Over the past few years, Armenia’s food service sector has gone through several stages of development and faced its own challenges, gradually adapting to new conditions and market demands. Today, it is no longer just part of the domestic economy: the industry is closely linked to tourism and the development of other sectors, and its condition largely reflects the country’s economic activity.

On the problems currently facing the food service sector, possible solutions, and prospects for its further development, Karas company director Tigran Yuzbashyan spoke on Economix.

Armenia’s Food Service Market Is Oversaturated 

According to Tigran Yuzbashyan, it is currently difficult to say exactly how many players operate in Armenia’s food service sector and what the industry’s total turnover is. However, in his assessment, the number of restaurants and fast-food outlets in the country clearly exceeds what the market actually needs. In other words, supply significantly exceeds demand.

The number of establishments grew especially noticeably after the influx of around 80,000 relocants from Russia to Armenia. 

“When people saw queues at restaurants, everyone started opening restaurants,” Yuzbashyan noted.

At the same time, he says, from the outside the restaurant business may seem much simpler and more profitable than it really is.  Yuzbashyan explains that the business’s outward appeal is often linked to the fact that a visitor sees only the final bill. For example, if after lunch with a friend he gets a bill for 15,000 drams, he may mentally calculate the cost of the products he buys himself at the supermarket and decide that the restaurant makes huge profits. However, behind this amount lie numerous expenses and problems that are invisible to the visitor.

“He does not see what problems exist there, what enormous expenses there are, what kind of nerve-racking turbulence he will get into, because this is a very difficult field,” Yuzbashyan noted.

Easy to Open, Hard to Operate: 95% of New Restaurants Close After 2–3 Years

According to him, a person planning to enter the restaurant business needs to understand the specifics of this work. “If you do not get pleasure from this crazy, frankly speaking, masochistic process, if you do not have something that allows you to enjoy all this, then you should not enter this field,” he said, adding that opening a restaurant is easy, but operating and earning money in this business is extremely difficult. 

The difficulty of the business, according to Yuzbashyan, is also connected with direct contact with the customer and the specifics of the product itself. Today, consumers pay close attention to what they eat: they are interested in what may be harmful to the liver, what is organic, and so on. At the same time, we are talking about a product that a person consumes directly.

“This is not a glass that a person goes into a store, buys, brings home, sees that it is cracked, takes somewhere, returns, and gets their money back. Here, he eats it, and if he has a problem or simply does not like it, there is no such return process,” Yuzbashyan explains. According to him, this is precisely why interaction with the customer in the restaurant business can be especially conflict-prone and emotionally draining.

Yuzbashyan also cites statistics according to which about 95% of new restaurants worldwide close within the first two to three years of operation. According to him, many entrepreneurs, when faced with the real difficulties of the business, begin experiencing severe stress after just six months, and another six months later are ready to sell the establishment and leave the industry.

On Average, a Restaurant Brings 10–15% Net Profit

Speaking about the profitability of the restaurant business, Yuzbashyan notes that there are average indicators. According to him, the average global net profit of fast food is about 5–7%, while for restaurants it is around 10–15%.

At the same time, some successful establishments may significantly exceed these figures. According to Yuzbashyan, these are restaurants that have managed to find a certain “hook,” offer an interesting product, or create stable demand in some other way. 

In his assessment, for an ordinary restaurant a more realistic benchmark is the return of invested capital in about three to five years.

At the same time, he draws attention to the difference between the restaurant business and fast food. Fast food has a lower average profitability — about 5–8% — but initial investments are also much lower. In a restaurant, however, the investments are significantly higher. “Fast food buys a chair for $20, a restaurant buys a chair for $300,” Yuzbashyan explains.

Armenian Fast Food: Traditional Dishes in a Quick-Service Format

Speaking about the specifics of Armenian fast food, Yuzbashyan notes that in the case of Karas, this is a mixed format: the company operates both in fast food and in restaurants.

According to him, the same dish may be perceived completely differently depending on how it is served. For example, kebab, which is prepared in six or seven minutes, can вполне be fast food, although in a restaurant the same dish would be served at the table, and such a format would no longer be perceived as fast food.

“I always say this: khorovats, kebab — these are our Armenian traditional dishes,” Yuzbashyan says.

The traditional nature of this dish, according to Yuzbashyan, is especially noticeable in Armenian feast culture. As an example, he cites weddings: among the first hot dishes there is unlikely to be julienne or a medium-well steak — traditionally, it will be khorovats.