Why Are So Many Of Our Favourite Restaurants Shutting Down In Oman?

10 Mar 2019
POSTED BY Y Magazine

Oman has too many eateries, and many owners are forced to shut up shop after a few months. As the public count their pennies, Team Y investigates why some entrepreneurs think running a restaurant is a piece of cake – and soon struggle to earn their bread and butter.

Life revolves around food. In fact, food has long brought people of different cultures around the table.

But while the tummy may rule the mind, the core of our sustenance has turned into a moneyed affair – and a profitable one at that for entrepreneurs… or has it?

It’s a question we ask ourselves as we walk across the long stretch of restaurants in the Shatti corridor – some of which are brimming with customers while others continue to operate with little to no one.

It’s like a rally, as each restaurant opens its doors just as the clock strikes 5pm – the prime time as per the restaurateurs operating in the upscale Muscat locale.

Upping their games are impeccably-dressed waiters who have spent time decking out the insides of the eateries before the first customers start to flow in.

Everything has been set for business and the orders are ready to come in. There’s just one problem: there aren’t any customers.

As grim as that sounds, it’s a concern that worries restaurateurs; even longstanding ones such as Abdullah al Kharusi, who had to close his burger bar of six years following back-to-back years of cutting into losses, this January.

An idea that stemmed from his passion for American food, the 45-year-old Omani had to take out a loan for his business idea: The Burger Zone.

Stocked up with everything from delectable burgers – which had won high praise from local media houses – and Texas-style steaks, Abdullah’s startup (from 2012) was on top of its game for four years on the trot – raking in profits and eventually clearing his debts.

But, much like several other restaurants in the vicinity, his eatery lost its flair, and eventually, its customers. And following in the wake of other eateries in the milieu, he too had to pass on his keys to another young entrepreneur with another restaurant idea.

Speaking to Y about his restaurant’s failure, Abdullah says: “They say that success comes after people who persevere to succeed. But I don’t think that’s the case anymore.

“The market – which consists of the public and critics – takes you in and makes you a poster boy one day but spits you out the other. It’s a game that is ruled by these two entities.

“That’s what happened to me,” he exclaims dolefully before adding how he was one of the first Omanis to open an all-American eatery in the capital.

What went wrong in his business is a matter that the Master of Business Administration (MBA) holder from the University of San Francisco struggles to explain.

“Perhaps I’m too close to my failure to see why it happened,” he answers, in a bid to dodge our questions.

What he does reveal, however, is how his income dropped from RO800 per day in 2013 to RO200 in 2015, and finally RO80 in 2017, before shutting up shop.

A drop in the numbers of new SMEs

But the figures are there to support the statement: there was a drop of 29.4 per cent in SMEs setting up in Oman.

Yet, as per the National Centre for Statistics and Information (NCSI), Muscat alone witnessed 10,049 SMEs being set up in 2017, from which an undisclosed number consisted of restaurants – at least, that’s what Jose Varkey, an economist with a top business college in Oman and a columnist with international media believes.

He says: “Oman’s statistics agencies won’t reveal much more than just the numbers of SMEs as it’s difficult to keep a tab on these new companies that keep popping up, but nearly 40 to 65 per cent of that is believed to be restaurants.

“And then there are the food trucks. It only takes some three weeks to set it up and you get one-year licences from the Muscat Municipality. So, that’s added to the Muscat foodie scene as well.

“The real question that now lies is why there is such a spurt of these businesses (both restaurants and food trucks), given a lack of demand; and more so, why they’re all coming up with the same ideas, which are: American cuisine (burgers, steaks, fries) and mishkaks.

“There’s really not much else.”

Jose then goes on to explain the basic working model of a restaurant, pointing out how it’s all interdependent on the demand and supply model but is also an extension of incorporating a bit more ingenuity into its working model and theme.

“When compared with other businesses in the region, a restaurant has a better scope for success,” he says.

“Food is a business that will never go out of demand – but it is capped by the number of people residing in a location.

