Recipe for resilience
By Business Today Reports Published: 10/08/2016 11:00 am
Despite a sluggish economy, the fast food industry in Oman is holding strong and is poised for continued growth as new players enter the market and existing ones expand their presence .
It is true that fluctuating oil prices have put pressure on GCC economies and most of the governments in the region have opted for austerity and discretionary spending. People are also spending cautiously, but the one area that they still haven't cut down much on is eating out. Go to any mall in the city and one can find the food courts full of customers, mostly families. Same is the case with most of the popular fast food or casual dining restaurants. This supports the adage that fast food is a recession-proof business.
The food services market in GCC countries, including Oman, is expanding rapidly because of a rising population and increased propensity to spend. The sultanate's fast food and casual dining sector is enjoying good business on the back of increasing demand and the market is becoming more competitive. New players are entering the market while existing ones are expanding their presence.
From a time when there were a handful of options for eating out, the country's restaurant segment, especially fast food and casual dining, has undergone tremendous growth in the last 15 years. PizzaHut was the first international fast food chain to open in Oman 30 years ago and there was hardly any competition. Now name any globally known pizza, sandwich or burger chain and there is a huge probability of finding it in Oman, at least in Muscat.
Yogesh Shah, general manager at Khimji Ramdas Restaurant Division, the sole franchisee for Pizza Hut in Oman, says, “Pizza Hut is a popular choice for Omanis and we enjoy excellent growth in the country. We were the first organised international fast food chain to open in the sultanate 30 years ago with our first outlet in Qurm. From then on we have been growing in double digits for most of the years.”
Shah claims that Pizza Hut enjoys around 40 per cent share of the overall fast-food market in Oman and 60 per cent of the pizza segment. International brands like Subway and Domino's entered this market in the last decade and have established themselves well here.
Rakesh Natarajan, operations manager and field consultant at Al Dhya National Enterprise who are the development agents of Subway in Oman, says that the brand has seen tremendous growth in the past few years.
The brand, which had seven outlets in 2010 has expanded to 39 by 2016.
“Oman is the fourth largest market in the Middle East for Subway in terms of restaurant count after the UAE, Saudi Arabia and Kuwait. With 39 restaurants, Oman makes up for around eight per cent share of the Subway chain in the Middle East,” says Natarajan.
US-based pizza chain, Domino’s Pizza began operations in Oman in 2007 and Geogy Varghese, operations manager of the chain, says that the brand has experienced phenomenal growth, especially in the last two years.
According to Varghese, Domino’s Pizza has quite a good percentage in market share in the pizza segment with delivery being their USP.
The rise in the number of young, educated and employed Omanis in the past few years also spurred demand for variety in food options and this has encouraged many entrepreneurs to open distinctive brands in the country. These outlets are also attracting great interest among patrons, showing the evolving taste among the population.
Bin Mirza International entered this segment in 2004 with Nando's and Second Cup. The success of these ventures encouraged them to bring a variety of food outlets in Oman. Jannat Moosa, marketing director of the company, says, “We started by obtaining franchise rights to Nando’s and Second Cup, a year later we acquired CinnZeo Bakery before adding BreadTalk, Steak Escape Sandwich Grill, and Spun Candy to our expanding portfolio.”
Their outlets include five BreadTalk outlets, three Nando's outlets, seven Second Cup outlets and one each of Steak Escape and Spun Candy. That company has closed CinnZeo outlets.
Jawad Sultan Restaurants opened two international brands – Canada based New York Fries and Italian coffee chain Espressamente Illy – last year and according to the management both brands are enjoying good growth.
Junaid Kader, general manager of Jawad Sultan Restaurants, says, “New York Fries started in January last year and we have seen exponential growth. The first outlet opened in Shatti, followed by our Salalah outlet in Salalah Gardens Mall and the third one in Oman Avenues Mall. On an average we have been growing 30 per cent across all outlets.
“Our first Espressamente Illy outlet was launched in October 2015 in Oman Avenues Mall and in the nine months we have seen a month on month growth of about 30 per cent.”
Economics of appetite
With many companies cutting down on costs and freezing salaries due to fluctuating oil prices in the last one and a half years, people have been spending money cautiously. But according to industry insiders this hasn't impacted the restaurant business much.
Shah says that the food industry is almost recession proof and food is the last thing people cut out on. “People might cut down on the portion size or the side dishes but they will still go out to eat. Our demand is cyclical, which goes up during the salary week and festivals.”
Jannat adds that the state of the economy and the fluctuations in oil prices has had an impact on people and their spending habits. “While we have experienced a bit of turbulence in terms of sales, this has been another year of success for Bin Mirza International, thanks to the opening of new locations, the signing of major agreements, and the profit we have been able to make despite the economic challenges we are facing.”
