Expo 2020 Dubai extravaganza remaining bright spots on the horizon.

Among the challenges, in what KPMG describes as largely a continuation of last year, is the increased competition (and expectedly still increasing, as per the growing retail ‘gross leasable area’ in the UAE), with Dubai having a restaurant footprint – the number of restaurants against the resident population – greater than that of Singapore, London or New York, and behind only Paris.

As a breakdown, Dubai according to KPMG’s analysis features 2,935 restaurants per million residents, close to par with New York and compared with 2,772 in London (while Paris is way out ahead with a massive 3,656 restaurants per million residents). Looking closer, when overnight visitors are factored in, Dubai then has 482 restaurants per million – behind the notoriously cut-throat industry in London (585), but far more than the 351 figure for New York.With subdued GCC economic growth, higher operating costs, and ‘comparatively tepid’ consumer sentiment thrown in, the majority of operators in the UAE have reported a like-for-like decline in growth over the past twelve months, nearly 30 percent declaring a substantial decline of greater than 10 percent. A further 42 percent of respondents stated a decline of up to 10 percent, while 8 percent have remained flat. Seven out of ten don’t expect a change of fortunes in 2019.

Yet, despite the subdued sentiment for the year ahead, 80 percent of the operators surveyed still expect growth in the medium-term, with the 25 million visitors expected over the six-month Expo 2020 Dubai showcase undoubtedly set to provide a boon. In the interim, many local operators have responded to the challenging market by improving operational efficiencies to maintain margins, while making the tough decision to off-load poorly performing assets.

A further cause for optimism is the UAE having the highest growth projection for overnight visitors – with the Emirates, the third-most visited city globally behind London and Paris, already at the top of the list for spend per day per visitor according to a 2017 Mastercard study ($537 over the 3.5 days average stay – compared to $301 in Paris over an average of 2.5 days). A caveat though: the growing tourist numbers are primarily from the Asian market, a demographic which tends toward budget-friendly trips and more familiar cuisines.

“2018 was a challenging year for the F&B industry, in the face of increased competition, higher operating costs and comparatively tepid consumer sentiment,” concludes Anurag Bajpai, Partner and Head of Retail for KPMG Lower Gulf. “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.”