January 31, 2019 |
In the United Arab Emirates there has been a point in time where it became very en vogue for real estate developers to add an operational F&B arm to their business. Now, the idea of operating some of the prime units in their own developments has clear benefits from an asset management point of view. But why do some of these otherwise very successful companies fail when they venture into the operational F&B business? And why do others succeed?
You will see that you knew the answer to those questions all along once you have a look at the two following real life examples of success and failure in Dubai:
Here we look at one of the leading real estate developers in UAE, known for their high-quality prestigious projects that have changed the shape of the city. When they started their F&B division, they hired a knowledgeable team to get things going and execute all the planned restaurant openings. Millions of dollars were spent to create beautiful concepts in collaboration with well-known chefs and designers, believing that they would take the market by storm.
Unfortunately, however, only little thought had been given to the customer’s needs and if these concepts would actually fill a specific gap in the market. “Make it look nice and they will come” seems to have been the motto instead of getting the concepts validated by the customers first. Internal politics and a company culture coined by fear of decision making and “flying under the radar” made the company too slow to react to market trends and changes in consumer behaviour.
The result is that they recently closed down several of their venues after operating them at a loss for three and a half years.
Our success story is about a mid-sized real estate developer with a focus on hotel and serviced apartment projects. They always had a few restaurants through the hotel operations in their own developments and initially these venues have been overseen by their in-house asset management team.
However, when the company decided to create a separate foodservice division in order to give it a higher importance, they brought in an F&B specialist with a long and proven track record of developing successful and profitable concepts. They had him take over and head all F&B operations with the freedom to restructure the offerings, reposition the brands and do what is necessary to succeed in the market.
The strategy was then purely built around the consumer’s needs by developing “affordable lifestyle destinations” as they recognized value for money being a key driver in today’s F&B market in the UAE. A lot of effort has been put into researching what the customers actually want and subsequently building brands that fill the perceived gaps in the market.
Quick decision making, a feel for the market and direct feedback from the consumers enabled the company to stay ahead of the curve and in a short period of time they introduced restaurant and bar concepts that have already become some of Dubai’s most loved venues for a day or a night out.
In summary we see yet another proof of consumer-focused companies staying on the winning side, especially in a market based on so much competition and short-term trends as the UAE. By doing a thorough research and studying your customers, it is possible to create great and profitable businesses in a smart way without sinking enormous amounts of money into them which then would have to be recovered by a higher spend per head. Know what the consumers want, keep the development costs low and give your customers value driven experiences.