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20 October 2005

Independent restaurants and chains have always been after the same prime high-street properties. Everyone wants 1,500-3,000sq ft with parking, good access and high-street frontage, but the economies of scale available to chains have meant they usually outbid the indies. Independents have therefore tended to take sites off the main high streets in neighbourhoods and have had to get to know their local markets in order to attract trade.

"What indies are really good at is taking a secondary location and creating a successful business through local reputation and word of mouth," says Simon Wells, director at Colliers Robert Barry. And independents are more versatile when it comes to finding sites.

Indies are able to think outside the box on size of unit, whereas chains are constrained by the brand they're trying to expand," says Wells. "Indies tend to be leaner because they have lower property overheads and generally tighter cost controls because the owners are hands-on, there are often lower wages and usually no central management costs."

Michelin-starred restaurants - for instance, Winteringham Fields near the Humber in Lincolnshire - are often destinations in their own right. Elsewhere, fine-dining restaurants have nestled together in small towns and villages - such as Ludlow, Shropshire, Bray, Berkshire, and Padstow, Cornwall - generating even more business.

Competitors are cosying up. One of the most noticeable location trends is that fast-casual restaurants - particularly chains - are looking for sites next to each other. A recent example is the Clink Street development in London, where Nando's has let 3,000sq ft of its 10,000sq ft site to noodle chain Wagamama.

"I think it makes terrific sense to locate offers of similar spend per head and customer profile close together. It will build a bigger overall market in the long term for Wagamama and Nando's to enjoy," says Wagamama chief executive Ian Neill.

Clustering is also spreading beyond cities. "Operators are now gathering together," says Peter Bill, editor of Estates Gazette. "There are little flocks of restaurants that settle in one place, usually in secondary towns. Until about five years ago, these places were gastronomic deserts - except perhaps for PizzaExpress - but other chains are now opening up."

There are many advantages to clustering, but the fact that it generates high footfall is probably the strongest. Some observers liken the benefits to those in the Mediterranean, where diners can stroll about, pick a restaurant and then come back on a different night and try another.

The trend towards clustering is also helping mid-spend operators in commuter towns. Filling restaurants - particularly at lunchtime - has been a perennial problem in secondary towns, but it seems some restaurants in the capital have similar problems. Julian Mitchell, associate director, corporate restaurants, at Christie & Co, cites Bodeans, which has premises in Clapham and Soho but has yet to find other suitable high-street sites to expand in the capital. "It needs somewhere like Chiswick, that has mums and kids coming in for lunch and good dinner custom in the evening," says Mitchell.

Unlike independents, chains have different reasons for taking sites. Peter Antenen at Antenen Consulting points out that they tend to be more asset-based and balance-sheet-centric, and might, for instance, subsidise a site simply to increase brand awareness in an area. He reminds us, however, that competition for sites forced operators in the 1990s to be innovative and look for change of use on premises such as garages, banks and building societies. Such opportunities are being eroded, and there's now more pressure on high-street sites. The threat of disorder in town centres following licensing changes, and even smoking bans, will also have an effect on choosing sites, predicts Antenen.

Licensing laws and the high street While clustering is good, most family-orientated chains do better to avoid nestling next to pubs, particularly with the change in licensing laws. The new Licensing Act 2003, which came into force in February and transferred the power to grant liquor licences from magistrates to councils, may open up more opportunities for fast-casual and family-friendly restaurants in high streets. "If you apply for a restaurant licence you'll be in a better position," agrees Trevor Watson, director at Davis Coffer Lyons. "But local authorities can't drive markets."

Even so, there's a strong feeling that licensing reform and the mooted Alcohol Disorder Zones will herald a backlash against licensed operators. Some observers reckon there will be a shift away from wet-led businesses forming the heart of mixed-use developments.
Andrew Page, group managing director at the Restaurant Group, has said that the company, which owns Garfunkel's, Frankie & Benny's and Caffé Uno, is reducing its exposure on the high street because of problems such as binge-drinking.

Julian Mitchell at Christie & Co reckons that most towns are already taking action: "Local authorities now grant licences and are wary of creating all-day drinking dens or restaurants that could be sold on as a bar that will alienate residents - ie, the voter," he explains. "It's in the local authority's interest to maintain the balance and now they have the power to issue licensing so there's autonomy."

