The Dining Dilemma - by Daniel Morgan
Whilst headline conversations about hotel F&B focus on chefs' names above the door or the casual//fine dining schism, they may be missing the point, claims Roya International's Daniel Morgan. Instead, he argues, owners and operators should be more concerned about the money-pit of all day dining.
I spend my life advising owners and operators about F&B, especially in the Dubai market. My background in F&B began as a chef with Terence Conran's iconic Bluebird restaurant in London and then moved into restaurant management with Conran Restaurants, Oliver Peyton Group and most notably, Heston Blumenthal’s Fat Duck Group where I managed day to day operations of his 3* Michelin flagship restaurant, and assisted in the opening of Dinner in the Mandarin Oriental in London. I relocated to the UAE in 2006 and have worked on various F&B projects for a number of developers. In between, I have also been a consultant for Dubai Holdings and TDIC in Abu Dhabi.
Enough about me. What is happening in the market? My personal perspective - and I'm not alone in this, of course - is that growth has been rapid over the past few years driven in large part by the success of operators within DIFC. With a slow property market, investors and owners have seen the huge potential of F&B and that has driven expansion across the city. The influx of investment and the number of international licenses have in turn driven rents up, although I believe we're probably now at the top of the cycle. The flip side of this is that there is now a much larger risk to fail, especially at the high end.
However, investors and owners need to understand more clearly that F&B is not their core competence and look more to professional management from the international market. We're going to see change - the market is no longer where it was a year ago, thanks in large to reduced visitor numbers due to the Russian economy, the weaker Euro and all things related to oil prices. The key problem investors are facing is that the market can change suddenly but researching, licensing and kitting out a restaurant is a 9 to 18 month cycle. For hotel owners, I think increasingly they will lease out space to outside entities and we're seeing more and more of that.
So, has the 'fine dining' market peaked? Although that's not a term I really use - let's say 'high end' instead, I certainly believe that owners and operators need to be looking much more closely at the more casual opportunities - places, for example like Fume or Tom and Serge. I believe diners are increasingly looking for more current or up to date concepts and at more accessible price points. I mean, if people are eating out three times a week then the 1,000 Dirham meal is a bit of a challenge!
Does that then mean the end of big name chefs here in the UAE? Not at all - Jean-Georges has arrived, Ramsay is returning, and Jason Atherton opens after the summer with other major announcements being rumoured around town. However, the market is definitely changing. Look at Atlantis - when it opened, it was ahead of the game with an all-star line up but now it has reduced to two 'name' restaurants and converted to a more casual approach. Even the upcoming Gordon Ramsay restaurant in the property is his casual brand rather than the high end.
What to me is the most interesting question at present is this: with hotels divesting themselves out of spaces, what's the future for all-day dining? This is normally a requirement that forms part of their license from the authorities (DTCM / TCA ...etc) and they're also operator run and not something that you can do away with. The challenge is that the space is what it is - it has to cope with breakfast, and because that is generally buffet style it's hard to reimagine the space for lunch and dinner service. So we get the dreaded all-day buffet that does hotels no favours. The issue is that the space is primarily seen as a breakfast location and that big, dare I say ugly , room generally gets little investment in staff or design. How do hotels drive volume in that situation?
The reality surely is that guests in the hotel for a week stay will generally have breakfast every day and maybe one lunch and perhaps one dinner there, with other meals at other restaurants in the property, or elsewhere in the city. In my view that suggests that hotels should place more emphasis on the quality of food & delivery that will be a guest's main experience of the hotel's F&B. So, there needs to be a change of mindset in order that the all day restaurant is positioned as a destination that also happens to serve breakfast. But how do you turn a buffet restaurant into an a la carte one? How do you design it? What's the nature of that hybrid? Then recruitment has to be addressed - service and kitchen. Operators need to take on board the likelihood that if they develop the concept themselves it will lack identity - and so likely fail.
The key elements of success, therefore, are having an exciting destination with an accessible and affordable menu delivered by a good chef and front of house team. It's that simple! Of course, there will still be challenges. How do you pull back a breakfast diner to evening service? In the GCC, you have to have a breakfast buffet - people expect it. It's not like New York where you can have a table of muffins, coffee and juice in the lobby for people to grab and go, so you either have to have a hybrid restaurant or else solve the riddle of how you make buffet a destination.
