Dubai's tourism, revenues and restaurants shrink as Iran war impacts travel

Dubai chef Shaw Lash at Mexican restaurant Lila Molino flies in her avocados and tomatillos, small, tart green fruits native to Central America that are a staple of Mexican cuisine and key for her colourful and spicy dishes.

Now the two-month-old war in Iran is making such ingredients harder to source and more expensive, Lash and other chefs said, as the Gulf grapples with the closure of the Strait of Hormuz sea route and spiking jet fuel prices push up air freight costs.

Lash has scaled back production, cut her payroll, and is buying ingredients in smaller quantities for now - measures she expects to be temporary. She's focusing on her make-at-home fajita kits which have been a hit, and her grocery line.

"The reality is cargo has gotten more expensive, gas prices have gone up, the Strait of Hormuz is still blocked," Lash told Reuters at her restaurant in Dubai's trendy Alserkal Avenue art and culture district.

"This is really creating a problem for us as far as our supply."

Chefs in the glitzy city are adapting their menus, with some turning to more regional or readily available foods, or offering fewer dishes. Dubai authorities have rolled out broader economic support measures, relief on fees and campaigns to get people dining.

Restaurants face period of 'disrupted footfall'

The trend is a challenge for the UAE's wider full-service restaurant market estimated to be worth $9.5 billion last year by market researcher Mordor Intelligence. Before the war started, it predicted 20% growth to $11.3 billion this year.

But the war may change the equation. After the U.S. and Israel launched strikes on Iran in late February, the Gulf saw several weeks of Iranian missile and drone attacks. Although a ceasefire came into effect on 8 April, the Strait of Hormuz, the only sea access to the UAE, which imports more than 80% of its food for consumption, remains effectively closed.

The war has cut regional tourist arrivals, hit shopper numbers in luxury malls, high-end car sales, and disrupted restaurants, a pillar of Dubai's booming leisure and tourism sector carefully built on an image of grandeur and safety.

A survey by Juniper Strategy and the Global Restaurant Investment Forum found that UAE foodservice operators reported they were experiencing an average 27% drop in demand levels versus a year ago. Supplier cost increases averaged 13%, according to the report, which consulted 30 industry leaders between 1-8 April, who operate some 400 restaurants.

It added tourist-exposed locations and business districts were under the greatest pressure while residential establishments showed greater resilience, and in some cases, growth.

The Dubai Department of Economy and Tourism said in a statement that some operators were navigating a "period of disrupted footfall" and were finding creative ways to respond.

"Across the city, restaurants, chefs and platforms are adapting through new formats, targeted offers and community-led initiatives," it said in a document sent to Reuters.

The UAE Ministry of Economy and Tourism did not respond to a request for comment.

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Chefs turn to locally sourced ingredients

Kelvin Cheung, Chef at Fusion restaurant Jun's Dubai, told Reuters that finding alternative routes to transport hard-to-source perishable ingredients, such as Norwegian scallops or certain Japanese seafood, had become a costly challenge.

"Your only option was then to fly air freight, which would increase our costs by about thirty, thirty-five percent," he said, adding he had turned to using local fish on his menu.

Air freight rates have risen by as much as 70% on some routes as the war has stymied oil shipments from the Gulf and pushed up jet fuel costs. Flights to and from the UAE are only slowly returning to normal.

"Tourism has taken a huge hit," said Cheung. "That massive influx of tourists who provide that extra boost of economy, of spend, across all industries is what we're missing now."

Cheung has introduced a six-course menu for 225 dirhams ($61) using locally sourced ingredients. The restaurant has retained all its staff. Other venues are set to roll out discounted set-price meals for Restaurant Week in May.

The conflict has sharpened existing challenges such as high fixed costs, tourism reliance and supply-chain exposure, said food writer Courtney Brandt, who has been in the region since 2007, adding the market was already saturated before the war.

"We were due for a correction," she said, adding that international brands, often with celebrity chefs and deeper pockets, could fare better but that mounting costs were a challenge despite local support.

"Difficult decisions have to be made if businesses are going to survive."

Some fine-dining venues, including in the luxury Atlantis hotels on Dubai's iconic man-made palm-shaped island, have temporarily closed for refurbishments, not citing the war. Others have opened, including Italian restaurant Siena in early April in Dubai and Isabel Mayfair in UAE capital Abu Dhabi.

Chefs Lash and Cheung expect the market to pick up.

"Over the last few weeks, especially with the ceasefire and schools resuming, we’ve started to see a positive uplift in business and overall movement across the city. There is a sense of normalcy slowly returning," said Cheung.

Read more:

• Iran war and jet fuel concerns cloud airlines’ summer holiday plans
• IATA chief says jet fuel supply could take months to recover after Hormuz reopening
• Dubai caps flights, raising pressure on Indian airlines and travel sector

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