Food & beverage (F&B) has become the buzzword in the retail and shopping centre sector in recent years, but the market environment is changing rapidly and the challenges are mounting, writes Meyer Bergman's Herman Kok.
For many years, food and beverage (F&B) stood for growth. Changes in lifestyle and increased travelling impacted dining patterns dramatically. People now eat out more often and for a wider range of occasions. For people living in major cities, especially urban professionals, dining out has become a regular rather than occasional event. Café chains such as Starbucks, Costa Coffee and Nero have successfully positioned themselves as ‘third meeting places’ where people go to socialise, work or just spend time.
This fundamental shift on the demand side, driven by demographic and consumer trends, has led to considerable market growth and structural changes in the restaurant sector in recent years. Chain formation has advanced rapidly in the last decade, especially in the sphere of casual dining, and the focus has been much more on the total experience of visiting a place rather than just enjoying the food.
Based on well-defined strategies, restaurant chains have been able to grow market share and expand through aggressive roll-outs and by offering more choice, better quality and more consistency to customers.
While physical retail was stagnant due to the impact of the recession and the growth in online channels, the growth and professionalisation of the F&B sector made it the darling of retail property owners and private equity investors alike. They capitalised on the growing market demand and the opportunities of opening new outlets as retail property owners sought non-retail alternatives to fill vacant space. Also, thanks to the professionalisation of the F&B sector, it has grown from being a service element to a true anchor in shopping centre locations, being one of the key determinants of the total experience.
More F&B space
F&B has, therefore, become the buzzword in the retail and shopping centre scene in recent years. The impact can be seen in the space allocation for F&B: traditionally, about 6-7% of a shopping centre’s GLA was allocated to F&B, mostly in the form a food court and possibly some coffee corners.
Today, the space allocated to F&B is estimated to be 12-15%, dependent on location type and market, with the newest centres having dedicated restaurant avenues. And advisers such as JLL and CBRE foresee that growing to 20-25%. Dedicated food halls are present in most large cities, especially those with a diverse professional workforce and a strong inflow of tourists. Examples are Time Out Lisbon, Platea Madrid, Hala Koszyki in Warsaw, and the purpose-built Markthal in Rotterdam just to mention a few. In addition, many covered markets are undergoing a transition from market hall to food hall.
But the market environment is becoming rapidly more challenging. Many in the market were taken by surprise when casual dining chains such as Jamie Oliver and Byron announced that they planned to close down underperforming restaurants. Explanatory factors are the negative impact of a weakened pound sterling as well as over-ambitious expansion programmes in previous years.
UHY Hacker Young Chartered Accountants recently reported that 35 of the top 100 UK F&B operators are currently operating at a loss. Casual dining formats are particularly hard hit, following rapid expansion in the last few years and vulnerability to changes in the cost structure because of low margins.
The depreciation of the pound, the underperforming UK economy and stagnant disposable household incomes make the country a special case in Europe, but only partially. The risk is that the overall strong growth of F&B in the past few years is pushing operators to the brink because of increasing competition between casual dining formats and rising costs. There is a ceiling on what households are able to spend on dining out. And the impact on restaurant operators of growing online delivery platforms such as Deliveroo and UberEats has still to be felt.
Is the F&B party over for the retail property industry? No, definitely not! But the F&B game is professionalising fast, with no space left for easy riders. First, like with retail, fundamentals will be more determinant, defined by relevant locations and attractive properties. And overall, F&B concepts have to be solid, being able to accommodate ongoing trends within the industry and keeping location relevant to the operators and their customers. The game has just started but it will require more knowledge, creativity and research.
Herman Kok is head of research at Meyer Bergman