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Restaurant chains struggle with property shortage

24 June 2011

Restaurant chains are still struggling to secure suitable units, despite the decline of many high streets around the country as retail businesses continue to fail.

That's the view of prominent industry figures at last week's Allegra Restaurant Leader Summit. Leading chains are fighting it out around the UK in a bitter battle over A3 units (with planning permission for restaurant usage) while the number of vacant A1 units (limited to retail usage) continues to grow.

Speaking at the summit, Jacob Sumner, UK managing director at US-based Mexican chain Chipotle, said his company was keen to open more units in the UK but was being held back by a shortage of suitable sites.

"We can only go for A3 because we need kitchens. It's a very big hurdle. The landlords are saying ‘no' and the Government is saying ‘no' to us," he said.

The shortage is leading to some big premiums being paid for prime A3 units, according to Dominic Lake, founding director of Canteen, which is looking for more London sites.

"Property is a big growth hurdle," he said. "Cote and Jamie's [Italian] are paying significant sums of £500,000 to £1m premiums. It's raising the bar for the whole market."

Such is the pressure on securing sites that Canteen is working on a smaller A1/A3 unit measuring 3,500sq ft that could potentially be squeezed into smaller-footprint A3 units and, with a tweak of the offer, possibly into A1 units. "Will it work? We'll see," said Lake.

Jeffrey Young, managing director of Allegra Strategies, said the trend for the industry to develop "retail-A1 concepts to get around the shortage of premium A3 sites" was going to be a feature of the marketplace in the future.

Simon Kossoff, managing director of Carluccio's, admitted he had investigated a Piccolo/Carluccio's hybrid that could potentially work in the A1 rental space but the company remained unconvinced that it would work.

He also said the shopping centres had recognised the plight of the restaurant trade and were letting units to lots of food operators, but that the lack of a strong pipeline of new mall developments would exacerbate the problem in the future.

Allegra UK Restaurant Leader Survey 2011

â- Only 2% are finding it very easy to find good sites, compared with 0% last year and 6% in 2009.
â- A lack of suitable A3 units is now recognised as the eighth most challenging issue for 2011, having not been in the top 10 last year. Rising food/ingredient costs are seen as the biggest challenge.
â- "Good location" was cited as a key factor to success by 26% of operators surveyed, placing it in fourth place of importance, compared with sixth last year. "Good Value" took top spot again, with 45%.

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