A Different Class…

A Different Class

A lack of quality sites for growth and expansion is sadly the restaurant industry’s Achilles heel. A shortage of supply, together with increasing rent and premiums, means that even those with ample funds and considerable appetite are finding it increasingly difficult to achieve returns for investors; and this problem is only likely to amplify as more operators join the bun fight. 

Over the last year or so I’ve observed the cannier brands acquire assets which ordinarily would fall outside of their acquisition requirements list.  By looking at the acquisition challenge more holistically, they have achieved growth where others may have only seen brand and operational challenges. Let’s take a looks at some creative thinking:

TRANSPORT HUBS

Nothing new you may say, and you would be right. But what I am seeing is an increasing appetite from landlords to asset manage and invest which will ultimately lead to an increase in supply. Over the last 3 years Heathrow T2, Gatwick, Stansted and Luton Airports have all refurbished, improved and grown their restaurant estate with a diverse mix of leisure operators and it’s only a matter of time before some of the smaller, provincial airports follow suit. Network Rail has overhauled its retail and food offering at Waterloo and Euston railway stations resulting in a better, more premium line up. Who would have thought that one day you would be able to buy a pair of Joule wellingtons, browse Kiehls cosmetics or pick up a charcuterie board on your daily commute? Sadly, it’s to the detriment of the more useful services like a key cutter or cobblers, but refreshing nonetheless. Paddington and London Bridge stations are undergoing similar changes as we speak.

Operating in transport hubs isn’t for everyone and I know first hand how challenging and sometimes impossible it is to successfully develop a business in these locations. What has impressed me is the diversity of operators like Leon, Comptoir Libanais and The Grain Store who are prepared to give it a go, and I fully expect them to reap the rewards for their bravery. 

HOTELS AND TOURISM

Alasdair Murdoch, CEO at Gourmet Burger Kitchen always used to say operators should ‘stick to their knitting’ and nothing is truer than in the branded hotel sector. Hotel operators are experts, and derive 90% of their income from providing customers with a comfortable bed and a good night’s sleep with the remainder from food and beverage and other ancillary sales. Carluccio’s have recently launched a 200 cover restaurant within the 304 bedroom Marriott in Regents Park and Café Rouge have been successfully operating the restaurant at the IBIS in Greenwich Village since 1996. It helps that these operators have a true all day offer, providing breakfast, lunch and dinner to hotel guests and a likely improvement on what would otherwise been a poorly executed food offer. Casual Dining Group have also been successfully trading their brands within the Centre Parcs business for a number of years and it will be interesting to see whether any of other leisure resort operators will look to apply a similar model.

RESTAURANTS TO RETAIL 

There is an increasingly grey area around what brands are operationally permitted to do to fall within Class A1. We may see some fall foul of the law should local authorities decide to start challenging operational practices. I see a logical cohesion between restaurants and A1 food and operators should be leveraging what they can to build up credible retail business.  The deal of the year in this category goes to Azzurri Group for their acquisition of Coco di Mama, a logical fit in terms of supply chain, brand and an instant premium representation in the quick service sector. Carluccio’s have recently acquired the old Loaf unit on Tottenham Court Road to trial their Via Carluccio’s concept, a logical abbreviation to their core offering and I expect we will see more should the trial be successful. 

FOOD COURTS

I think it is fair to say that Westfield were the pioneers in reinventing the traditional and rather dated shopping centre food court. During the launch of Westfield London in 2008 and then in Stratford in 2011 we saw a number of full service restaurant operators adapt their operations to offer customers a quicker, more premium, over the counter version of their offering. Rosa’s Thai Café, Franco Manca, Comptoir Libanais and Pho have all successfully adapted their concepts without losing the core essence of their brands. With a smaller footprint, lower rents, I suspect these are among the better performing restaurants per square foot in their respective estates whilst reaching high footfall locations and a new audience. 

Since 2011 we have seen Land Securities launch Trinity Kitchen in Leeds and Hammerson launch Grand Central, Birmingham, both with an enviable tenant and a far cry from the downmarket, value offering of yesteryears.

