Orders to be delivered with no service charge on consumers and cutting out the 'middleman'

The impact of COVID-19 on the UAE's F&B sector has been nothing short of severe. Businesses still have to deal with reduced operating hours and limits on the number of patrons they can serve at one time. To add to that, sky-high commissions to online booking and delivery portals are not helping. Image Credit: Gulf News Archive

Dubai: More than 100 small and mid-sized F&B outlets in Dubai are coming together to launch their own order booking and delivery app and take on Zomato, Talabat, Uber Eats and others. The app could be ready to roll in three months.

Orders made through the app will also have no servicing fee imposed on the consumer.

The decision to launch follows the break down in talks between these F&B outlets and “food aggregators” – the online portals that take in orders and even deliver them – on the issue of the commissions they charge restaurants. These fees can make up to 35 per cent of an order (if delivery is included as well), and with the discounts and other costs added, there is little left for F&B owners to survive on.

Businesses say that such high commissions can only be justified when they had their restaurants and cafes running at full capacity.

Their situation has turned dire after the one-month long restrictions on commercial and social activity. Now, even with the restrictions rolled back gradually, there are still clear limits on the number of patrons F&B outlets can serve at any one point. (It should not exceed 30 per cent and there should be safe distances between tables and seating arrangements.)

“Most aggregators have outright rejected our request for commission reductions,” said Shanavas Mohammed of the Golden Fork chain. “Some only offered partial deferment of commissions – and right now, that’s not much.

“More than ever, the restaurant community in the UAE feels our interests are not best served by food aggregators. This app service will be owned and operated by the restaurant owners.”

Partial openings... Some F&B operators continue to shutter some of their operations as the cost-to-revenue mix remains fraught. Image Credit: Gulf News Archive

What F&B operators want

The demand has been for all aggregators to cap their commissions at 15 per cent of the total sale price because “they are also charging customers for delivery,” according to one business owner.

“In case deliveries are fulfilled by the restaurant directly, the commission should be capped at 7 per cent Of course aggregators have their own operating costs, salaries, etc.. But in the end who doesn’t?

“We as restaurants are changing our business models, creating new ways to increase revenue and decrease cost, working hand in hand with other restaurants in order not to go to the easiest solution of increasing menu prices to customers.”

Trying for relief

F&B businesses have been trying to get their concerns heard by the authorities after the COVID-19 outbreak drastically cut into their operations.

The thinking within the industry is that their operations will head back to pre-COVID-19 levels only by the first quarter of 2021… and that’s in a best-case scenario. “Fear of the virus and the long-term need for physical distancing will mean that most restaurant and café businesses will not have sufficient income to cover monthly expenses to reopen,” according to a grouping of F&B business owners.

The fear of permanent damage to their operations keeps mounting with each day of serving fewer people at their outlets and a drop in revenue coming in through order placements. Because there are still restrictions in place on such commercial activity between 10pm to 6am.

“[Combined] monthly losses in terms of staff salaries, housing and benefits are accruing at over Dh 1 billion per month,” according to the grouping. “This figure does not include the rent or other operational costs. This level of liability is not sustainable without assistance.”

There are currently more than 11,000 F&B related trade licenses issued in Dubai. More than 200,000 people have jobs in the sector.

F&B businesses are having to adjust to the strict rules of social distancing and the impact this has on dine-ins. Image Credit: Gulf News Archive

Aggregator fees are hurting

In its update on COVID-19’s impact on UAE retail and leisure sector, KPMG notes that F&B has had to face the more severe consequences. “Sales are down by 30-80 per cent across concepts,” the report says.

“Operators expected food delivery to compensate to some extent. However, people cooking at home and concerns around hygiene appear to have dampened its promise.”

So, now, F&B outlets are dealing with a situation where they operate fewer hours and there is already a marked drop in the number of orders coming in.

Then out of the remaining orders, shelling out anywhere between 12-35 per cent clearly eats into their chances of survival.

The launch of their own food order and delivery app is seen by many of these businesses as the last chance they have.

Friend or foe? These days, F&B businesses say third-party online booking and delivery services are eating into their cashflow and leaving them with nothing.

New platform, unified voice

Just recently a new industry grouping – the Middle East Restaurant Association – was launched. The intention is to be the single voice for the sector and its businesses, and irrespective of whether it is a fine dining concept or a neighbourhood café.

The promoters believe that working in tandem with food aggregators remain the best option even now. “MERA will be reaching out to all sectors and providers to encourage and promote the best way for us to work together,” said David Singleton. Partner at Socius Group and co-founder of MERA.

“Aggregators play an important role in the hospitality industry, especially at this time.”

But some F&B business owners say they cannot survive any longer on the current fee sharing arrangement with the online portals. A few have even taken the extreme step of cutting out aggregators altogether and relying on their own delivery services.

“I definitely believe there is room for food aggregators and restaurants to co-exist and thrive,” said a restaurant operator. “The primary purpose of the aggregator’s platform was to create a marketplace to help businesses such as ours to find additional revenue streams.