For the Middle East, food is more than just a source of sustenance; it is an embodiment of the culture, the nexus of social gatherings and increasingly, a platform for innovation. Much of this innovation over the past few years has centred on food delivery and cloud kitchens, bringing food directly to consumers, while inside the restaurants, innovation in management and procurement systems was on the rise.
But last year turned out to be the “worst year” for the food and beverage (F&B) operators according to KPMG with several expecting declining sales through to mid-2021. The lockdowns impacted not only the restaurants themselves, but the foodtech players that relied on them too, namely the table-booking and reservation apps.
“Two months into the pandemic, when the shutdown happened, there were zero customers coming through our platform. Part of our revenue is driven by bookings so our revenue went to zero at that time,” says Nezar Kadhem, co-founder of UAE-based Eat App.
The impact was similar for UAE-based ReserveOut, which saw its revenues drop by 50-55 per cent. For both startups, the lockdown was a time to recaliberate, focus on their technology and pursue other revenue streams.
“Before Covid-19, we were scaling fast, achieved 3x growth in January 2019 and closed a Series B [funding round] a few months before the pandemic started. During the early days of the crisis, we never really had the time to ‘lift up the carpet’ and look at the inefficiencies in the business. Instead of firing employees and downsizing, we decided to focus more on improving our product and investing more in technology to come out stronger,” says David Feuillard, co-founder of Eat App.
As delivery became the only option for restaurants to make any income, ReserveOut decided to expand to the food delivery space in an effort to help themselves climb out of the economic slump.
"We had to figure out how to get through this time, make sure that at least we can survive until things start coming back to normal,” says Khalil Shadid, founder of ReserveOut. “We could not exactly offer what other delivery parties do, this is not our game. But we wanted to help restaurants who depend mainly on dine-in and suddenly had to do delivery."
Shadid claims that ReserveOut enabled restaurants to make better margins through delivery without the need to resort to third-party platforms.
"Other delivery platforms charge 30 per cent per order. [With our solution] they can do it from their own website or social media channels. They can pay us 5 per cent and thus make a 25 per cent margin on every order that they are able to source themselves," he says.
Additional to this, the company also built a digital menu for contactless dining inside restaurants.
India-based POSist, which also has operations in different countries across the Middle East, including the UAE, Saudi Arabia, Qatar, Oman, Bahrain, and Egypt noticed the rise in cloud kitchens in the region and decided to tailor its product to that sector.
“Before Covid-19, there was a very clear divide between delivery only brands or delivery centric brands, and dine-in centric brands, post Covid-19, it's not going to be the case. Every place is going to think about offering a food delivery brand of their own, which will also lead to a better perspective of their customers,” says Ashish Tulsian, founder of POSist. “A lot of hospitality brands have lately started to adopt the cloud kitchens model, which is an entirely delivery-based business. We are currently working on empowering some of the largest enterprises in Mena to launch their cloud kitchen operations brands.”
As lockdowns ended and restrictions on dining out eased, revenues for these startups bounced back. Through its online reservation platform, Eat App helped its restaurant partners generate $42 million in revenues during the last year.
“In December 2020, we also saw all-time high sales, like restaurants were breaking records,” says Kadhem. “As long as there's no lockdown and government-mandated shutdowns then we will see people going out to restaurants."
December last year was ReserveOut’s “best month ever, not just in the last year, but in the last six years. In terms of online booking adoption and revenues", according to Shadid.
This growth has pushed ReserveOut, which is already available in 12 different cities across the UAE, Lebanon, Jordan, Saudi Arabia, Qatar, Bahrain, Oman, India and South Africa, to expand to Europe and Turkey.
"We need to expand into different parts of the world and make sure we have a strong foothold and dominate in these markets to ensure that if one or two markets, for any reason, are shut down, that the company is still standing strong," says Shadid.
Where many restaurants had shunned technology, the pandemic highlighted its importance to them, not only in reaching customers but in improving their operational efficiencies too.
"Of course, the primary component is the product, the foodservice itself, But now it's becoming paramount that [restaurants] need to couple that with the ability adapt to what guests expect today, which is a seamless guest experience, where it's fully digital,” says Kadhem.
Tulsian also believes that the future dining experience is going to become “experiential".
“The same food restaurants offer can be easily available to you at the convenience of your home. And restaurants are realising that. They will have to think about how they can make the dining experience better to make users come out of the comfort of their home and have the same food at the restaurant with an enhanced on-ground service, convenience, and personalisation," he says.
For Tulsian, increasing the restaurant's operational efficiency is key to ensure a post Covid19-business survival.
"What changed is that restaurants realised that running their operations with higher efficiency is not going to be optional in the new post-Covid world," he says. "Before Covid, I used to hear restaurateurs talking about increasing toplines at any cost because it was a higher margin business. Today, I can clearly see that it has changed from a top-line-driven approach to a bottom-line-driven approach. They want their sales to increase not at the cost of the bottom line, not at the cost of efficiency, and technology."
The co-founders of Eat App saysthe previously considered “nice to have” data-driven technologies have now become a critical ingredient to achieving a competitive edge moving into the post Covid-19 world.
“Restaurants need to recover their lost revenue. Previously, they were operating a restaurant at 100 per cent capacity, they're now operating a restaurant at reduced capacity, sometimes at 50 per cent. So they really need to make sure that every customer that comes in, is efficiently serviced,” says Kadhem, stressing that the more restaurants utilise technology to efficiently manage the traffic while complying with public health regulations, the more likely they are able to achieve pre-pandemic numbers.
But while things appear to be returning to normal, there is still a great deal of uncertainty.
“Customer-facing businesses are addressing challenges amid prolonged uncertainty," says Anurag Bajpai, partner and head of consumer & retail at KPMG Lower Gulf. "Though the regional food and beverage industry has remained resilient and we have seen a strong rebound in consumer demand in the last few months, given all the challenges, in the short term its future will likely depend on how soon the virus is contained.”
Around 25- 30 per cent of ReserveOut's client base remains shut down, while 10-15 per cent of the restaurants that Eat App works with closed down because of Covid-19.
"Navigating through current conditions and trying to balance being cautious and having the ability to run the business the way you should run it is our biggest challenge, and that includes making sure that the business has enough money to run, whether it's from revenues or our accounts receivables," says Kadhem, adding that the company is mulling the possibility of raising investment to shore up its capital base.
"From the outside, the initial impression is restaurants are hurting, but the ones that are operating effectively, they're not, they’re not hurting and if anything, they're becoming more successful. But, the ones that are at the bottom percentile are struggling and we're going to see a shakeup - which is natural in every economic cycle. And some restaurants are not going to make it,” Kadhem adds.