“Let’s say that Oman’s population is a little over four million currently. From that, nearly 1.7 million reside in the capital. And if you set aside the different sectors of population based on spending power, you’re left with only about 800,000 people who will spend on your business.

“And given that there are over 20,000 restaurants – and that’s a modest number – in the capital alone, you’re looking at one eatery for every 40 people. And that’s a saturated market.

The reasons why so many restaurants close down in Oman

“So, where is the scope for growth?” he asks. “After you’ve factored in loyal customers and restricted spenders, you’re left with less than 10 to 50 people per restaurant. Therefore, a lot of restaurants crash and fail just months after they open shop.”

But overcrowding and oversaturation are only two reasons why some businesses go to the wall after only months of opening.

In an interview with the manager (who preferred to remain anonymous) of one closed Indian restaurant in Muscat, we’re told that it’s not just these reasons but a general “ignorance of restaurateurs” that sets it up for failure.

He tells us: “People here – be they Omanis or expats – go with the instincts of their belly than actual research when it comes to setting up a restaurant.

“What they like to eat, they’ll add to the concept of the restaurant. But, passion only goes for a bit before reality kicks in. And the reality is that no matter how much you strive, you can only set yourself apart if you’re serving good food at nominal prices and with quality.

“In the case of our restaurant, we took off very fast and built a fan base of mixed cultures with our food. But our downfall was our prices – we were too expensive. And, the next challenge was the competition from another established Indian restaurant of 15-odd years that was placed right opposite to us that served food at low rates.

“Somehow, we encroached onto their territory, even if we didn’t want it to. I won’t lie: our staff even had lunches from the other restaurant because of the price factor.

“It all led to our failure in less than two years,” the Indian expat tells us before adding, “This move to Oman really killed my career. I used to work with a top hotelier in India before being snagged to come here – much like many other restaurant managers in the country.

“I left behind everything: my family, local experience, and everything I strove for, to come here. But in less than six months, the blame game started – the owner started threatening to fire us if we didn’t turn the business around.

“The visa and the NOC threats were among them, and they were constantly firing people. Eventually, it was just me, three waiters, and two chefs for an 80-person restaurant,” he laughs.

“We tried everything we could but I could see that we were falling down. We switched menus constantly and even began serving other cuisines in the restaurant by pushing our already overworked chefs to prepare even more food.”

And that, the manager says, also killed their existing customer base. And before they knew it, the restaurant was shut.

While no statistics of failed businesses have been published by statistics bodies, Jose reports in a paper he published that, after an initial growth – owing to some genuine curiosity from the public – a tad over 23 per cent of all new restaurants fail in Oman in only the first four years of setting up.

‘Lack of ingenuity is killing Muscat’s foodie scene’

It’s a worrying statistic that he says holds true to this day – and it’s one with which established restaurateur of over three decades, Adnan Gabol al Balushi, concurs.

The owner of the much revered ‘The View’ in Sifah and an integral part in the operations of Omar al Khayyam – one of the first restaurants to open up in Oman (in 1973) – tells us: “Based on my experience operating companies, I can tell you that the main reason why people fail in their ventures is due to a lack of research.

“People blindly follow the footsteps of a successful business – and that extinguishes the market.

“The youth need to come up with newer and fresher ideas. If someone is opening a tea café in a prime location, don’t go and start another one right next to them in the hope that yours will work out too.

“Bring in ingenuity into the market. Don’t do what others are doing in your locality. That’s just setting yourself up for failure, and you use your best judgment to see whether what concept you’re coming up with will open a door for the people to try out something new and unique, and is not a tired idea.”

A stroll in the Ruwi area confirms his words, as a section of the high street offers nothing more than Asian restaurants, all serving the same dishes: north and south Indian dishes. We also caught them running at low capacity on a Friday evening – a peak day in an otherwise crowded area.

“Knowledge is power – it’s a fact,” says Adnan.

