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Fighting for space

01 January 2000
Fighting for space

The market for pubs and restaurants is converging, creating a scarcity of suitable property. Angela Jameson reports

Competition among restaurant and pub operators for new sites is reaching a crescendo. Rival operators are bidding against each other to acquire the right site, and when something suitable becomes available at least a dozen companies can be expected to tender serious bids for it.

The pressure to find licensed premises has been created by several factors, but critical has been the rise in popularity of casual dining and the revolution of the pub business. Developers of pubs and restaurants are now fighting for the same key properties in locations ranging from primary retail to roadside.

Pub or restaurant operators now ask themselves not just whether a particular location is desirable but also which of their brands would best fit the site. To create a successful operation, design, facilities, the ratio of wet to dry sales and the local clientele all have to be assessed.

Brand management and retailing techniques are now the science of successful restaurant and pub operations alike. These strategies have dictated the main battlegrounds between restaurants and pubs of what Sheila McKenzie, general manager of Grosvenor Inns' Slug and Lettuce brand, calls the mini-war for the best sites.

David Coffer, of agent Davis. Coffer. Lyons, adds: "When the right site becomes available in any prime location, there are 10-20 front-runners."

The right site is unlikely to be the Rovers Returns of this world, or even the high street trattoria. Those considered the worst sites are usually in suburban and provincial shopping centre locations and attract little interest.

McKenzie explains the dilemma: "We're overpubbed in this country. But from a retailing point of view you wouldn't go near most of them with a bargepole."

The typical restaurant group or pub operator now has a number of brands, some food-led, some drink-led, for which it is seeking sites. Grosvenor Inns is an example of these young, dynamic companies and it needs to be constantly in touch with its markets, operating its three highly individual brands to exploit the rise of casual dining and the arrival of the modern pub. These are beer-led brand Hedgehog & Hogshead, restaurant brand Bar Central and the Slug and Lettuce chain, where food makes up 30% of the sales mix.

Scrupulous demographic research usually highlights the areas to look for. Managing director Gary Pettet says market research also dictates the design and location of both the Slug and Lettuce and Hedgehog & Hogshead brands to make them more female-friendly. In the liquor-led Hedgehog & Hogshead pubs, picture windows are regarded as crucial because women prefer to be able to see into a pub before entering.

Since taking on the Slug and Lettuce operation in 1992, Grosvenor Inns has refurbished and revised the food operation. The aim has been to rediscover the brand's identity and develop the business from a traditional pub chain "which had lost its way" to being one with venues that are accessible to both men and women.

Slug and Lettuce requires secondary retailing locations of about 2,000sq ft. Competition for licensed premises for this brand usually comes from Bass's All Bar One concept, Whitbread, Pitcher & Piano, Allied Domecq's Firkin chain, and restaurant groups City Centre Restaurants (CCR) and Pelican Group. For the Hedgehog & Hogshead brand, competition comes from retailers, often building societies, as well as breweries and pub operators such as Yates's Wine Lodges, Regent Inns, JD Wetherspoon and Bass.

Upper Street in Islington, London, represents the ideal retailing location for Grosvenor Inns and, with the opening of the food-led Bar Central, the road will soon house all three of its brands.

The expanding value of the eating-out market, which has grown by 19% to £15.7b in the past five years, according to market research company Mintel, has been a factor in the competition for sites. Those restaurant groups that figure most prominently - Pelican, PizzaExpress, My Kinda Town and CCR - have ambitious growth targets for the next two years that are contributing greatly to the tough competition and high bidding for suitable locations. The pub operators that compete with them on a regular basis - Whitbread, JD Wetherspoon, Grosvenor Inns, Allied Domecq and Bass - are no less determined for their own brands.

One of the most acquisitive and aggressive companies seeking sites nationwide is the Pelican Group. Chairman Roger Myers explains that, like Grosvenor Inns, it demands properties across a range of locations.

