Dubai's restaurant boom faces rising costs and market saturation

Business Standard

3 days ago

From suspended tables to underwater lounges, some 13,000 food and drink establishments in Dubai pull out all the stops to attract customers in one of the world's most saturated dining markets.
They cater to all tastes and budgets. Some spots ladle out inexpensive biryani while others offer dishes dusted with edible gold.
These are some of the ways the emirate is competing with its neighbours Saudi Arabia and Qatar for tourist dollars and, so far, it's beating them handily. Dubai has more restaurants per capita than any major city except Paris.
But the city-state's booming restaurant scene is testing the limits of its growth-at-all-costs model, raising questions about how long Dubai can keep feeding its own ambitions.
A crowded and competitive market The competition is cutthroat, so presentation is key.
Gone are the days when it just tastes good, said Kym Barter, the general manager of Atlantis The Palm, a resort perched on a manmade archipelago that boasts more Michelin stars than any other venue in the Middle East.
But dazzling Dubai's food bloggers the most popular of whom have millions of social media followers isn't enough. Staying afloat means battling high rents and winning over a diverse and demanding group of consumers.
Dubai has roughly nine expatriate residents for every Emirati citizen. Most of its private sector workers are migrants on temporary contracts, and only Vatican City has a higher share of foreign-born residents.
Tourists, in turn, outnumber locals about five to one by some estimates, and they spend lavishly. Visitors to Dubai drop an average of over five times more than those travelling to nearby Saudi Arabia or even the US, according to global restaurant consultant Aaron Allen.
Dubai is on the right path to becoming the world's food capital, said Torsten Vildgaard, executive chef at FZN by Bjrn Frantzn. The restaurant, which runs at more than USD 540 a head, was one of two in Dubai to nab three Michelin stars in May.
We're only seeing the tip of the iceberg of what's to come in terms of gastronomy here, Vildgaard added.
With each new set of illuminated high-rises and hotels, another crop of eateries emerge, vying for patrons. The legions of construction workers powering Dubai's progress also need affordable options.
That growth, propped up in part by investor pressure on some of the world's biggest chains to expand in Dubai, has created what some analysts warn is a bubble.
If you're a publicly traded company like Americana, what are you supposed to do just stop opening restaurants? restaurant consultant Allen said, referring to the Gulf-based operator of KFC, Pizza Hut and other big franchises.
The frenetic expansion of Dubai's restaurant industry is part of a regional shift that has seen Gulf Arab states pour hundreds of billions of dollars into building out tourist destinations as they move away from hydrocarbons to diversify their economies. Saudi Arabia has a high-stakes, USD 500 billion project: a straight-line futuristic city called Neom.
But, in a Muslim-majority region, the United Arab Emirates has gone to lengths that some consider too much of a compromise, including relaxing restrictions on alcohol that fuel its pubs and nightlife and other social reforms.
High costs and failure rates The rapid development comes at a price. Dubai's restaurants have a high failure rate, industry veterans say, though local authorities don't say what the rate of closures is. In the downtown district and other prime areas, annual rents for restaurants can top USD 100 per square foot. That's on a par with some of the world's most expensive cities.
Still, the emirate issued almost 1,200 new restaurant licenses last year, according to Dubai's Department of Economy and Tourism. The department declined to respond to questions.
Empty tables during peak hours are common, even in top locations. Part of the problem, managers say, is that traffic congestion is so severe that convincing diners to drive out can be a tall task.
I sometimes go, Do I go into the restaurant right now, because I'm going to get into traffic?'' said Waseem Abdul Hameed, operations manager at Ravi, a Pakistani family-owned eatery famous for its official Adidas shoe line and a 2010 TV feature from Anthony Bourdain.
He knows restaurateurs who have had to shut up shop and others who are squeezed by slim margins and increasingly reliant on delivery apps, Hameed said.
The demand sends fleets of migrant workers racing through gridlock on motorbikes, with few protections and tight delivery windows. Emirati newspaper Khaleej Times reported the accidental deaths of 17 Dubai food couriers last year.
The math of Dubai's restaurant scene doesn't add up, delivery apps and wealthy tourists notwithstanding, restaurant consultant Allen said. He cited operating expenses that have more than doubled relative to sales since 2009, when a financial crisis almost hobbled the emirate.
Too many Dubai entrepreneurs, he put it simply, have too much money, and they don't know what to do besides open restaurants.