I’ve visited some of the most expensive cities in the world recently, and the food was almost as expensive, if not cheaper than the GCC (proper meals, not cafeteria food). In this post, I try to breakdown the reason(s):
To start with, restaurants have 3 main cost elements:
- food ingredients
- real estate and
- labor.
Gulf countries have SIGNIFICANTLY lower costs on all 3 elements!
- Crops, meats, and dairy are cheaper (whether local or imported).*
- Real estate is 2-3 times cheaper.*
- Labor is 3-4 times cheaper.**
So why the heck is food in restaurants so expensive here? It makes no sense. Some might think that it’s greed, which may be a factor, but certainly not the prevalent one.
After a lot of thinking & analysis, I reached to the conclusion that high food prices track back mainly to poor demand generation, which results in poor unit economics management.
There’s very little traffic to restaurants here compared to international urban cities. But why??
Well, multiple reasons. Here are some:
- For one, urban planning is poor in most GCC cities, or at least not designed for transportation efficiency
- meaning there are no areas of condensed traffic
- low foot traffic due to the weather
- less orders for restaurants per neighborhood
- Most people live & work in different places, resulting in areas full of offices, and others full of homes. This means that:
- Restaurants in homey areas have orders only during evenings in weekdays, & sometimes on weekends. Otherwise, they’re dead.
- Restaurants in office areas have orders only during weekdays day-time. Otherwise, they’re dead.
- There’s too many restaurants for the consumers with purchasing power (there’s 1 restaurant for every 300 people in New York. But there’s 1 restaurant for every 150 in Bahrain for example, meaning more restaurants are making less money).
That means in order for a restaurant to survive (break-even on recurring operational costs) they have to charge higher margins to make up for the low traffic!
Food delivery startups have helped solve that problem slightly, but added another massacre of 20-30% cuts, not really benefiting the users or restaurants by much in the long run.
Cloud kitchens promise to resolve this, but on-demand food production is still time consuming, delivery times are still high, and cost is on the rise regardless of current cheap labor availability.
Wonder what the solution may be.
* New York vs. Riyadh in terms of cost of living (produce + real estate)
** minimum wage in NYC, SF, AMS, etc… ranges between $12-15 compared to $2-4 in the GCC.