An eye for retail

27 October 2005
An eye for retail

Although restaurateurs and retailers have always bounced business off each other, it's only in recent years that they have really started to exploit the synergy - and, as the figures show, there is still plenty of room for growth.

Office for National Statistics figures show that 32% of total spend on food in the UK is now accounted for out of the home - in food service. This is a jump of 20% from 15 years ago, but there's still a huge gap in the market if you look to the USA, where the figure is above 50%.

Research also shows that shopping is now a national pastime, with most Brits having doubled their disposable income between 1971 and 1999. Analysts observe that the population is spending its money increasingly on luxury goods and this habit has spread into leisure, entertainment, travel - and food. According to Mintel (Eating Out Habits UK, April 2004), the restaurant meals segment of the eating-out market is forecast to grow by 25.7%, from £3.5b in 2003 to £4.4b in 2007.

Business intelligence service Euromonitor has gone further, claiming that retailers are now competing against leisure operators and will need to think about including cafs and small restaurants within their stores .

Retailers are also realising they need catering to sustain dwell time. Research by property consultants CB Richard Ellis has shown that 40% of shoppers - of whom some 75% are female - will eat something when shopping.

Needless to say, then, shopping centre landlords are paying more attention to getting the right catering in place to meet the needs of a growing family market and consumers who want healthier food. So, where catering in shopping centres was once the preserve of fast-food outlets, operators of fast-casual and even more upmarket restaurants and cafs are now seeing an opportunity.

It is hard to get good space in centres, however. From a developer's perspective, retail outlets command more rent. As a result, catering usually accounts for an average of just 7% of space in shopping centres.

But this is changing. Birmingham's Bullring claims it has steadily increased the ratio of food outlets to 16% by converting retail space. At Bluewater in Kent, the fact that 25% of last year's 27 million customers visited after 5.30pm prompted the landlords to seek planning permission to extend the building and add more restaurants. Even so, some observers feel it is not happening fast enough.

"Most new shopping centres don't include enough space for dining because in the short term they can get more rent for shops," says Peter Bill, editor of Estates Gazette.

"Local authorities should encourage a bigger mix - it would add vivacity to the site and, in the long term, attract more shoppers - but they don't do it because the owners want more money in the short term."

But the hunger for footfall and pressure on high-street space means restaurant operators are waking up to the opportunities in retail and leisure centres. Certainly, it's an area many see as ripe for growth, because although large out-of-town developments were halted by the Government back in the 1990s, it hasn't stopped the development of new centres as part of urban regeneration, nor has it curtailed market churn in existing centres.

Chains such as Nando's, La Tasca, Tootsies and TGI Friday's have been venturing off the high street in the quest to expand. Some, like smoothie operator Lovejuice, are even avoiding the high street altogether. A more unexpected twist is the interest being shown by city-slicker brands such as Carluccio's and Wagamama.

"The upside of such locations is that operators get a captive audience generated by a multiplex cinema, retail and leisure," says Julian Mitchell at property agents Christie & Co. "Operators are also going for critical mass - a scheme with six other operators near by means people come to you. A lot of operators don't want a solitary site."

However, Stephen Logue, director at retail marketing consultants Business Blueprints, cautions that not all shopping centres are good news. He observes that PizzaExpress was encouraged by the vigorous trade it found at Bluewater, but reckons the brand's performance in designer outlets has been lacklustre. Similarly, Yo! Sushi found itself in the wrong end of Bluewater for its client base and had to pull out.

Out-of-town retail parks are slightly different from shopping centres in that most comprise warehouse-style units selling big items such as furniture. Restaurants don't sit happily next to a 50ft frontage, so catering has tended to be confined to fast-food operators such as KFC, McDonald's or Pizza Hut, which have units in the car park.

