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Here at FSP, whilst on balance being highly positive about the future for F&B in retail environments, we are cautious about some of the signals that it’s impossible to ignore.
Just looking back at December 2016 for a moment the positive contribution made by the ‘experience’ sector at that time of year is clear. Visa, through their IHS Markit report, reported a 2.6% LFL increase in consumer spending overall but +7.3% in hotels, restaurants and bars and +6.4% in recreation and culture. By comparison clothing and footwear was down -0.7% and household goods -1.1% on a like for like basis. January’17 seems to have got off to a good start with the same group citing hotels, restaurants and bars up 6%. Some interesting numbers also came out of Deloitte in their Leisure Consumer Update in which they highlight increased spending in cafes, bars and restaurants amongst 18-34s from Q3>Q4 2016 compared to 35-54s and 55+. So far so good – there is little doubt that F&B has provided huge opportunities for retail property owners throughout the last 5 years (and probably since the start of the recession) to inject life and vibrancy into shopping centres/parks and outlet malls, evidenced by the realisable rents in this sector.
On the potential downside we all know that there is far more retail space than actually required in the UK and there are concerns that over-supply in the F&B sector might be storing up similar problems: sales density dilution, declining profitability and potential closures. This is particularly the case in the London market but where the metropolis leads other large cities and towns follow. A phenomenon of retailing generally accepted is that product life brand cycles are shortening with the need for constant innovation crucial to the maintenance of shopper interest. Our view is that this is particularly the case in F&B where new brands, menu variations and service techniques continue to proliferate. Staying with a concept too long can lead to problems; for example The Restaurant Group (TRG) reported a drop of 5.9% in Q4 2016 LFL sales plus the closure of 37 restaurants (though in the same period 24 had opened) as well as putting a further 23 sites up for sale and the need for ‘substantial price and proposition changes’. TRG is clearly reacting positively to make the necessary changes but this approach came too late for Ed’s Easy Diner which went into administration in October 2016 and Red Hot World Buffet in June 2016. On the positive side the latter managed to continue trading and Giraffe Concepts took over 33 Ed’s Diners. Quoting the National Living Wage and potential price increases as a result of weakness in sterling many large F&B groups have sounded the warning bells for 2017 though the extent to which these will be realised is, as yet, unclear. Although inflationary pressures are mounting the feed-through into shop prices is yet to manifest itself. Early days perhaps but the BRC Nielsen Shop Price Index for January’17 v ’16 shows non-food prices dropping -2.3%, no doubt due to high seasonal markdowns after a relatively poor trading season but contributing to a continuation of that all-important consumer confidence mentioned earlier.
FSP has recently placed more resource behind its own F&B services with the recruitment of a specialist consultant – Harri Jaaskelainen – and the development of a comprehensive set of new tools to evaluate F&B trading potential and solutions in any retail environment. The trend for increase in ‘Fast Casual’ dining (think Tortilla, Itsu, Nando’s, Tapas Revolution) where seat turn is faster than standard Casual Dining and ATV higher than Fast Food is coming through clearly in analysis of shopper trends when comparing the scale of existing sales versus potential. What is increasingly evident is the need for a careful evaluation of the trading opportunity and identification of F&B gaps based on the shopper profile, demographic content and competitivity of each individual location rather than a simple assumption that piling in more F&B is the universal panacea.
To find out more about FSP’s F&B approach please call Harri on 01494 474740 or email Harri@fspretail.com
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