The question then is, as an operator, can't you just forget breakfast? That's difficult. A GCC family plus domestic help, will all want a sit down breakfast , so the all day dining space has to function and serve them. So I think the operator needs to establish a brand and define a concept that works outside of breakfast, bearing in mind that many people want set or business lunches and then stress on the price point and quality of service to attract hotel residents in the evening. The concept needs to be based on a casual, sharing concept because you cannot do fine dining in the evening in the same space. A prime example of this success is "Market" at The W Hotel in Doha (a hotel, we oversee as Asset Managers). Much of the success of this outlet is attributed to its flexibility, in terms of design, food offering and pricing.
Overall, I think we're in an exciting time and moving forward there could be major changes that will make the F&B sector even better. We're seeing a growth in the number of entrepreneurs who are making an impact - look at Qbara and Fume, for example. I believe we'll start to see licensed standalone restaurants, although there's a good market for unlicensed places.
The kind of change that I think is interesting is the example of Silvana Rowe. She came to Dubai with a reputation from London and has quickly shown that there's a market for the smarter, younger GCC audience, especially if you have a high profile restaurant as she has Downtown.
However, the reality of the market is that maybe a third of all new restaurants will fail due to underperforming or too rich key money. The problem is that, even as industry experts, it's not always possible to discover the reality. With the current state of leases, it's actually hard to close and there will always be high net worth individuals who see F&B as an easy way to go, even though they don't have the knowledge or the competency. So many of them were inspired by the stunning success of Zuma, but for every Zuma there's a money pit out there. I won't name it, but one well-known restaurant in Dubai is losing significant amounts of money every month. How? It's personnel costs are 60% of revenue, it's food costs are almost 50% of revenue and so on. You do the maths! So why hasn't it closed? In part, I suspect because it's either a vanity thing or a desire not to lose face.
The central problem with the local market goes deeper than this. Because restaurants are seen by so many as lifestyle, and not food destinations, we're not seeing the growth of small operator, start-ups that have revolutionised the dining scene in Paris, London and New York. Can we change this? Well, landlords could start giving breaks to young chefs wanting to start on their own - that would be great! I'm also asked quite often about pop-ups - why aren't we seeing them in any real numbers, though I think Ghaf Kitchen's Ramadan Garden in Al Quoz is a great idea. The main issue here is one of staffing - our visa system makes short term pop-ups virtually impossible, though the changing food truck market is interesting and well worth watching as it develops.
We need to see more innovation. We need to see more drive from younger entrepreneurs, chefs and restaurant managers, perhaps we even need Michelin to come here to create a culture of aspiration, though I'm doubtful it would award more than a large handful of stars. Reflets par Pierre Gagnaire would deserve one, but after that? It's the number one in town but why would Zuma get one here when it's never received one in London? And so on.
Finally, as I eat out a lot and keep my eyes open, perhaps I should reveal some of my current personal places? Jean-Georges has gone straight onto my list - I love the two space concept and the food is great. The boulangerie floor of La Serre works very well for me. I think El Sur ticks many of the right boxes, especially in terms of the food. Tom and Serge's new venue is really interesting. I'm a still a fan of Thai Kitchen and Wox at the Grand Hyatt is great for a quick bite.
Emirati food? I find it interesting but maybe too much of an acquired taste for general acceptance, however I certainly support moves to make it more generally available for tourists to the Emirates. After all, we wouldn't go to Istanbul or Barcelona, for example, without wanting to try the local cuisine, would we?
"One good example of a new trend in the market is the Innovative Dining Group's Delphine Restaurant & Bar, which we brought to the H Hotel. It's Hollywood with an Islamic twist!"
Daniel Morgan is General Manager for F&B Development & Operations at Roya International, whose main role is advising both owners and operators of hotels and standalone restaurants as part of the Roya International team. Critically, his work involves staying ahead of trends and keeping track of global F&B innovation.
A version of this article appeared in the July 2015 print edition of Hospitality Business Middle East : http://www.hospitalitybusinessme.com/
Issue Driven - by Tony Allen
The hospitality sector looks tremendously exciting and profitable for investor owners but, warns Tony Allen, Design Development Director of leading hospitality consultancy Ròya, choosing the right model of operation is critical.
The Ròya team has over 200 years combined regional and international hands-on hospitality experience and direct access to the industry’s leading consultants, providing total hospitality advisory, total management and development solutions, concept inspiration and the skills that every developer and owner requires to realize their vision.
For over a decade, Ròya has established a client list that includes some of the region’s leading private investors, governments and private and public sector organizations. During this time, it has also developed close working relationships with some of the world’s finest architects, engineers, contractors, international hotel operators and hospitality consultants to create some truly iconic properties.