Its Café Rouge concept, for instance, requires good secondary sites of 2,000-3,500 sq ft, in locations ranging from retailing areas to residential neighbourhoods. Pelican favours premises with existing A3 planning permission and rarely applies for change of use. Competition for these comes mainly from independent restaurateurs and PizzaExpress. CCR is sometimes in the picture.

For its "bar and barbie" Sheila's concept, Pelican looks for good pub sites with passing trade, as it does for the Dôme café-bar. Its family Sicilian restaurant, Mamma Amalfi, is targeted at high street locations or shopping mall food court sites.

Casual dining, well represented by Pelican's brands, has been the cornerstone of the eating-out market's success in recent years. But it is the increasing importance of pub catering that has done most to make the needs of restaurant and pub developers seamless.

Pub operators realised they were singularly placed to take advantage of the popularity of casual dining. In 1994, according to Mintel, pub catering was worth £4.1b, an increase of 25% on the value of the 1990 pub catering sector.

Food is now essential in the marketing mix of a successful pub and has become a key area through which to boost profits. In particular, operators are looking to develop superpubs - these are large venues that sell "experiences" rather than just beer, and take more than £40,000 a week.

While the competition for city high street sites is intense, an important out-of-town market has also arisen, driven by the superpub concept.

Competition for roadside and destination locations such as leisure and retail parks where there is round-the-clock trade is dominated by brewers such as Allied Domecq, Bass, Whitbread and Marston's. It can also attract fast food chains such as McDonald's and Burger King, and restaurant groups such as CCR, Pelican and BrightReasons.

Whitbread's out-of-town sites - TGI Friday's, Beefeater and Brewers Fayre - require sites of 6,500-10,000sq ft, depending on the facilities offered. As a result, the company can find itself competing for sites with organisations ranging from supermarket chains to local breweries.

The pressure for big sites has led to a number of pub operators finding unlicensed premises and converting them, a trend that restaurant groups may be less keen to follow. JD Wetherspoon, which has some of the biggest licensed premises in the trade - up to 15,000sq ft - is widely credited with inventing the trend.

Converting cinemas and churches

Wetherspoon has converted former theatres, bingo halls, cinemas and churches into pubs and is highly regarded for its expertise in this area.

Company spokesman Eddie Gershon says: "We don't buy old pubs. If the others don't want them, why should we? We put a lot of effort into planning and licensing applications because it's our lifeblood."

But Myers of Pelican says he will continue to look for full on-licensed premises for its concepts: "It's not worth our while [to do otherwise], especially at the rate we're expanding."

The company is awaiting a decision on a rare change-of-use application for a Café Rouge. But Myers suspects it will not succeed, as the site in question is in a conservation area.

Whitbread's acquisitions director for pubs and restaurants, David Street, points out another reason for seeking newly licensed premises - most planning authorities want to protect retail frontage.

With regard to new licences, magistrates across the country appear to be becoming more lenient in granting them. Birmingham is often cited as a case in point. Some areas, however, have notoriously strict rulings. Newcastle, one of the UK's liveliest night spots, is written-off by many of the breweries and pub operators as being too difficult. Cardiff is also reputed to be a tough nut to crack.

One licensing reform that could have brought the needs of pub and restaurant developers even closer was the introduction of Children's Certificates for pubs. The strict conditions governing the granting of the certificates has forced pubs to offer a more restaurant-style service.

Barry Gillham, of agent Fleurets, suggests the change was a damp squib, however, and believes the conditions are too strict. Few pub operators have applied for them and their impact has therefore been limited. The Government is now to re-examine the guidelines and promises to make changes, if necessary.

Sunday opening has had a more positive effect on the pub market. According to Gillham, the measure has led to considerable activity over the summer.

Pressure for sites inevitably leads to higher property prices. And that means the success or failure of a brand, in terms of the bottom line, is more important than ever. Meanwhile, as pub and restaurant operators strive to find the successful formula, the customer will have an endless supply of new concepts to try.

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