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Mon 12 Jan 2009 04:00 AM

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When it comes to the crunch

The men behind some of the region's biggest F&B brands met at The Meat Co in Dubai's Souk Al Bahar to discuss the impending credit crunch, the importance of brand standards and their issues with landlords.

The men behind some of the region's biggest F&B brands met at The Meat Co in Dubai's Souk Al Bahar to discuss the impending credit crunch, the importance of brand standards and their issues with landlords.

Tell us about the brands you represent in the Middle East.

Mokhles Bustami: We have many brands; a lot of them are local Dubai brands, such as Japengo, Café Havana and Bella Donna. We also have franchises from Europe and North America.

Simon Pehaligan:RMAL Hospitality is part of the Al Fahim Group, a family-owned Abu Dhabi-based company.

We have Trader Vic's restaurants, Mai Tai by Trader Vic's, Frankie's Italian Lounge and Grill and also the Wagamama brand.

We're also currently looking at opening a new hotel in Abu Dhabi, with 369 rooms and several restaurants, which will be managed by Fairmont.

Walid Hajj:Cravia was previously named the United Restaurant Development Company; we are the franchise developers for Cinnabon, Seattle's Best Coffee, Zaatar w Zeit and recently the Roadster Diner concept from Lebanon.

Rob de Villiers:Our company is called Food Fund International and we have two brands up-and-running in Dubai, The Meat Company and Ribs and Rumps.

Sami Daud:At Gourmet Gulf Company we currently have Gourmet Burger Kitchen, Yo! Sushi, California Pizza Kitchen, which is a new addition, and Morelli's Gelato.

What are the current major challenges that operators in the region are facing?

Bustami:For outlets such as ours, a big challenge is the malls - delays with construction and so on. We often talk about how tough it can be to finalise all the details of a project and simultaneously coordinate with the landlord to fit with their time plan.

Pehaligan:One of the main concerns for us is the actual fit-out time for projects.

Depending on the style of your restaurant it can be shorter or longer, but some of the malls will give you just 90 days to do a full fit-out, which for certain concepts is just not long enough.

Hajj:I find the biggest challenge is that we are operating in a seller's market, so the landlord has a big take - up to now, that is. I don't know how the current global situation is going to affect this but until recently, the landlord could dictate whatever price they wanted.

So you get outlets, even small players that have been attracted by the industry boom, who want to enter the market at any price. They come in and throw money right left and centre, paying whatever rents the landlords ask.

They come in for a few months or a couple of years, find that they're not successful and leave. But in the interim they have really ruined the market for the rest of us.

I'm of the opinion that over the next few years landlords are going to have to be realistic. It will take time for them to be affected by what is happening in the world, but there are some affects already: a lot of people are pulling out of malls, both small and large tenants who are running out of cash.

When you look at this situation on a micro level it's pretty bad, but when you look at it on a macro level, a long-term level, it's actually good for the market. It will get things back to realistic levels.

De Villiers:Definitely there's a positive to come out of it.

I think we understand the challenges that we all face, and it's understanding how turn them around and work with them positively that's important.

We're slightly different to a lot of the other outlets in place here in the fact that we're not actually a franchise, we're a company-owned and -managed brand, so that's one of our strengths.

The number one thing for us is to focus on our people. Brands often talk about the importance of people, but they don't necessarily understand how to develop people and how to turn negatives into positives in the workplace.

On top of that, the locations we pick are iconic locations and if you get that right it's also a big strength. So again, we try not to focus on the negatives but on the positive aspects that we can work with and think long-term.

Daud:To touch on an earlier point, despite the environment today, I don't think casual and fast-food dining has really been hit yet. People trade down in economic downturns.

Do I think something may come up? It's a possibility. But these malls and developments coming up all want restaurants, because restaurants are the biggest payers.

But then as Walid said, you have these guys who are fresh off the boat and think they'll try this out as well. And instead of looking at a location and estimating what their sales will be, they'll look at the rent and multiply that by 10 and believe that number will reflect sales.

You should never do that: you should work from the top down. But these people work from the bottom up. So there are great locations, but the astronomical rents mean you couldn't possibly make money there.

And the landlords point out that if you don't pay, someone else will. So that is what has really ruined our market over the past few years.

I'm hoping, with what's going on now, that a lot of these landlords will come to their senses and think long-term, as opposed to trying to make as much money as possible right away.

Hajj:Personally, with the brands we have, we've not been affected at all in the past few months by whatever is happening in the world. But I think it is coming; we'd be in denial if we felt nothing is going to happen.

First of all there's tourism - that's definitely going to be affected. And when that drops, our traffic is going to drop. Mall traffic has already gone down.

And when I said we live in a seller's market, that does not only apply to malls and landlords, it also affects the matter of providing housing for your staff.

