Half year review of the restaurant market

Specialist business property adviser, Christie & Co provides an overview of the UK restaurant market in the first half of 2018, reflecting on previous expectations, emerging trends and challenges facing the sector.

In the first half of 2018, a number of high profile operators have turned to Company Voluntary Arrangements (CVAs) as a means to manage underperforming sites. Groups, such as Jamie’s Italian, Prezzo, Byron and Carluccio’s have taken this route, whilst London based operators, such as Barbecoa, Conran & Prescott, Hummus Brothers and more recently the Gaucho Group have fallen into administration, proving the London restaurant scene is struggling as well. We can expect at least another two or three restaurant groups to fall before the year is out.

Despite this seemingly bleak picture, other operators continue to prosper. Wagamama continues to show growth in sales and number of sites, with further expansion overseas. Nando’s reported double digit growth and continues to acquire new sites around the country, with the Nando’s name now appearing in motorway service areas. Independents, such as Mowgli, Honest Burger and Giggling Squid have continued to seek out good opportunities and many are finding success with street food concepts. In fact, it was reported that small restaurant groups outside London expanded by nearly 20% last year.

While larger operators exposed on the high street and retail parks will inevitably face a few years of pain as they find a balance once again, independent and smaller operators can be cautiously optimistic as deals and great new concepts come to the fore, which is good news for the sector at large.

Predictions

As part of Christie & Co’s Business Outlook 2018, published at the beginning of this year, the team shared their market predictions for the year in the sector. Established brands were left fighting for their market share at the end of 2017 as brand fatigue shifted consumer interests towards increasingly innovative and ever-changing dining experiences. Demand for delivery services, fast food and high end casual dining has continued to rise, particularly driven by the consumer habits of millennials and Generation X.

Consequently, mid-market brands were expected to suffer and face a number of casualties in 2018. As these trends have increasingly dominated the restaurant landscape throughout 2018, many brands have shut up shop, ceased expansion, and in many cases, have gone through painful CVAs in order to exit sites where sales haven’t matched the optimism felt at the time of acquisition.

However, Christie & Co also predicted that operators who adapted alongside technology and social media would thrive in a changing market. The newest and most rapidly adopted technology trend is the rise of home delivery services and apps, such as Deliveroo and Just East. Operators have also widely adopted contactless card payments and online click and collect services.

Smaller, nimble operators have emerged as a key player this year, remaining focused on their food offering and providing a great experience, while landlords have started to relax on covenant strength, levels of deposit and rent-free periods. Operators, such Loungers have jumped on the opportunity to add one or two sites to their collections, which otherwise might not have become available. In many cases, these additional sites are not branded as such as operators realise that the “cookie cutter” approach is out of favour with diners who are seeking new and interesting eateries.

Key transactions

Major transactions in the first half of the year include The Restaurant Group’s acquisition of Ribble Valley Inns, a group of four sites in the North established by the Northcote Group, for their highly successful pub division, Brunning & Price in May. Christie & Co continues to be retained by Brunning & Price to search for suitable properties across the UK to add to their expanding portfolio. More recently, Brewhouse & Kitchen acquired the Beagle in Hoxton, East London in June, marking the microbrewery and pub operator’s 21st site.

Christie & Co will release its Business Outlook 2019, presenting an annual overview and year ahead forecast for all of its sectors, including Restaurants, in January 2019.