Stephen Logue at Business Blueprint adds that wet-led areas are bad news for restaurants. He cites West Street in Brighton, which taxi drivers have dubbed "Little Beirut" because of the number of riot police waiting there to combat disorder between 11pm
and 1am, and stresses the importance of avoiding sites next to pubs and bars. "They're so, so different, and people don't always understand that," he says. "Clustering is good, but developers need to think of the right context for clustering."

In-Store Sites In the past five years, in-store catering has grown. According to market research company Mintel, in-store catering was worth 1.3b in 2004, a rise of 4% over 2003. In addition, retailers recognise that by offering a caf or restaurant they can increase dwell time.

It's an equally attractive option for some food-service operators. Trendy chains offering fast service such as Wagamama and Yo! Sushi have been approached by upmarket stores such as Harvey Nichols, House of Fraser and Selfridges, as have less well-known operations such as Square Pie and the more elite Momo.

Carluccio's Italian café-restaurants and delis have taken space in upmarket department store Fenwicks and also in out-of-town shopping centres such as Bluewater. The company, which has 20 sites, serves about 55,000 customers a week and is now stepping up its interest in retail sites - mainly around the M25 - in a controlled way. Managing director Simon Kossoff has said he believes the formula is well suited to most environments - it's in the high street, concessions such as those at Fenwicks, and in mixed-use developments such as Bicester Retail Village and Bluewater, where it took over the former Yo! Sushi site.

To work well in stores, however, your concept needs to have flexibility in size. Yo! Sushi, for instance, has managed to squeeze its conveyor-belt sushi offer into 1,000-2,000sq ft within department stores.

Depending on the offer, supermarkets are also worth consideration. Grab-and-go sandwich chain Subway, for instance, has opened some units in Spars in Ireland. It's the largest fast-food chain in the USA with 17,300 stores, and since landing in the UK in 1996 it has opened more than 500 units here.

The beauty of Subway is that it has been able to adapt to a space of only 200sq ft as opposed to its high-street size of 1,000sq ft and it sees this as an opportunity to expand rapidly. By the end of 2010, Subway aims to have 2,010 outlets in the UK, trouncing KFC, Pizza Hut and McDonald's.

Coffee shops are well suited to smaller spaces. Starbucks is among those getting deals in convenience stores and supermarkets.

Bookshops and even banks, meanwhile, have provided growth opportunities for a number of thriving coffee and sandwich chains.

Costa, for instance, has been expanding through Ottaker's, Waterstone's and Abbey bank - and last year put 20 units into WH Smith.

In -Store Check list

  • Your pricing and offer need to reflect the values of the store.
  • Location in the store is crucial - avoid gloomy corners.
  • Get a separate entrance if you can.
  • Space will be a constraint, as stores are reluctant to give up merchandising space.

Know your market
Expert advice on choosing a site from Julian Mitchell, Associate Director, Corporate Restaurants, Christie & Co.

  • Location is probably the most important point to consider when buying a restaurant, so research it well.
  • Besides the business possibilities, look also at how suitable the area is for you and your family. Remember, once you open your restaurant you could be spending every living moment there.
  • Check whether the sociodemographics are correct - does your target customer live nearby? Make sure you know details of pedestrian footfall, right down to the direction people walk around the area at different times of the day and night.
  • Assess whether one side of the street is busier than the other. Businesses have been known to fail simply because they're on the wrong side of the road.
  • Will your customers come to you, or will you depend on impulsive business? Is there local transport? If you're in London, check whether the restaurant is located on a Red Route. Are there double yellow lines outside? Is it easy for customers to park nearby? Can you be found easily? Where are your competitors?
  • Consider the sight lines of the unit and its prominence. If they're limited, see whether they could be improved with signage or clever lighting.
  • What level is the unit on? Traditionally, it's always been difficult to attract diners upstairs, while basement venues in the majority do work.
  • Finally, check with the local planning office to see if there are plans to redevelop the area that may affect the business - either in a positive way by improving it or in a negative way.

Essential check list

  • What type of clientele do I need?
  • Do the locals fit the profile?
  • How much will they spend?
  • Is that the right price point for this concept?
  • Will I be able to afford to pay the rent at the year-end?

Case Study: Nando's Nando's has acquired its largest unit to date at Bankside, underneath the arches of Cannon Street bridge and adjacent to Vinopolis, the wine museum and restaurant. The Globe, Tate Modern, Clink Street prison, the Golden Hind and Borough Market are within a short distance.

