How Macroeconomic Conditions Will Impact Qatar’s Restaurant Industry

How Macroeconomic Conditions Will Impact Qatar’s Restaurant Industry

Once one of the poorest Gulf states, today, Qatar is one of the richest countries in the GCC. But it hasn’t been without its struggles, particularly recently. First, there were sagging oil prices, which have plagued the GCC in recent years. But the country most recently made headlines for its alleged support of terrorist organizations (including the Palestinian Hamas faction in Gaza and Islamist groups in Egypt and Syria), which led to 2017 efforts to cut the country off. The move — which included an air, land, and sea blockade — was lead by Saudi Arabia and quickly devolved into a diplomatic crisis for Qatar.

Still, despite the recent problems, the country continues to experience growth, making it a burgeoning location for both homegrown concepts and international restaurant chains looking to expand to the Middle East.

Below, a few of the other factors affecting restaurants in Qatar:

THE COUNTRY CONTINUES TO EXPERIENCE GDP GROWTH

Qatar has been in an uninterrupted positive growth path since 1994. On average, the country has grown roughly 8.17% since the year 2000. (By comparison, the US grew at an average rate of 1.93% during the same period.) That growth, however, has remarkably decelerated since 2012.

Due to weak oil prices, nominal GDP has decreased in the last two years. GDP per capita was $66,415 in 2016, slightly decreasing in the last few years but still the highest in the GCC.

POPULATION AND TOURISM ARE FUELING ECONOMIC GROWTH AND UPPING THE DEMAND FOR RESTAURANTS

Qatar’s growth has been largely fueled by its population. Population growth has accelerated since 2004, from an average 3% (1994 – 2004), to 3.5 times that in the years since. In 2016, there were 2.57 million people in Qatar, and 79% of the population was employed.

Qatar represents about 5% of the GCC population, but accounts for roughly 11% of its economy (in terms of GDP). This remarkable growth has been especially evident in the country’s restaurant and hospitality sectors. A 2016 report by BMI Research indicated the value of the hotel and restaurant industry was up 5.4% versus 2015, with projections that it would rise another 38%, to USD 2.2B, by 2020.

Much of that growth is fueled by Qatar’s rising popularity as a destination, especially amongst GCC residents. Of course, the recent blockade will impede that further growth (visitors from elsewhere in the GCC typically account for nearly half of all visitors to Qatar), though the full ramifications remain to be seen.

Up until recent months, tourism has increasingly served as a source of economic wealth in Qatar, with tourist arrivals increasing almost tenfold from 1995 to 2015.

CONSUMER CONFIDENCE HAS HISTORICALLY HINGED ON OIL

Consumer confidence deteriorated in 2016 as a consequence of weaker economic conditions resulting from the drop in oil prices. Business confidence, however, held steady throughout the year.

Of course, it remains to be seen what the effect of the recent blockade will be on public confidence. In the wake of the crisis, the Qatari stock market plunged and oil prices rose, which will surely impact consumer confidence in the long run.

Building permits could also be viewed as an indicator of long-term activity and, as a result, confidence in the region. Though permits maintained above-average levels during most of 2016, building activity began to show signs of deceleration in June 2017, with permits dropping 23%, year over year.

INFLATION IS OF PARTICULAR CONCERN TO RESTAURANT OPERATORS

Food inflation has been lower than overall inflation (consumer prices) since 2013, and the gap was especially wide during 2016. In 2017, however, food inflation began to accelerate. In June, it surpassed overall consumer inflation. Food and beverage costs climbed 2.4% from a year earlier and 2.5% month-on-month in June; they had previously been dropping 1.9% year-on-year in May. If that trend continues, it could mean bad news for restaurateurs, as it can take time to translate those cost increases to the consumer.

Also of particular interest to restaurant operators has bee the closure of Qatar’s land border with Saudi Arabia, across which flowed many of the region’s dairy imports.

Transportation inflation has been climbing since early 2016 which could translate to higher food costs, as well. In June, Qatar’s inflation rate was up, but only modestly — a signal that, for the most part, Qatar has had considerable success in limiting the economic damage caused by the sanctions imposed by Arab states in June.

WHAT THE FUTURE HOLDS FOR RESTAURANTS IN QATAR

Though much remains in flux due to the recent blockade, Qatar remains poised for growth, particularly if tourism can get the bump in needs. In August, Qatar announced a decision to grant residency rights to expatriate workers — a move that some noted was a way to shore up confidence among both Qatari nationals and expats, but others called a “PR stunt.” The bill approved by the Qatari government would grant certain expats (i.e. the children of Qatari women married to foreigners, or those who have performed “great services to the state”) residency rights.

As of 2017, Qatar’s foodservice market is valued at an estimated $1.6 billion — about 7% of the total GCC foodservice market. Among restaurants in the region, quick-service sales are about 2.7 times as large as sales at full-service restaurants. Should the region continue to successfully navigate the fallout of oil and sanctions, that number will continue to grow, and provide further opportunity for current restaurant operators, or international chains looking to expand to the market.

RELATED CONTENT REGARDING THE MIDDLE EAST RESTAURANT INDUSTRY:

Factors Affecting The Kuwait Restaurant Industry

Opportunities and Challenges Facing Middle East Restaurant Operators

Private Equity Deals Make Their Mark On the Middle East Restaurant Industry

Hospitality Industry in Kuwait Just Keeps Going and Going

What GCC Restaurant Operators Can Expect In 2017

What the Current Economic Climate Will Mean for UAE Restaurant Operators

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ABOUT AARON ALLEN & ASSOCIATES:

Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We work alongside senior executives of some of the world’s most successful foodservice and hospitality companies to visualize, plan and implement innovative ideas for leapfrogging the competition. Collectively, our clients post more than $100 billion, span all 6 inhabited continents and 100+ countries, with locations totaling tens of thousands.

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