The UAE food and beverage market forecast
Written by Emanuela Lertora
The 2016 Food and Beverage Report released this month by KPMG reveals that the UAE food and beverage industry continues to be resilient. In the second and third quarters of 2016, 840 survey respondents living across the UAE, 60 brands, 550 outlets, and 2 of the predominant food tech players in the country gave their point of view on the current and future state of the market.
THE STATE OF THE UAE’S FOOD AND BEVERAGE MARKET
The UAE is one of the world’s leading food and beverage (F&B) markets, with its market size measured by Euromonitor at AED52.4 billion in 2015. The market has shown impressive resilience in a challenging environment over the last 12 months. While there is evidence that the UAE’s F&B market has been impacted by changing macroeconomic conditions, the sector continues to benefit from the UAE’s positioning as a major global tourism and retail destination with a diverse mix of cultures and ethnicities.
There are, however, a number of challenges that operators have to contend with. Increasing competition puts pressure on both topline and overheads, most evidently in the form of rising rents. Although the overall market outlook may be positive, these are challenging times for F&B businesses. Most F&B operators have been affected by changes over the last 12 months. Nevertheless, there are good grounds for a more optimistic longer-term outlook. Recent Euromonitor data suggest that a growth in revenue between now and 2020 is likely to outstrip the growth of outlets by around 30%. Some of this is predicated on continuing strong tourism growth in the UAE in the run up to Expo 2020.
CUSTOMER DEMAND FOR EATING OUT
Consumer demand for F&B offerings remains robust—people in the UAE, residents and tourists, like to eat out. The consumer survey results indicated that the vast majority of people are eating out at least as much as last year, with around one-third of respondents indicating that they are eating out even more frequently.
In addition to strong consumer demand for eating out, the report revealed that the majority of respondents have increased their spend per meal.
Of the respondents, 63% are spending more than last year—only 9% are spending less than last year.
People are less likely to cook and eat dinner at home than any other meal (67% eat dinner out every weekend), and they are prepared to spend more when eating in a restaurant than on takeaways. Brunches, something of a UAE tradition, tend to see higher spends and are extremely popular.
Out of all those surveyed, 42% will spend AED101–300 for a brunch, while 14% are happy to spend more than AED300.
While there is considerable optimism regarding the longer-term prospects for the sector, the short-term outlook has been dampened by current macroeconomic conditions. Only one in four of the operators expect to see improved market conditions in the short term. As the market grows, the UAE in general, and Dubai in particular, continues to attract new players, resulting in increased competition. For individual operators, this means a growing struggle for footfall and revenue.
There are also specific issues affecting the sector, including increasing rental costs, the race for space, rising food costs, and the increasing attrition of trained staff. In aggregate, these challenges may force some operators across cuisines and formats out of the market.
Despite the market’s growing overall, 64% of operators surveyed indicated that same-store sales over the last 12 months have either been stagnant or have declined.
Operators might be well advised to take a cautious approach—trying to achieve growth through continually opening new outlets—or rapid geographical expansion could be unsustainable. In the longer term, the appeal and the quality of the concept will determine success. Operators need to test, understand, and protect the viability of their concepts. In a market characterized by discerning consumers and ever-increasing competition, simply focusing on geographic expansion rather than developing a strong brand presence could be counter-productive.
In conclusion, we can state that the medium-term outlook for the sector is positive, particularly as the number of tourists is widely predicted to continue to grow. Therefore, the F&B sector will luckily see increasing investments in the market. Operators will, however, need to work harder to identify gaps in their market to get the ingredients for success right.