The United Arab Emirates (UAE), a federation of seven states, combines a rich history with thriving metropolitan areas — making it one of the Middle East’s most important economic centers. The owners, operators, and investors in UAE restaurant chains have reaped the rewards of its shifting demographics and its thriving economy has historically been linked to oil production and high oil prices.

Though traditionally conservative, the UAE is one of the most liberal countries in the Gulf with Western tastes (like fast food) increasingly blending with Middle Eastern customs. A slew of international foodservice companies have opened outposts in the UAE and, while restaurants have faced some challenges in recent years, the region still offers untapped potential (with its own unique set of challenges, of course).

Below, we offer our own UAE food industry analysis, taking a look at the region’s economy and social demographics, and examine what its continued evolution means for UAE restaurant chains.

UAE Foodservice or Consumption Drivers

As foodservice sales respond largely to factors such as the strength of the economy and population growth, the following drivers are especially important to note:

Food Spend

Per capita food spend in the UAE is among the highest in the world, at $3,159 in 2015, 32% higher than in the US (excluding alcohol), and about the same as the average person’s spend in Kuwait and Qatar combined. As spend in Food Away From Home (i.e. at restaurants) moves in line with the economy and population, a portion of the high value spend on food by Emiratis is explained by their high net worth — and by the fact that visiting malls and dining out are the primary sources of entertainment for many in the region.

GDP

As of 2017, GDP per capita is estimated to be $40,162 — 22nd in the International Monetary Fund’s rank and close to that of countries like New Zealand and Belgium. GDP grew at an average of 4% between 2010 and 2016, and even though growth has slowed down since oil prices slumped back in 2014 (and then again at the end of 2016), growth is expected to accelerate considerably next year (going back to 4.4%, according to IMF estimates). The average growth for the next five years is expected to be close to 3.5%, more than twice 2017’s rate, and almost 80% higher than the forecasted growth for the US. This should re-energize the restaurant industry after two years of weak sales, though other factors (such as market saturation) will also play a role.

Population

The UAE population is small, at only 10.1m people. Growth, however, is relatively strong: in 2017, the population is expected to grow 2.9% over the previous year, leading to a healthy expansion of the consumer base. The US population, in comparison, is growing at roughly a quarter of that rate. The distribution of restaurants and people, however, is not even, with a heavy concentration of foodservice establishments in Dubai causing a high saturation rate in that market. Dubai has close to 260 people per restaurant (compared to 320 people per restaurant in the US).

Economic Forecasts

In April, the IMF announced it had cut its forecast for Arabian Gulf oil producers’ economic growth this year, as their output cut deal is expected to wipe out any gains from higher oil prices in terms of government revenue. Still, analysts remain optimistic about the region’s efforts to diversify. Spending cuts and an increase in oil prices are helping GCC states lower some of the world’s highest budget deficits, and the International Monetary Fund has hailed the region’s progress in attempting to transform economies that have relied on hydrocarbons for more than five decades.

Non-oil growth is projected to rise to 3.3% by the end of 2017, reflecting more gradual fiscal consolidation, stronger global trade, and higher Expo 2020 investment. Oil GDP is projected to decline by 2.9%, a reflection of OPEC cuts in oil production. As a result, overall growth will ease to about 1.3% in 2017, before recovering to above 3% over the medium-term. Average inflation is projected to rise to 2.2% in 2017 (though restaurant prices are unlikely to follow suit).

Still Much Potential For UAE Restaurant Chains

Despite economic challenges brought on by sagging oil prices, many UAE restaurant operators continue to thrive. Consumer foodservice is an industry close to $15 billion — and one with an attractive long-term outlook. Several factors besides economic and population growth will be driving its performance over the next few years.

Though it’s a crowded market, there’s still a lot of room for growth among UAE restaurant chains (and those looking to expand into new markets). In the UAE, the share of spend on food away from home (i.e. restaurants) is lower than that of other developed countries. The US, for instance, is near to a 50%-50% split between restaurants and groceries. The breakdown in the UAE, meanwhile, is 46.7% restaurants, 53.3% groceries — but that split is set to weigh heavier for restaurants, and at an accelerated pace, over time.

There’s also potential for the growth of certain cuisines and segments. Chained foodservice, for instance, is under-developed: While in the US and Canada the share of chained foodservice has remained stable over the last few years (at around 54% of the restaurant industry), in countries like the UAE and KSA, the market potential for the expansion of chains ranges from $4.3 billion to $5.1 billion annually, were it to reach a similar share. Though independents have dominated historically, chains tend to grow faster and cannibalize the mom-and-pops over time.

To further illustrate that point, consider full-service restaurants. In the United Arab Emirates, they continue to be fragmented in terms of cuisines, formats, and price point, with a diversity of casual and fine dininig options. Chained full-service restaurant sales are growing 1.8 times as fast as independents. The share of chains is set to grow to 19% in 2021 (from 16% in 2016). While segments like pizza are dominated by chains, others — such as Asian food — will begin to see an influx in chained operators.