What would you say is the biggest issue facing the market at present?
Well, here in Dubai, one of the issues for hotel operators is that their business model is firmly built on the full service hotel, with extensive F&B provision which, historically, has been seen as a significant part of revenue. Despite a desire from DTCM, some owners and the increasing demands of the regional market, they’re reluctant to open a dry hotel. There’s a kind of resistance here in Dubai where market is open to full service operators - it would confuse people if a brand had a full service hotel and a dry hotel in the same city.
Well, it’s a different operational model than the one the large operators are used to in their major domestic markets, is it? What are the other differences in models?
If we look at the US, which is the most developed market, we see a number of different operational models. Firstly, the owner/operator. Next, we see the owner working with a major brand as the operator, with a standard management fee based on income and operational profits with probably an incentive fee for increased profits because both parties clearly have an interest in increased profits, plus a percentage of revenue being applied to CapEx. Thirdly, we have the case which is still pretty rare in this part of the world: the owner taking a franchise. Our market is not that mature though clearly we’re seeing this model in retail or F&B. A clear thing about the franchise model is that it’s not normally upscale brands being involved and, for small hotels, there really isn’t a franchising business case.
Are brands not then interested in owners taking franchises here?
I think they are but there’s a general lack of experienced operating people in this space - that is, ones with experience in running franchised properties. It’s a good way for a brand to get market reach but it probably takes a more entrepreneurial market than we’ve been used to. Of course, we’ve seen large companies develop here from the local market - Jumeirah and Rotana are prime examples - who are now mature enough to open globally. So the model is changing and, whilst they can compete against companies like Starwood or Hilton, it’s still a discussion about how much their local brand equity is currently worth outside the region, just as is the value of other local brands from other regions are in the UAE. Yes, of course that will change.
So who is holding back the market, owners or operators?
I think some owners lack a wide enough experience of the hospitality sector - it may not be their core business. Look, if I pay an international brand to put their name over the door and then pull in a white label company to operate it for me, it’s really the same model and me paying twice except that there may be lower fees and probably a ‘better deal’ from the white label company. Fixed guarantees, debt servicing, budgets - there are a number of negotiating points.
So owners are caught in some tough decisions?
Absolutely. Numbers versus location. Quantity versus quality. Finding the right partner and location at the same time with a long-term deal. These are all serious issues and will get more important as the market matures. Remember, it’s still relatively young here.
Do you think owners are unsophisticated?
No, it’s not that. They certainly think that hospitality is a big profit area and many of the regional professional hotel investors are not emotionally driven. However some may think more like this: “I have a great piece of land in Al Quoz, find me Four Seasons or Louis Vuitton!” So, yes, I do think that expectations have to be more aligned with market reality. Hospitality is an absorbing business and certainly some owners tend to be a little proprietorial and see the property as an extension of their social or business life. This is a serious industry sector and they should focus their level of involvement on the financials.
What is the main driver in the market?
A lot derives from the mega master planned developments which help dictate overall stock levels. Where hotels will be built? What will they be? What is the capacity? I think we’ll see more incentives for the mid-range, the 3- and 4-star stock, as the market matures. The reality is, however, that land prices make it prohibitive for very low-cost properties. What I think we’ll now see coming on-line pretty quickly are developments around the new airport, together with wider consolidation and in-fill development.
What would you like to see in the regional market?
I think we need an appetite for new operators as the established ones are in need of a bit of a shake-up. The stock is also quite unbalanced - for instance, I believe only New York has more Starwood brands than Dubai! This is why it’s important for owners to select locations and partners carefully. One other area not fully considered is the relationship between the GM and the owner, since he’s the local guy with local knowledge running a multi-million dirham business, rather than some remote executive back in corporate.
And the problems of dealing with owners?
They need to be flexible and they really need to understand how much happens between development and opening in terms of legal stuff. A property is a long-term commitment. In many cases, owners can be too emotional: “I’m employing you so make the most of this asset!” or “I like Arabian food so I want that kind of restaurant in my property!” These relationships can be quite intimate, so it’s important to get it right. Sometimes we step in as the surrogate operator, although we always work for the owner but sometimes generic operator input is useful. One final area that some owners also struggle with is the issue of staff accommodation - do you build or rent?
“I think we need an appetite for new operators and brands as the established ones are in need of some fresh competition. The stock is also quite unbalanced - for instance, I believe only New York has more Starwood brands than Dubai!”
A version of this article appeared in the June 2015 print edition of Hospitality Business Middle East : http://www.hospitalitybusinessme.com/