UAE is one of the most lucrative food markets globally, primarily driven by cities like Dubai and Abu Dhabi, which are hotbeds for tourists and ex-pats. The influx of tourists is owing to the cultural diversity prevalent in the country, leading to the restaurant industry’s growth. The country can cater to everyone’s food fantasy with its wide range of cuisines. Currently, the restaurant industry in the UAE is witnessing the worst situation ever, with many restaurants putting up “For sale” signs as they see it to be the only inevitable option to arrest the cash bleeding. The struggling restaurateurs have found it challenging to overcome the ill impacts of the pandemic and they are trying to discover the reasons why restaurants fail. The current state of affairs is due to a sharp fall in sales and stringent restrictions imposed on in-dining due to COVID-19.
However, the worst may be behind us, but the restaurateurs have learned their lesson in 2020 that they will not forget in the foreseeable future. In fact, these new learnings will eventually set the tone for the future of the restaurant industry in the UAE. This article will discuss the reasons why restaurants fail, the various challenges the restaurants will face, and offer some tips to overcome these challenges in the world post-COVID-19.
Top 5 Reasons Why Some Restaurants Fail In The UAE
To run a fruitful restaurant business in the UAE, first, you need to understand the challenges faced by the industry players and how they operate to overcome them eventually. Here is a list of the top 5 reasons explaining why restaurants fail in the UAE.
1. High Rentals
If you plan to start a restaurant in any part of the world flocked by tourists, you may end up with a place with high rentals, and UAE is no different. According to Restaurant Secrets, the average rental for any prime location in the UAE costs somewhere between $70 to $275 per sqft. It is too expensive given that the average size of a restaurant in the country is between 1,500 to 5,000 sqft. But there is a trade-off between healthy sales growth and high rentals – a poor location leads to low customer footfall, while a prime location comes at a higher price.
2. Too Much Competition
The restaurant industry was at the heart of the Dubai Expo 2020 plan that highlighted its importance in the economic growth of the UAE. This move, coupled with the industry’s lower entry barrier, led to a unique and lucrative proposition that attracted many investors and entrepreneurs. As a result, competition in the sector skyrocketed, and the restaurant-to-customer ratio increased disproportionately, resulting in too many service providers crowding the scene. In fact, the pace at which the number of tourists is increasing is unable to keep up with the rate at which restaurants are getting started every day in the UAE, and the outcome is straightforward – too much competition.
3. Poor Customer Experience
Poor customer experience is one of the reasons for the failure of a restaurant in any part of the world. In many cases, dissatisfied customers end up posting bad feedback for the restaurant on review sites and social media, which damages the image and reputation of the subject restaurant. The most common sources of poor customer review include inadequate sanitization, poor hygiene standards, delayed or mixed-up orders, rude & hostile attendants, etc.
4. Poor Allocation Of Resources
Some restaurateurs end up spending massive amounts of the fund on the most unimportant aspects of the restaurant, which eventually becomes the reason for its failure. For instance, it is not rational to spend on the furniture and ambience if you are struggling with the inventory. As a restaurateur, raw materials should stay at the top of your priority list, followed by other items like furniture.
5. Lack Of Proper Reporting And Analytics
Many restaurants don’t have an appropriate reporting and analytics system, which can cause a restaurant’s failure. The reason is that without any data on the daily operations, it is tough to assess a restaurant’s performance. Basically, even if you know that your restaurant is incurring losses in the absence of proper reporting & analytics, you will not be able to determine the exact cause of the loss.
Top 5 Tips For Survival Of Restaurants In The UAE
Now, the most crucial question is – how to overcome these challenges and thrive in this highly competitive restaurant industry in the UAE. Here is a list of the top 5 tips to help your restaurant survive in this demanding business environment.
- Choose a location that best suits the format of your restaurant while ensuring that the rentals don’t exceed 10% of the total revenue. Also, ensure that the location is close to your target audience.
- Rather than focusing only on acquiring new customers, you should invest in proper CRM software for retaining existing customers because 80% of the revenue in any business comes from 20% of its customers, who are repeat patrons.
- Ensure that your staff is trained well to follow all the necessary protocols in the post-pandemic environment to offer customer delight. Also, employ an appropriate customer feedback app to analyze the reasons for customer dissatisfaction regularly.
- Create a business plan to ensure the appropriate allocation of resources required for a successful restaurant business.
- Document and maintain all the relevant reports and transactions. Use restaurant analytics software to generate reports that the owner can review to keep track of the business.
So, a lot of planning and hard work goes into building a successful restaurant business. If you can follow the tips mentioned above, you can definitely overcome the challenges inherent in the industry. We hope this blog post helps you survive in the restaurant space in the UAE.