SERVICE STATIONS

Yes, service stations. The place you stop to use the loo, contemplate whether you have the stomach for the ‘5 breakfast items for £9.99’ from the hot counter only to end up back in your car with an overpriced milky coffee. Those guys are starting to up their game. I guess Costa were the first to recognise these opportunities, and probably the reason why there are no less than five opportunities to buy a Costa coffee in Reading services. Since then, the likes of Krispy Kreme, Starbucks, Waitrose and M&S Food have all recognised the value in such a captive market. Within casual dining, Cobham, Beaconsfield and South Mimms services are all home to branded operators including Nando’s, Patisserie Valerie, Wetherspoons and Tossed and I expect we will see more development as service station operators seek to extract value from their vast estates. Branded restaurants in service stations are fundamentally a good idea, from both a consumer and operator viewpoint. Given the grim, 1980’s portrait above, I feel the early adopters in this field may be risking some brand equity whilst both service station operators and the hospitality sectors in general catch on. 

RESTAURANTS WITHIN RETAIL  

We’ve discussed restaurants adapting business models to accommodate operating A1 retail sites, but how about operating a full service restaurant within a traditional retail space? Tesco’s acquisition of Giraffe in 2013 and the subsequent roll out of the Giraffe brand to 7 Tesco supermarket sites illustrates this perfectly, however, the Tesco acquisition is too fraught with issues to truly ascertain whether the Giraffe within Tesco model was a success or not. Outside of full blown corporate ownership, Nando’s have successfully launched a restaurant within a Tesco in Wembley Park and it is understood to be trading well. McDonalds have operated within the Asda estate for a number of years and the international sushi operator, Sushi Daily, have recently launched their business in both Sainsbury’s and Waitrose. Away from supermarkets, Debenhams are now home to Patisserie Valerie, Joe & the Juice and Ed’s Easy Diner. In mid-market department stores, Rossopomodoro and Italian burger operator, Ham Holy Burger are launching in the John Lewis flagship store on Oxford Street. Elsewhere, Rossopomodoro and Ekachai have full restaurant operations within Selfridges, as well as Tonkotsu and Yo!Sushi operating within the Selfridges Food Hall. At the upper end, Burger & Lobster, Kurobuta and Polpo currently operate within the Harvey Nichols in Knightsbridge, in addition to their own Fifth Floor Café and soon to be launched Bar & Kitchen in the menswear department.  

As retailers look to downsize their estates whilst trying to add value to the consumer experience there is a logical opportunity for the restaurant sector to fill the void. Be it a full partnership, or simply a concession opportunity, the secret to success in marrying two operational business lies in picking the right partner. 

WHATEVER NEXT?

Generally speaking, the restaurant sector relies on customers, and lots of them. So, whatever next? Public buildings? Maybe. There are already a number of Costa Coffee outlets within hospitals as well as M&S Simply Food and WH Smith stores. Burger King caused outrage by attempting to open in Croydon Hospital, which illustrates an opportunity for the right operator who can marry their own, healthier positioning, with that of the hospital. Both Peyton and Byrne and Benugo hold high value contracts within public buildings and don’t forget ‘Tiffin Wednesdays’, the popular collaboration between the now defunct Tiffinbites and Compass Group to bring branded food to canteens across the public sector. 

What about Theme Parks? High footfall, a captive audience and currently a pretty basic food offering. Last June, Gourmet Burger Kitchen opened in Kidzania, Westfield, a 75,000sqft interactive child-sized city where ‘kids are in charge’. Part brand positioning, yes, but the success of these venues across the globe indicates  a wider commercial angle at play. Cinemas? Ben and Jerry’s and Baskin Robbins both operate franchises within cinema lobbies but is there an opportunity for an eat-in-your-hand type casual dining operator to do the same? Finally, Deliveroo has, for some operators, shifted from being a ‘nice to have’ to a very high volume sales channel, possibly to the detriment of the core restaurant operation. Deliveroo’s RooBox, an offsite kitchen whereby operators share space and service areas which they otherwise would not open goes part of the way to solve this. But what about those with existing restaurants that physically cannot cope with demand and possibly find the constant flow of drivers detracting from a pleasant restaurant experience? I would not be surprised if we see the larger operators, especially those with capex at their disposal, start to explore ‘Deliveroo only’ standalone sites.

This sort of entrepreneurial thinking is usually reserved for the bolder and more entrepreneurial operators; however, it is refreshing to see the bigger brands reviewing their acquisition strategies in this way. This opportunity is not without risk, but those operators who manage to work with a strong brand team to identify the right partners will see opportunity for growth increase exponentially while the sleepier operators are still caught in the bun crossfire.