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Published 28 junio 2018
A new report by retail property industry body Revo has today been launched at DAC Beachcroft's Fetter Lane offices. Sponsored by DAC Beachcroft and with research by Savills and Aspect Market Research, the report reflects on the state of the retail property industry and considers how it can remain competitive in years to come.
Nick Knapman, DAC Beachcroft Partner and Head of Shopping Centres, said: "Revo's survey is published at a time of change, readjustment and reconfiguration in the F&B and H&L sectors. While operators are having to work harder for market share, there is a promising future for those who get it right in a market where consumers expect their spend on food and beverage, in particular, to increase. The rapid pace of change we are experiencing will only increase, but there will always be competition in the best locations for the best spaces.
"In visualising the future, three trends stand out for me.
"The future, though, will always belong to those who evolve. That, as ever, means staying close to customers and understanding what they want. Customers have become discerning about how they spend their money, whatever the type of destination. The winners - as they track this behaviour - are flexible, creative and collaborative."
The report's Executive Summary
Amid changing customer behaviour, the role of leisure and in particular food and beverage (F&B) in the retail environment has evolved significantly in recent years. The inflow of contradictory news on the performance and the possible future of the sector has created a rather confusing picture.
This research explores the broad spectrum of issues concerning the leisure market, from the change in consumers’ behaviour, impact of technology to the implications for the property industry. The report provides an insight into the current state of the market and future developments.
Expansion of leisure
Spending levels across retail, F&B and non-food leisure continue to grow year-on-year, and are forecast to grow across all sectors by around 4% annually for the next 10 years (with a slower growth in 2018-2019). The expansion of cinema, health & fitness (H&F) and F&B operators has been unprecedented over the last decade.
Restaurants, cafes & takeaways have seen the sharpest increase in the number of units of all leisure sectors. The number of restaurant units in occupation has increased by over 70% since 2010, while cafes & takeaways have seen growth of over 50%. Spending in restaurants was £80.4 billion in 2017, forecast to increase to £93.6 billion by 2030.
The H&F market is also expected to continue its rapid growth. The number of facilities grew by 5% year on year between 2016 and 2017, with the total market value experiencing over 6% growth during this period, reaching £4.7 billion. Operators are still expanding aggressively and the boutique market is likely to see serious expansion into the regional cities in the coming years.
The competitive socialising sector is on the rise, with large number of independents operators. However, the sector remains fragmented and focused on regional cities and London.
Both the existing leisure supply and growth are significantly weighted to high street locations, accounting for 80% of all leisure floorspace. Much of this growth has been made possible through change of use of units rather than new development.
London dominates in terms of a higher proportion of space devoted to leisure, frequency of visits and higher spending, compared with the rest of the country.
Despite this strong growth, leisure operators are facing certain challenges, in particular some sectors within F&B. Increasing sourcing, operating and property costs, staff shortages and economic uncertainty are expected to constrict growth. With the leisure sector being heavily reliant on EU workforce, Brexit is a major challenge for leisure industry.
Despite several high-profile F&B Company Voluntary Arrangements (CVAs) in 2018, operators view is that this is a consolidation and correction of the market. While the market does have issues with micro-saturation in the casual dining sector, operators do not believe that saturation is industry-wide.
Many casual dining operators missed a chance to reinvigorate their offer. Rather than investing in the experience, they cut costs leading to declining quality of experience. This, combined with the increase in prices in 2017 led to significant drop in the perceived value of some casual dining offers. The quality of experience and excellent customer service remain the key to success.
Keeping up with the consumer
The link between retail and leisure time is stronger than ever with consumers constantly switching between the need for convenience or pleasure. The convenience, experience and service are three most important factors in consumer engagement with leisure.
Brand loyalty is becoming polarised within different leisure sectors. For the F&B sector it is a challenge. The more mature and varied the offer becomes, the more consumers expect in return. The pressure to pull in returning customers is forcing the industry to become more efficient and of higher quality, which is good for the customer experience. However, as consumers are eager to try out new brands and formats, operators cannot rely just on loyalty.
For the F&B operators, it is important to note that 20% of consumers make up half of eating occasions and this is often led by the Millennial group. While Millennials might lead the way with some brands, having family appeal and attracting the UK’s largest consumer group, is a key target for the sector.
Technology a key in improving operational efficiency
Technology is increasingly important throughout retail and especially in leisure. It is being used to increase convenience, enrich the experience and deliver improved customer service. The most significant enabler of tech is undoubtedly the smartphone. Without the advancement of this technology online bookings, social media engagement, mobile payments and delivery services would never have been able to play as significant a role.
Technological developments provide the operators the means for improving operational efficiency, which in the casual dining sector in particular might prove essential for businesses that have over stretched their operations or gone into competitive locations. Improved operational efficiency is also of relevance to landlords who want to ensure their occupiers have sustainable, viable spaces.
A real game changer: food delivery
The introduction of food delivery services such as Deliveroo and Uber Eats is one of the most impactful developments for the restaurant sector in recent years, affecting operators and consumers. Operators recognise that there are challenges that require them to change their business model and operations or be left behind. The UK delivery market was worth a total of £6.7 billion in 2017 and is forecast to grow even further, with predicted revenues of £7.5 billion for 2018.
For landlords the growth in this sector is likely to result in new occupants rethinking their space and configuration requirements and appropriate access for drivers.
Leisure is an enabler for retail, increasing the duration of retail trips as well as opening different parts of the trading day. Greater synergy between leisure and retail has the potential to create more engaging and memorable consumer experiences effectively driving footfall, repeat visitation and spending.
The evolving place of leisure in consumers’ lives will affect landlords in different ways. The key to the future considerations is the flexibility of approach. That is the right operator, right location, right adjacencies and right lease structure.
Flexibility on rents, space, location and offer is not always easy to implement. It requires close asset management, creativity and often a step away from traditional occupier portfolios, leases, approach to valuation and rents.
One strategy will not be suitable for a portfolio of properties. Asset owners and landlords are looking to evolve their properties as the market changes. New types of occupiers are being sought. Landlords are looking at repurposing schemes to become more mixed-use, including co-working, community or residential space.
The rise from the independent sector is the positive story of leisure that we expect to see make its mark over the next few years and with it is the opportunity to revitalise schemes and provide a point of difference.