Saudi Restaurant Industry
The restaurant and café industry in Saudi Arabia has experienced tremendous growth over the past decade, fueled by an evolving consumer culture, a rising middle class, and increasing urbanization. However, the sector is also becoming increasingly competitive and complex, with a significant number of new ventures failing within their first few years. This article provides a strategic analysis of the Saudi restaurant market, highlighting key challenges, opportunities, and actionable insights for investors and entrepreneurs looking to navigate this space successfully.
Understanding Market Potential vs. Market Saturation
A common perception is that the Saudi food and beverage (F&B) market is oversaturated, especially in major cities like Riyadh and Jeddah. However, when benchmarked against global markets, Saudi Arabia still has significant room for growth.
In Japan, there are approximately 16,000 restaurants per million people.
In Switzerland, the figure stands at 6,000 per million people.
In Saudi Arabia, it is only 1,500 per million—showing a clear gap in supply.
This suggests that while the market is competitive, it is not yet saturated. However, success in this space requires differentiation, strong business fundamentals, and strategic positioning rather than simply opening a restaurant and expecting demand to follow.
The Harsh Reality: Why Over 60% of Restaurants Fail
Despite the potential for growth, industry data suggests that over 60% of new restaurants in Saudi Arabia fail within the first few years. The key reasons behind these failures include:
1. Lack of Market Research & Consumer Understanding
Many aspiring restaurant owners enter the industry based on personal preference rather than solid market research. They assume that their favorite cuisine or concept will automatically attract customers without analyzing demand trends, customer preferences, or competition dynamics.
2. Underestimating Operational Complexity
Running a restaurant is a highly complex operation, requiring expertise in:
Supply chain management (ingredient sourcing, inventory control).
Quality control (ensuring consistent food quality and service).
Financial planning (controlling costs, pricing strategies).
Marketing and branding (building customer loyalty).
Many new entrants underestimate these factors, leading to operational inefficiencies and financial losses.
3. Chasing Short-Term Trends Instead of Long-Term Sustainability
Saudi Arabia has witnessed several restaurant fads, such as:
The burger wave (2015)
The shawarma boom (following the burger trend)
The rise of Korean and Japanese cuisine
While trends can be profitable in the short run, many restaurants fail when the hype fades. Sustainable brands focus on long-term consumer habits rather than temporary fads.
4. Hidden Costs and Financial Mismanagement
Many restaurant owners fail to account for hidden costs, such as:
Wastage and shrinkage (e.g., 20% of raw chicken weight is lost in preparation).
Government fees and regulatory fines.
High delivery app commissions (which can eat up 25-50% of revenue in cloud kitchens).
Employee costs (including visa fees, training, turnover expenses).
Without rigorous financial planning, many businesses run out of cash before they can establish a loyal customer base.
Emerging Business Models: Traditional Restaurants vs. Cloud Kitchens
The rise of delivery apps has introduced new business models, such as cloud kitchens, which operate without dine-in spaces and rely entirely on online orders. While cloud kitchens reduce initial capital investment, they come with unique challenges:
Pros of Cloud Kitchens
✅ Lower rent compared to traditional restaurants.
✅ Faster market entry.
✅ Ability to experiment with multiple brands under one kitchen.
Cons of Cloud Kitchens
❌ High reliance on delivery platforms, which take up to 50% of revenue.
❌ Limited brand visibility—since customers don’t physically see the restaurant.
❌ Operational challenges in ensuring fast and high-quality deliveries.
While cloud kitchens can be a good testing ground, long-term success often requires physical locations to build brand trust and customer loyalty.
Key Success Factors in the Saudi Restaurant Market
For entrepreneurs looking to build a sustainable and profitable restaurant business in Saudi Arabia, the following strategies are critical:
1. Invest in Research & Development (R&D)
The most successful restaurant brands are not just food providers; they are R&D-driven businesses. Instead of merely following trends, they:
Study global food innovations.
Test customer preferences through focus groups.
Develop unique menu items that set them apart from competitors.
A strong R&D approach ensures that a restaurant remains relevant and competitive in an evolving market.
2. Prioritize Operational Efficiency & Cost Control
Efficient cost management is crucial. Key areas to optimize include:
Supply chain management: Sourcing ingredients at competitive rates.
Menu engineering: Eliminating low-profit, low-demand items.
Labor management: Hiring skilled staff and reducing turnover.
3. Focus on Branding and Customer Experience
In an overcrowded market, brand identity and customer experience are key differentiators. Successful brands:
Create a strong emotional connection with customers.
Offer consistent, high-quality experiences.
Utilize digital marketing (social media, influencer collaborations).
4. Choose the Right Business Model: Franchise vs. Own Brand
Aspiring entrepreneurs must decide between starting their own brand or investing in a franchise.
Franchising provides a structured business model and established brand recognition but requires profit-sharing and adherence to corporate guidelines.
Creating an independent brand allows for more flexibility and higher profit potential, but comes with higher risks.
Both models can be successful if executed strategically.
The Future of the Saudi Restaurant Market
Despite economic fluctuations, Saudi Arabia’s restaurant sector remains an attractive investment opportunity. However, the rules of success have changed—businesses that survive will be those that:
✔ Conduct thorough market research.
✔ Prioritize quality and differentiation.
✔ Control costs and maximize efficiency.
✔ Leverage digital marketing and technology.
In a market where consumer expectations are rising, only businesses that innovate, plan strategically, and execute efficiently will thrive. For those who get it right, the rewards are substantial.
Sources: Atlasbig, Binwise, Menutiger, MPRA, Posist, QSRMagazine, Seyboldreport, Thamaniyah