Business economics 101 for Dubai restaurants
Posted on 22 June 2009 with no comments from readers
Dubai restaurants have been very empty since the economic crisis hit last autumn. Perhaps it is because owners persist in charging boom-time prices. It is time for a rethink.
What is preferable for a restaurant: to charge high prices and serve 10 tables in an evening, or to half the price and serve 30 tables. Given that the fixed costs of rent and labor have to be paid, the revenue and profit is clearly higher at the lower price.
State-of-denial
This is economics 101 for Dubai restaurants which after nine months of economic slump ought to be reacting positively, and not continuing in a state-of-denial. For their present approach is economic suicide unless you imagine another boom is coming very soon.
The prices being charged are just not appealing to diners, whether they are local or visitors. And this is hardly a problem unique to Dubai. All over the world people are tightening their belts and looking at menu prices, and deciding not to bother or seeking better value.
Special menus or discounts for using a credit card are one approach. Anything that differentiates the higher cost menu and allows diners to eat at a reasonable cost will bring more customers.
However, there is a point at which restauranteurs just have to give up on high prices and realize that economics 101 has got them beaten. The mark-ups on wine have also become ridiculous for a city with an international reputation.
Take a bottle of Eaglehawk Chardonnay on sale for Dhs42 at the Dubai Duty Free, and add 50 per cent duty and that is Dhs63, although doubtless cheaper wholesale.
Wine prices
Why then does The Agency wine bar sell the same wine for Dhs150, albeit now specially discounted from Dhs210? It should be under Dhs100 and even then still carry a London wine bar margin. The price per glass is an eye-watering Dhs52 for a modest Australian white wine, or a 500 per cent mark-up.
It is true that Dubai is an Islamic city but then muslims do not drink alcohol and the tax level is already punitive. Besides we are looking at economics here, and over-pricing cheap wine is certainly bad for business, as if the price being charged for meals was not already high enough.
But ultimately economics 101 is ruled by economic forces beyond the control of anybody. If you keep prices too high then custom drifts away, profits fall, costs mount, and you go out of business, unless your pockets are super deep and you have nothing better to do with your money.
no Comments posted by readers:
Peter
You are absolutely spot on!!
Hotel eateries and general restaurants are living in a dream world with there prices. we used to eat out often (3-4 times per week) now down to 2 or 1.
The reason – it is frankly a rip off. It is more enjoyable to have a dinner party or bbq at home or with friends than risk a over priced meal, insane wine prices, poor service at an “award winning” eatery.
You are dead on with the wine- i can buy a very good 04 pinot for 95 from the local wine shop, with tax, mark-up etc…while a 07 mass produced will cost 60-80 A GLASS at most restaurants-it is a joke!
Most people i speak with, business or social, are fed up and no longer bother. Corporate ent. cards are no longer. Staff & management are so far removed from the (greedy) owners who are willing the boom to return…..result. Expect restaurant failures post summer…big time AND very heavy discounting from the survivors to stay afloat.
Return of the 15 AED beer and 30 AED glass of wine and REASONABLE fee for fare!!!
Thanks Dan, my point is really that it is not in the self-interest of the restaurant to overcharge as it destroys their business and reduces revenues. This is a hangover from the boom, and Dubai has been slow to respond to the slump in business this year. I can understand an unwillingness to believe unwelcome news but unfortunately that does not change reality and that is what any business has to live with if it wants to survive a recession!