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Restaurateurs beware: diners may choke on your price rises

The food and drink sector contends with fluctuations in both customer income and the cost of food, energy, and rent

La Cantine du Faubourg, Dubai
Beef and chicken are among the restaurant staples that have seen a steep price hike

Everyone’s talking about inflation. Despite the UAE falling below the global average inflation rate of 7.9 percent, a recent survey found that two thirds of consumers in the emirates are “somewhat or very concerned” about rising prices.

As business owners we now tread a fine line between protecting consumers from rising prices and protecting our businesses. 

This is hard to do in the food and beverage (F&B) industry – an industry that carries the double-edged sword of being both reliant on disposable income and on the three things inflation tends to be benchmarked on: food, energy and rent.

The way restaurants deal with this varies. Some have the stamina to absorb costs for a longer period based on their procurement power and ability to stick to their existing pricing strategy – they opt to have loss leaders on certain items in a bid to keep order volume.

Others are quick to pass any rising costs onto their customers at the first opportunity.

A neighbourhood business that relies on repeat local business, where customers know their prices inside out, is more likely to suffer than a restaurant that relies on tourism and can counter the increase with certain campaigns and promotions to dilute the focus.

Both strategies pose risks but businesses need to be careful as to how they roll out the increase, as flat percentage increases across every single item and service usually bite back.

Absorbing costs is always appreciated by consumers as it shows market support, so any increase needs to be done tactfully, marginally and reasonably.

The cost of goods is always a starting point for any pricing strategy and so it’s important that pricing reflects that.

The two raw materials that have seen the biggest rises in cost recently are chicken and beef, and so consumers are more tolerant to price increases in dishes that consist of these ingredients than they would be to an increase in a cereal-based dish, which has decreased in cost. 

There is always the opportunity to reshape menus wherever needed.

With retail rents rising by 10.5 percent this year it should be no surprise that results from the UAE Restaurant Group Leaders’ Sentiment Survey in June showed that rent negotiations were the biggest priority for business owners. 

Restaurant, Chair, Furniture
Nobu restaurant in Dubai

Landlords must realise that, even in Dubai, there must be a ceiling for price increases and that, without profitable restaurants or retailers, the demand won’t be there.

I previously estimated that between 10 to 15 percent of businesses won’t survive due to the increased cost of living, and sadly I have yet to see anything that makes me change my mind.

Although falling energy prices have provided some relief recently, the cost of electricity, gas and oil is still considerably higher than it was this time last year.

Restaurants must continue to monitor energy efficiency, whether that’s switching to more energy-efficient equipment, ensuring fridges and freezers are airtight, switching to LED lighting, or even making sure pans aren’t too big for what’s been cooked inside.

Transportation costs are something harder to control and so it’s also important we look at ways to locally source which negates the need for air miles. Many restaurants are starting to grow their vegetables – another big step in becoming more sustainable. 

It’s important for restaurants to remember that as quickly as prices go up, they must also be prepared to lower them once inflation has calmed down. 

Inflation should never be an excuse for increasing prices beyond what is necessary, and it’s only right that customers who often have price rises passed onto them benefit when times are better.

Naim Maadad is chief executive and founder of Gates Hospitality and a board member of UAE Restaurants Group

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