The new 180-seat restaurant is part of a synchronised deal, whereby Nando's has let 3,000sq ft of the 10,000sq ft site to Japanese noodle chain Wagamama at £115,000 a year. The group bought the 25-year lease at £325,000 a year through Berkeley Simmons Davis.

Borough Market has also seen a number of restaurants open recently, including Feng Sushi - to be joined soon by Roast and Black and Blue.

Certainly, the "cluster" effect couldn't be more apparent than at Bankside, which runs from Butlers Wharf at Tower Bridge to Blackfriars Bridge and the Royal Festival Hall. The effect of complementary operators following each other into these desirable locations is proving to be successful.

Inevitably, therefore, there will be more developments along this side of the South Bank, and the cluster effect will continue to enhance these locations for experienced operators.

By Jeremy Simmons, director BSD (soon to be Dunlop Haywards Leisure)

Case Study: Yo! Sushi Yo! Sushi has 19 sites, including six concessions in stores such as Harvey Nichols, Selfridges and House of Fraser. The best-performing sites are measured on return on investment, and according to managing director Robin Rowland, these are proving to be department stores and railway stations.

"We invest £300,000 in fitting out, which is low, so we get a good return on investment," he explains. He concedes that rents are high in those locations - sometimes 50% more - but this is offset by high turnover.

The fast-service, conveyor-belt sushi concept is well suited to department stores. It taps into a captive customer base with time constraints, and pricing is also well matched at £1.50-£5 a dish.

Yo! started in 1997 in 5,000sq ft high-street premises in Poland Street, London. Its move into retail locations means it often has to squeeze into less than 2,000sq ft. That's the key to our success," says Rowland. "We shoehorn our restaurants into 1,000-2,000sq ft, and it balances out in the end. Outside London, Yo! faces a tougher job. The Edinburgh site closed officially because it was too big, although media reports said the city wasn't ready for "uncooked fish". Rowland recognises that the regions can be five years behind the capital, but tie-ups with Selfridges in Manchester have helped target a discerning market.

Check your lease Julian Mitchell, associate director, corporate restaurants, at Christie & Co, warns operators to make sure implications of any rent review clauses within their lease are checked thoroughly.

  • Some landlords will allow the site to be for A3 (food and drink) or A1 (retail) use, so if someone gets it wrong and you're in a prime Soho or Oxford Street site you could be stung for a retail rent which - particularly in London - can be excessive.
  • Some retail schemes restrict users so, for instance, you might find there is a clause preventing you from serving pizzas or burgers.
  • Other sites are simply jinxed. A site can be on the wrong side of the street and that can make a difference. A good agent will know.

Fine dining
Peter Antenen, principal at Antenen Consulting provides strategic support for leisure and consumer businesses.

How can you be sure a seemingly successful city will sustain a fine-dining restaurant?

The success of a fine-dining restaurant is down to supply and demand. With regard to supply, if you're opening up in an unfamiliar city you're up against the vagaries of a different labour market and you won't really have the inside track - you'll be on a steep learning curve.

With regard to demand, it's easy to misinterpret a local market. A lot of provincial cities have anecdotal evidence of being affluent, but you need to look at the facts and figures. For a start you need to find a city with a culture of frequent eating out.

Also, beware of regional jealousy. The local opinion-formers may take against a London-based operator, spreading rumours of small portions and high bills before you've even opened. You need to employ a good PR to woo these opinion-makers. Remember, you can't impose London-centric ideas - you need to get in touch with local tastes. But if you get it right you'll be quids-in. Look at Juniper in Altrincham, which is an oasis in an affluent area. Bray, Ludlow and Padstow have built up critical mass but are anomalies that would be hard opportunities to spot.

What are the warning signs?

Look for recent closures of fine-dining or smart-casual restaurants in the area. They may have failed for a valid reason, but you need to make sure. Research whether there's a lot of vacant property in the area that hasn't been shifted - and beware if agents are desperate to give you a good deal.

Why do some cities have thriving independents but few chains?

There are a series of towns with a boho feel and they need a health warning for chains. In particular, these are Brighton, Bristol and Nottingham - all of which have an indie reputation, possibly because they tend to be wet-led rather than food-led. Leeds didn't have an evening culture until relatively recently. Workers used to retreat into the suburbs, but that's changed since the city has been regenerated.

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