That said, Frankie & Benny's has pledged to put 50% of its new sites into mixed-use leisure and retail parks. Only 30% of its sites are now near a cinema. Managing director Kevin Bacon explains that he is tapping into the family market and the fact that shopping is now seen as a day out - with a treat for the kids at the end. At Bournemouth's Castlepoint, the restaurant offers three courses at 7.65 and is turning over £25,000-£30,000 a week.

Its parent, the 279-strong Restaurant Group, is pulling back from the high street. Instead, group managing director Andrew Page has announced that expansion will be concentrated on shopping and leisure centres - with new deals signed at Norwich, Gateshead and Manchester - as well as airports.

Compare the advantages
Apart from the cost, one big difference is that centres - particularly those out of town - tend to have free parking and good security. Many are also huge, so can easily command a dwell time of up to two-and-a-half hours. And it's a captive market.

Logue explains that restaurateurs can also benefit from the fact that in shopping centres the competition is managed. The high street, conversely, is an unpredictable environment with established competitors, a changing mix of operators and more variable footfall.

That said, one problem is that restaurants in shopping centres - particularly those out of town - have to rely on a cinema or other leisure activity to bring visitors in during the evenings, so operators need to be sure their concept fits. For instance, fast-service restaurants such as Yo! Sushi can shoehorn into a small site and are well suited to serving the time-pressured cinema crowd.

He adds that new operators trying to break into the UK market have identified shopping centres as an ideal means of getting both the exposure and the momentum to expand. South African steak chain Spur Steak & Grill arrived in the UK in 2000 and is doing just that. It has 120- to 130-seat sites at Two Rivers in Staines, Surrey; Festival Place in Basingstoke, Hampshire; and Southside in Wandsworth, south-west London, and aims to turn over £1.2m a year per outlet.

Centres are also proving a handy way to open up fresh markets. Take Wagamama, which typically attracts young professionals to its city centre sites but has tapped in to the female market in shopping centres.

Wagamama was initially sceptical about moving into this sector, but since opening in Brent Cross, north London, a year ago it has reviewed this policy. The 135-seat site has had to extend its opening hours, and a spokesman at the chain has confirmed it is interested in taking space in other centres such as Bluewater - but has had difficulty finding vacancies. In the meantime, it has opened at Festival Place in Basingstoke, the Oracle in Reading and the Bullring in Birmingham.

For coffee and sandwich bars, it's a quick way to expand. Market consultancy Allegra Strategies cites O'Briens Irish Sandwich Bars, which has more than 140 UK sites and is hoping to reach a target of 1,000 sites in the next five years, partly by expanding into shopping centres.

The opportunities
So what are the opportunities? Traditionally, foodcourts run by contract caterers have dominated catering at shopping centres, but there is evidence that this is changing. For instance, when Basingstoke's Festival Place was revamped, the foodcourt was not replaced and, instead, more emphasis was put on fast-casual dining. The only fast-food operation there now is Burger King, outnumbered by the likes of Spur Steak & Grill, Wagamama, La Tasca, Dexters and Nando's.

Fast-casual concepts such as these seem to thrive on being in high-traffic areas with shops and cinemas. They are also benefiting from the female-friendly and family-friendly environment created by the extra security and convenient parking compared with the potential disorder encountered on wet-led high streets in the evenings.

Some shopping and leisure centres are also attracting more upmarket concepts. Jonathan Doughty, group managing director of consultant Coverpoint, confirms that about 10 years ago the focus was mainly on fast food but now there is an increasing demand for casual dining - and even fine dining.

At the top end, new-wave urban regeneration developments have signed up designer shops and need a food offer to match. Conran Restaurants, for instance, operates a Zinc Bar & Grill in Prince's Square, Glasgow - renowned for its boutiques - and also in the Triangle in Manchester, which hosts trendy retailers such as Calvin Klein and Molton Brown.

Mainstream shopping centres are getting interest from expanding upmarket casual restaurant brands, too. Est Est Est is said to be performing well at the Trafford Centre in Manchester, for instance. As a benchmark of how lucrative space in a centre can be, Doughty estimates that if a restaurant notches up 15,000 of business a week in a typical high street, it can expect 30,000-35,000 at locations such as the Trafford Centre.

