"Remember when we first met, and I told you there’s going to be a slowdown, and the bubble will burst? Sadly, I was right.”
Mazen El Zein is referring to what he believes is a saturated UAE food and beverage sector, which will be worth an estimated $13.4bn by end of 2018, according to a report by global audit firm KPMG. And that’s before an anticipated annual growth rate of four percent over each of the next four years.
El Zein is the chief executive and founder of Crystal Group, the force behind some of the region’s most lucrative brands including Crystal, Em Sherif and 40 Kong, the rooftop lounge that makes more than $81,700 (AED300,000) on weekend nights alone. But he is not in for an easy ride, he says, as we meet in the latter, a slick, New York-style venue located on the 40th floor of the H Hotel on Sheikh Zayed Road.
El Zein is seeing what he “feared would happen”: the oversupply of upscale lounges and restaurants, stagnant demand and low consumer spending. The supply issue will escalate further by 2020 – by 17 percent to be precise.
Property consultancy JLL predicts a fifth of mall space will be taken up by F&B outlets in the next ten years. In 2018, 1,000 new outlets are predicted to open, and that’s on top of the 80 or so new eateries that opened up in the City Walk development in the last 18 months, plus its sister project, La Mer.
A recent KPMG report revealed that as many as 64 percent of outlets have experienced flat or falling sales over the last 12 months, with company partner Anurag Bajpai confirming that supply increasingly exceeds demand. There is definitely no lack of eating out options in the Gulf country, he says.
“While the outlook for the sector as a whole has probably never been better, for individual players the market has become increasingly competitive and thus challenging.”
Emma Banks, general manager at Jumeirah Restaurant Group, agrees that the market has reached saturation point, stating that Dubai in particular is discount-driven due to its large pool of restaurants and bars. And while the surge in venues is partly to blame for the slowdown in the industry, a struggling global economy has exacerbated the issue, leading consumers to spend less.
And it’s going to get worse before getting better, according to El Zein. But the problem is not in the market itself, he argues, but the wave of amateur businesses from outside the sector looking to make a quick buck, leading to inflation at almost every level – from rents to payrolls and staff accommodations.
“It became very risky and expensive to do business here,” he says. “Today, we are seeing the consequences of good and bad competition that come to the market and take away from your share for a few months. It’s short term, but it still hurts. It’s the typical bubble, where everyone wants to invest in the same thing. And then, at a certain point, there are no more buyers,” he says.
But the F&B magnate believes there is still money to be made in the industry, with political stability and security in the UAE, coupled with increasing tourist numbers, making the country an attractive destination for investors. “Don’t misunderstand me. It’s a very profitable market. It’s the number one in the region and will continue to be, but it is a [maturing market] and it will naturally select the best. It’s not easy like it used to be. To succeed in the F&B sector today, you need to be the best. You can’t afford not to be,” he says.
One way to extend an often limited shelf life attached to many concepts in the sector is to identify challenges and quickly adapt. El Zein believes the market is currently growing by seasonality, which largely affects revenues. For example, at rooftop bar 40 Kong, the season is becoming shorter due to Ramadan gradually sliding up the calendar into the winter months again, while summers themselves seem to be staying hotter for longer – all of which prevents the venue from welcoming guests for as long as El Zein would wish.
As a result, 40 Kong was refurbished and its food offering expanded. The move was an attempt to encourage visitors to arrive earlier and enjoy a proper dining experience, as opposed to drinks and snacks, thus extending trading hours to compensate for a shorter window of operation.
El Zein is now considering installing a retractable roof over the lounge to keep it open all year round, as he did in El Chiringuito beach club and lounge adjacent to Rixos The Palm on the extreme tip of the Eastern Crescent. He reveals plans to open both brands in Beirut, Lebanon, where he is originally from, in the coming two years. While he opened and closed a number of concepts in his hometown due to a number of factors. including political challenges, he says now is the right time as Lebanon sees a recovering tourism market with its highest level of visitors since 2011.
His third venue, Lebanese fine-dining concept Em Sherif on the ground floor of the Address Downtown Hotel, with its spectacular views of Burj Khalifa and the fountains, was not as lucrative, having suffered from the New Year’s Eve fire that greeted the start of 2016. However, it is now recovering so well that El Zein launched its casual sister venue, Em Sherif Café, in City Walk, where the average bill is a more reasonable AED120 per person. Another branch is scheduled to open in Jumeirah by May, and a third is set for Abu Dhabi.
It is in the capital where the Crystal Group cashes in on annual events such as Formula One, hosting pop-up nightclubs on Yas Island, where the firm is planning to launch “Yas Beach” events of its own every Thursday this year. And while former F1 bigwigs such as Flavio Briatore and ex-owner Bernie Ecclestone have argued that F1 is a “dying sport”, El Zein says the leisure aspect of the race weekend is nowhere close to fading – certainly not in the party-loving UAE. The issue is more that consumers are spending less. Both ways, the founder is looking to casual dining in the capital as opposed to high-end concepts.
Judging by his plans, he seems to have the industry figured out, but he did not always know the tricks of the trade. El Zein opened Muze Lounge in Souk Al Bahar in December 2015 only to shut it down less than two years later.
“It was a mistake, due to the location,” he admits, which attracted a mid-market audience as opposed to the targeted high-end consumer. “And if you make a mistake, you have to cut it off quickly.”
One slip-up he is not planning to make is the transfer of VAT, which came into effect last month, onto his customers. “You can’t increase your prices because today’s customer is very picky, or at least, I wouldn’t recommend it,” he says.
Despite several restaurant and lounge openings, El Zein’s Crystal Group is known for its nightclubs, including its signature concept People by Crystal, which closed down after its location was sold for a price he claims he could not refuse. While he has plans to relaunch it elsewhere, he insists the concept will be completely new.
“The formula of Crystal as it is, is something that is behind us. The market has changed and you need to adapt. Music trends have changed. What people like to see in a club has changed,” he says.
One such trend is a boutique clubbing experience, which he has just launched at 40 Kong. The lounge will see the addition of an open-air terrace, called the Anti-Social Club, boasting a retractable roof allowing it to remain open all year round.
In spite of the group’s new openings, El Zein is not exactly optimistic for the next 12 months, adding that the challenges will continue. Last year, his firm saw a drop of 25 percent in revenue.
“It won’t be over yet,” he says of the forecast for 2018, though 2020 looks promising, according to him. Nonetheless, the F&B mogul remains bullish. There are a lot of opportunities in the market, he says, if one chooses wisely.
As for the bubble, it is a process. “In every bubble, first it bursts and there is blood on the streets; businesses close down, it takes time to clean, and then demand picks up, and you have a few players left,” he says.
Whether or not he will remain is yet to be found out, but it is only fair to root for the founder of the venues many of us in the UAE probably waited in line to get into.
After 14 years in the industry, Mazen El Zein shares the lessons he learned
Be brand aware
“If you have a concept that works, focus on it and grow it into a super brand instead of opening several different outlets. That is one mistake I made.”
Don’t be taken in by trends
“Like in every industry, they die as fast as they come up.”
Follow your instinct
“But also be rational. Your numbers need to make sense.”
Stay grounded and humble
“Keep your feet on the ground so you’re able to make the right decisions. We’re in a very tricky industry, where egos and vanity coincide. What matters is who makes it to the finish line.”
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