PizzaExpress, an international premium casual dining restaurant brand in Oman, has seen its sales impacted as majority of its customers are expatriates. However an increase in new customers, especially Omanis have aided in balancing the numbers.
“PizzaExpress as a brand is reliant on expats who constitute 90 per cent of our customers. Because of the economic slowdown and low oil prices expats have been leaving the country and this has had its fair share of impact on the business,” says Lojo Karathra, operations manager of the UK-based chain. Karathra adds that they are trying to attract local customers by organising blogger events and a chef’s table recently.
A potential growth area for these companies is online/mobile app orders. Domino’s started a trial run in July for online and app based orders and will do a heavy campaign to promote these channels. Other markets in the Middle East according to Varghese are getting 50 to 60 per cent of their orders online and Domino’s Oman is targeting at least 40 per cent of the orders to come from online by the end of the year.
With intensifying competition and improving business, most of the existing brands are expanding quickly to strengthen their foothold and are planning to open new outlets, especially in the interiors.
Subway currently has 39 outlets of which 33 are in Muscat, four in Salalah and two in Sohar. “Shortly we will be opening in Sur, then in Nizwa, followed by Buraimi. We are also looking at other outlets as well. Our goal is to reach 55 outlets by 2019,” adds Natarajan.
Pizza Hut currently has 38 outlets, of which 80 per cent is in Muscat (up to Barka). It has four outlets in Salalah and also in Ibri, Sur, Nizwa, Wudam and Sohar. “We have been the pioneers in starting outlets in the interiors and are looking at locations like Fanja, Bahla and Ibra. Our new outlet is under construction and two more locations are being finalised. We plan to open around five outlets every year. Within the next two years we want to reach the magic figure of 50,” says Shah.
Bin Mirza International is also opening new branches of existing franchises and plans to extend their presence outside Muscat. They are also adding new brands to their portfolio. Jannat says, “This year we will be opening a Nando’s in Al Mouj, Muscat in August. We have tied up with our seventh brand, the award winning pan-Asian restaurant Wagamama, and plan to open its first outlet in the sultanate either in late 2016 or early 2017. In addition to that, we recently acquired French-based bakery and pastry-maker, Caramel, which will be relaunching it soon.”
They have also recently signed a management franchise agreement to operate Shell Marketing Company’s Deli Cafés across the oil company's network of over 150 retail service stations.
Domino’s Pizza currently has 13 outlets and are planning to open ten outlets in the next two years taking the total to 23. They will add four outlets this year of which three will be in the third quarter of this year in Al Khuwayr, Mabelah and Amerat. Besides these they are also planning one in Salalah, which will be ready soon.
Jawad Sultan Restaurant is planning to open four New York Fries outlets in the next two years of which one will be at Majid Al Futtaim's My City Centre at Sur. They also plan to open two more Illy outlets in the next two years.
Different brands have different unique selling propositions and they have to cater to the varying tastes of their customers. The customer base of the chains fall within the age group of 18-49, with the majority being Omani followed by Arab, Asian and Western expats. In the past few years many brands are witnessing an increase in the number of women visiting the outlets. While most brands have to follow the international menu and core recipes, they do adapt according to local preferences. Some even have a dedicated research and development department to look into this.
The strategies to attract clients include customisation and personalisation of food, adding local flavours, ensuring the use of high quality ingredients and offering 'diet' options.
As per Pizza Hut international guidelines, they follow the 20 per cent localisation in flavours and most of the menu items are as per the Middle East regional menu format. However they do adapt to local tastes and preferences.
Subway introduced items like chicken tikka, chicken tandoori and flat bread to cater to local tastes. Domino’s introduced a new pizza called fiery chicken ranch which was according to the choice of the customers after conducting a survey. New York Fries' 'imli fries' was developed targeting the local market. They are also in the process of launching few products like Shuwa fries which is expected to fit the local tastes.
Pizza Express has a concept called Leggera for diet conscious customers. “We call it super food. Anything that you eat in the Leggera category food is below 500 calories. It is quite popular and is doing well,” says Karathra.
Omanisation and getting talented employees has been a challenge in the fast food restaurants industry like in any sector. But one particular challenge that is limited to the fast food industry is the ban on two wheeler licenses. Many restaurants are tackling this issue this by getting people with two wheeler license from other countries like UAE as they are valid here.
Though the bleakness in the economy has dampened spirits in general, the strong performance of the fast food segment shows that consumer confidence is not completely diminished. Thiscould provide hope to othersectors too.