Restaurants and cafes in the UAE can expect their sales to decline further in 2018, primarily because of oversupply, a new report has said.
The report from consulting and auditing firm KPMG, which highlighted how many F&B operators in the UAE are struggling, said that people in the country are still spending the same on an average on food and drink.
But the number of F&B options in the country has dramatically increased, in turn spreading that spend across and affecting sales.
The report pointed out that if overnight visitors are considered, Dubai has a higher number of outlets per million than even New York.
“This will continue for the next 12 to 18 months,” Anurag Bajpai, head of retail at KPMG in the Lower Gulf, told reporters this week.
According to the report, 2017 was a testing period for F&B operators.
“65% have seen a decrease in like-for-like sales compared to last year, which was also tough,” Bajpai said. “It’s a dynamic market as far as consumer spend is concerned, but a lot of operators are not feeling this dynamism.”
Highlighting the oversupply, the report said that while F&B used to once only account for 20% new retail supply, it now makes up around 25%.
Among all F&B operators, fast-food operators businesses are being squeezed the most, with margins of only 5-12%. High-end restaurants, however, are enjoying margins of around 25-35%.
On the introduction of Value Added Tax (VAT), which will see all meals increase in price by 5% beginning January 2018, the report said that while some operators will be able to absorb this rise, for fast-food operators, it will squeeze already tight margins.
“Operators believe VAT will have a marginal impact on consumer spend. It will be a temporary impact, and in due course, and short-term, the spend will come back,” Bajpai said.
The report also placed some blame on the squeeze at food tech businesses such as Deliveroo and UberEATS, suggesting that they are forcing F&B operators to cut their margins further, and impacting their top line.