Restaurants seek price rises as higher input costs bite

Subway seeks approval to increase prices as global food costs rise, and it is not alone.

Subway is seeking a single, substantial price increase rather than incremental rises. Duncan Chard for The National

Restaurants across the Emirates are being squeezed by higher food prices, and some are seeking clearance to pass the increased costs on to consumers.

Subway, the world's largest food chain, has applied to the Government for permission to increase prices in response to the rising cost of its purchases.

Marwan al Hamar, the development agent for Subway in the UAE, said that because of strict federal controls on restaurant prices, the chain was seeking a single, substantial price increase rather than incremental rises.

"It's very hard to keep costs down, but we are trying to do our best," Mr al Hamar said.

"Rising prices have taken off an extra 10 per cent from profits [this year]. It has really hit us hard."

The Ministry of Economy announced this year that restaurants and food suppliers had to apply for permission to increase their prices and that price rises could not exceed 20 per cent.

The UN Food Price Index averaged 232 points last month, down 1 per cent from April but 37 per cent higher than in May last year.

Inflation in the UAE, meanwhile, reached 1.4 per cent in the year to the end of last month, the National Bureau of Statistics reported yesterday. Food prices climbed by 1.3 per cent last month alone.

"My profits are less and my overheads are already high," said Adnan Younes, the owner of the Acasa Cafe in Abu Dhabi. Mr Younes said he was stocking less food instead of trying to raise prices because of the difficulty of getting approval from the Ministry of Economy.

"The ministry won't allow me to hike the prices unless the updated menu and prices are approved by them," he said.

Mr al Hamar, however, expects that Subway will increase prices at all its outlets in the Emirates by at least 10 per cent in the next few weeks.

He said the bureaucracy involved with applying for a price increase, as well as anticipation of a further rise in global commodity prices, led him to consider increasing prices by a large amount at once.

"If I'm trying to be nice and fair to the consumer, I would raise prices in small increments as my price goes up, but we have to appeal to the Government for our increases and it takes time," he said. "It's probably easier to just do one big increase in a month and hope for the best, because it's difficult to raise a price each month. If I did not need government approvals, I could just do it."

Subway's dilemma is just the latest example of the effect government price controls are having on retailers in the UAE.

In the past month, supermarkets have been asked to lower or fix the prices of hundreds of goods until the end of the year.

Government controls have further squeezed profit margins already narrowed by higher input costs.

Rising commodity prices have prompted the Government to take action to ensure that higher costs are not passed on to consumers.

But the controls are limiting managers' ability to run their businesses.

Subway still plans to double the number of outlets it operates in the UAE within the next four years and plans to move its operations from malls and into petrol stations, universities, airports and hospitals.

Subway operates 104 outlets in the Emirates and aims to have 125 by the end of the year and then to add 25 each year for four years.