“And, in business, the more you know about your field, the better are your chances of success. For example, it’s not advisable for you to set up a software company without any knowledge on coding, and the same goes for the restaurant industry.

“Don’t start your business without knowledge about what you’re trying to sell. A lot of restaurants – and I don’t want to call out names – sell food that is subpar after a few months of bad income.

“So, they resort to reducing quality or stop paying their workers to keep the business running. How can you expect a chef or waiter who has not been paid to keep working,” he asks us.

“They are humans too and need to be paid. There’s a lot that must change in the mindset of the people with regards to setting up these businesses.

“Once you’ve set up your company, make an effort to be a part of it. Every so often, we find people who set up companies and then leave it in the hands of the workers. This means that these owners don’t know the problems that the workers are facing.

“That means there’s added pressure from the customers, you, and the general targets that you’ve set for these poor employees.

“This is wrong,” he asserts, saying that, “Employees need to be guided and will need your expertise to run the company. You cannot expect to invest in a company, provide jobs, and simply expect returns.”

Adnan is right about the targets; too, as the public have kept a tight rein on the purse strings ever since the oil crisis of 2015, the ripples of which are still being felt strongly throughout the market.

Drop in spending power affecting businesses: IMF

In a shocking report revealed by the International Monetary Fund, Oman’s per capita income i.e. the average income measures of the average income earned per person in a year, the figures stood at RO9,249 in 2015.

Moreover, according to the World Bank, the nation’s gross domestic product (GDP) fell from US$81.08bn (RO31bn) in 2014 to US$72.67bn in 2017 – a mark of how the goods and services market fell in the country since the oil price crash.

Experts such as Jose, however, believe that this number has gone down significantly in 2017 but he refuses to acknowledge that the nation is undergoing a crisis and asserts that this is only a temporary setback.

“But yes,” Jose begins, as he goes on to say, “Omanis and expats definitely feel the crunch and would rather save their money than spend it shopping or in restaurants. That’s the market right now.

“People would hold onto their money for as long as they can to keep it for a rainy day. And it’s not just the food and beverage industry but also real estate that is seeing this crunch.

“Tough days call for tough measures,” he adds, before stating that the spending power in the nation has fallen by about 1.2 per cent, owing to this culture of saving.

To understand more about this spending culture, we quiz several passers-by in Jawaharat Shatti – a locale that boasts nearly 12 restaurants.

American expat Samantha Davis, a single-mother working with an interior design company, concurs with Jose. She tells us: “With salaries staying the same over the last five years and with rising inflation, people like us who have families to support have stopped spending as much.

“Moreover, the Omani restaurants charge taxes on top of it all. So, what starts as a humble meal of RO5 then jumps up to RO6 and RO7. It’s alright for some of us who are used to spending as much for meals but for many others – especially those with four and five members – that’s a tall ask.”

A quick dig into her opinion shows that she makes a solid case. The inflation rate in Oman hovers between the 0.2 and 1.1 per cent mark, and is a contrast to markets such as the UAE and Saudi Arabia that have negative inflation (deflation) since the start of the year.

Couple that with the taxes, which includes service tax, municipality tax, and tax levy (on certain products); and the overall bill can jump up by 8 to 13 per cent depending on the restaurant.

As bleak as things may seem currently, the players in the restaurant industry are remaining optimistic.

As the head of the Seaside Café and a chain of other eateries based in Oman, Othman al Riyami says: “Things will catch up. There’s no other way but to believe that it will, and remain positive.

“Every day when we come and open our shop, we hope that customers flow in. Our current income has dropped from RO220 per day to about RO65 just from what we closed at last night (March 4, 2019).

“This means that I have no money to pay my staff. But, Insha’Allah, I will strive to make it work out even if it means operating at a loss for a year. I have that belief that things will turn around.

“I don’t know what else to say. It’s either a positive mindset or do the right thing as everyone says and close my cafés,” he laughs, but in a tone that changes ever so quickly.

“Whoever says entrepreneurship is blissful has a lot to learn.”

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