International versus local restaurants – The pot is hot in saudi market

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Battle lines are drawn, locally developed restaurant concepts in Saudi Arabia are giving international restaurant brands a run for their money. In almost every segment of restaurant industry, be it casual dining or QSR (Quick Service Restaurant), locally developed restaurants are up for the game. Apart from economic and logistics reasons, there are other strong consumer related factors that play a big role in the success of these local concepts. There are almost all international brands operating in Saudi Arabia, especially from North America but financial model of these brands is under tremendous performance pressure. Some of the most obvious logistical and economic reasons for this poor performance are reduced foot fall, rising commodity prices and expensive real estate in desired trade areas. Some major challenges with international restaurant chains that put further strain on the revenues are royalties (monthly franchise fee), in some cases periodical changes in furniture or décor theme, equipment, uniforms change, strict adherence to some imported food items like beef, sauces, etc. In case of a casual dining restaurant, rental percentage of total sales ideally should not be more than 10%, food cost not more than 30% and labor not more than 20% but all these numbers immediately inflate as soon as the sales starts diminishing which in turn puts more pressure on the profitability of the restaurant.

Now let’s analyze some consumer related factors which provide a clear edge to the local restaurant concepts over international chains. Today’s consumer in Saudi Arabia is widely travelled and has built a strong sense of international taste profile. No more an American casual dining chain just means burgers to the local population. It’s also not about that normal pasta or pizza in Italian restaurant. Consumers in Saudi Arabia now expect and demand authenticity, variety, freshness and yes all this at a great value. A huge international American casual dining chain back in 2005 was generating 70% of their sales only from their burgers section in the menu whereas burgers represented only 5% of their menu. Well, not any more. Today, consumers go to a proper burger joint in the neighborhood to enjoy a fresh burger and will go to an exclusive Steak restaurant to enjoy a succulent tender steak. The gastronomic experience of taste profile in this country has evolved at a fast pace. What has further fragmented the market is the entry of strong local concepts in each of these categories be it burgers, steak houses, health food and yes even pizza. A local pizza chain for instance in Saudi market is forcing international pizza chains to rethink their strategy and yes that’s an understatement. A local fried chicken chain is not allowing a giant international fried chicken chain to gain any significant market share in the local market and there are so many other similar examples. So what are these local restaurants doing differently or doing better? The reasons are simple yet strong and convincing. These local restaurant concepts are catering to the regional taste profile with an international flare and standard. International restaurant chains are somewhat stubborn, reluctant or very slow in adapting local taste or local sauces which is where a local restaurant drives the advantage. Fresh ingredients is another key factor in the play. Most if not all international restaurant chains heavily depend on frozen imported items with long shelf life whereas a lot of successful local restaurants use fresh ingredients which attracts the consumer considering the increasing health awareness. These local restaurant chains have also up their game when it comes to hygiene, service level and standard operating procedures. How about focusing on a population where more than half of them are young and are also one of the highest users of social media in the world? Social and digital strategy of these local restaurants is ahead in this game as well. International restaurants are still stuck in having everything regional be it their websites or other social media channels where most of the communication is very generic but the smart local restaurants keep it simple, engaging and fast, they interact and engage with the local community, have smart Apps, daily promos and frequent new items on the menu. All this because decisions are quick, they understand local market conditions and consumers much better. Downside with international chains is everything needs to filter through a long funnel of approval and then finally the implementation. Market and trends these days change at a rapid pace and it needs quick decisions. Up until few years back young and energetic population of Saudi Arabia was even tempted to franchise of food trucks from other countries. Well not any more as there are hundreds of food trucks in cities like Jeddah or Riyadh serving anything and everything from burgers to tacos to seafood. Real estate is another huge component of the whole equation. International restaurant chains be it casual dining or QSR’s require a minimum foot print or real estate size which in today’s rental landscape is tough to justify financially, especially in prime locations. Local restaurants approach is flexible and they are quick to adapt hence they outsmart the international players in this area as well. Going back to the consumer, youth of Saudi Arabia is no less than youth anywhere else. Millennials here expect and behave the same as anywhere else, it’s all about open and relaxed atmosphere/ambiance, variety, quick, visually appealing food, technology. Local restaurants are clearly outsmarting international players in this area. Unless international restaurant chains understand the value of being local in approach yet maintaining their core, advantage will remain with local chains.

 

Written by;

Eat ‘N Stays team

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