On some high streets there has been a backlash against giant chain operators. London property company Shaftesbury is reacting against the homogenised high street by developing "villages" at Carnaby Street, Seven Dials and Chinatown. These tend to have clusters of independent restaurants and cafs to complement the trendy shops. Emerging chains such as fast-service health food restaurant Leon are using such locations as a launch pad.

So, for chains at least, shopping centre locations are looking good. What counts against them, argues Logue, is that they are soulless. "How do you create a sense of romance in a shopping centre?" he asks. "Retail is rational; catering is emotional. It is possible to achieve it, but only if the mall owner is prepared to create a separate design brief for leisure."

He adds that although customers have become more discerning, most table-service brands attract a tiny proportion of shoppers - about 6% - and he asserts that, long-term, the biggest growth will be in the family market.

"They used to have a sausage roll from Greggs and now they have a croissant and latte from Starbucks. The average spend levels haven't grown but the choice has increased. The trick is to get an interesting offer into these centres at about the £4-£5 mark."

In short, the opportunities in retail and leisure centres are growing, but make sure you know your market before you leap in.

Hot spots
"There's a lot of expansion at Thurrock, although that's mostly let. Victoria Centre in Belfast will be big, so will Union Square in Aberdeen. The Fort in Glasgow is interesting - it's a hybrid of retail park and sheds."
Stephen Logue, director at retail marketing consultants Business Blueprints

"Look out for areas of urban regeneration and renewal. For instance, Camberley - it's very affluent, used to be full of squaddies and was wet-led, but a big leisure scheme has been granted permission. In fact, the M3/M4 corridor should be watched. There will be major changes there in the next 10 years."
Paul Antenen, principal at management and marketing consulting practice Antenen Consulting

"King's Cross is currently the site of one of the largest regeneration projects in Europe, equivalent in scale to Canary Wharf. Regent Quarter, which completes in November, is leading the change. The £150m mixed-use scheme includes a 277-bedroom Premier Inn hotel (already open and trading), 138 new residential units (many of which are already occupied), more than 200,000sq ft of offices supported by 64,000sq ft of retail space and 16,000sq ft of restaurant/bar space.
Kate Taylor, agent for restaurant/bar/cafés, Davis Coffer Lyons

"Shepherd's Bush will be rejuvenated by the White City development, which will open in 2008. Covering 1.4 million sq ft, the scheme will deliver a new shopping, eating and drinking district to west London."
Tracey Mills, agent for restaurant/bar/cafés, Davis Coffer Lyons

The costs: high street v shopping centre On a high street, rents can typically represent 6% of sales, plus rates. In a shopping centre, however, this figure will be at least 10% of turnover, plus service charges (to cover costs such as security) and rates (about a third of rent). In a centre, therefore, operators can be looking at spending about 15% of turnover on their space.

The good news, however, is that turnover in a shopping centre can be up to 2.5 times higher than on the high street, generated partly by long dwell times of up to two-and-a-half hours and visitor numbers that can top 10 million a year. Also, the landlord is keen to get a good fit so the competition is balanced. And at the end of the day, shopping centre rents do vary and are negotiable depending on estimated footfall.

It's up to you to weigh up the pros and cons. Robin Rowland, chief executive of Yo! Sushi, reckons the lower high-street rents do not compensate for the higher fit-out costs of old or difficult buildings versus the cleaner shell available in a shopping centre.

Shopping centres - bear in mind…

  • The customer profile changes at lunchtime and in the evenings.
  • You may need a cinema or other leisure attraction near by to bring in trade during the evenings.
  • Most shoppers want a good meal at a reasonable price.
  • They may have a dwell time of two-and-a-half hours, but shoppers are there to shop.
  • You need a flexible concept in terms of size and operation.
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