Even regarding the people themselves - trying to hire and pay people fairly is impossible, in my experience, because of the inflated salaries being thrown around.

Bustami:Pirating, I guess, is the term that we'd use for that. Going back to what Sami said, I think the same players who took these locations at the malls and inflated the value of the location are doing the same thing when it comes to recruiting staff.

We have 1500 employees and the salaries that are being offered for them to move to other companies are hugely inflated.

What do to encourage staff retention and build loyalty?

Pehaligan:It's really about the quality of life you offer them as well as the salary.

You need to offer good quality accommodation and facilities, decent working hours, ensure the travelling time to and from work is as short as possible to allow more personal time; things like that are important.

Hajj:We try to do that too, offering people the best conditions we can, but at the end of the day if somebody's offered triple their salary it's very hard to keep them.

Daud:It's the same for us; you can show your employees a career path, but it won't necessarily work in the face of massive raises.

It happens a lot here, and it's very costly because the visa process is expensive - so you find yourself spending AED 7000 or whatever on a guy who's only with you for six months.

Pehaligan:And the companies who are offering these large salaries are looking to make

a quick profit, whereas I think the majority of us here today are long-term.

These companies are coming in, inflating the rents and the salaries and they're poaching staff, which never used to happen before.

De Villiers:What we found with our people is that they are asking to be taught and trained and not only in one specific set of skills - they want to improve and learn. So we've embarked on a serious roll-out plan regarding the development of all our staff, which also helps us retain staff as well as we possibly can.

Bustami:I think retention is definitely the key thing here and I also think we should not panic regarding the trends that we see with people offering 100% salary increases - a lot of staff who left are returning now, because these places they go to aren't in business anymore.

Hajj:As far as the effect the global economy will have on this region goes, I'm worried personally about preservation of wealth, what will happen to Dubai, all these issues.

But when you step back and look at it long term, I think it's an opportunity; an opportunity to shake things down.

Daud:Yes, to get rid of the riff-raff and leave the serious players, the long-term players. You know the word for ‘crisis' in Chinese is made up of two words: danger and opportunity.

For the past few months all anybody has talked about is this crisis, and you know I always say that it's a true opportunity, for all businesses. It's a great time to actually take a step back, have a look at how things stand and start to consolidate.

Hajj:We had a kick-off event for 2009 last week and that was exactly the message we tried to convey there.

Our industry in general is probably a bit more resilient than any other industry - we're not in finance, we're not in real estate, we're not in construction. But we are going to get affected and if we don't tighten the belt today it's going to hit us, so we do have to be very careful.

What are your plans regarding brand expansion over the coming year?

Daud:I think the key is to find solid locations. We are not in any way slowing down - we're a region-based company, we have operations today in the UAE, Oman, Kuwait and Bahrain.

We are under construction in Saudi Arabia, so by the end of 2009 we will be in all the Gulf countries and Lebanon. And I firmly believe there will be good opportunities coming along, real estate-wise.

As long as it's economically feasible, at least as far as Gourmet Gulf is concerned, we will not have any slow-down whatsoever.

De Villiers:I think most of us are thinking the same; we're definitely not slowing down.

We recently had the official opening of an outlet in Dubai Mall, we've just opened in Abu Dhabi, we're busy in Kuwait at the moment and we've got Qatar coming up next year as well. So the global situation hasn't really affected us at all.

Hajj:We've taken a slightly different stance actually, but that's not only because of what's happening globally but also by design.

In 2008 we doubled our stores - we went from 24 outlets to around 50. So 2009 is going to be a slower year for us.

We also want to be careful. We don't want to ruin everything we've built up over the years and we don't need to expand as much as we did for the past few years.

We have the new brand onboard, for which we're going to open three outlets in the first quarter of the new year, but we're going to slow down the Cinnabon expansion and slow down the Zaatar w Zeit expansion because we've reached satisfactory levels.

The plan is to acquire a fifth brand probably by the end of the year when things are clear, but we want to make sure we're not stretched too thin, especially given the circumstances and the financial situation.

Penhaligan:As I've mentioned already, we're opening in the hotel, which is a large project set for the second quarter of 2009. Then we're opening our second Frankie's in Abu Dhabi.

What we're looking at is long-term as well; we're working with the Dubai Pearl project, which is a three-year project with four hotels and around 80-100 restaurants. Of course there'll be different franchises going in there - fast food, casual, fine dining. Then later on we'll be looking at another Wagamama, possibly a third Trader Vic's in Dubai as well.

Bustami:At Bin Hendi, our expansion plans for 2009 are set - we're staying the course. We had a very strong plan in 2008, we opened 12 stores.

Now we're looking to have similar growth in 2009, both locally and abroad.

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