Time to dine

As the UK gradually eases out of lockdown, one of the key desires for consumers fed up with home cooking and takeaways is to re-engage with the vibrant food & beverage scene.

But with casual dining in crisis amid unsustainable occupancy costs, and business rates and rising costs stymieing the entrepreneur, a new model is required.

State of play

The extent of the multiple lockdowns of 2020/2021 has not yet been fully felt by the F&B sector but its impact on casual dining has already been severe, proving near fatal to a business model already struggling for survival amidst mounting CVAs.

In March 2020, before lockdown had taken shape, The Restaurant Group announced the closure of 61 Chiquito restaurants, and less than 2 months later announced the closure of a further 125, predominately Frankie & Benny branded sites. Azzurri Group, owners of Ask, Zizzi and Coco Di Mama, was bought out of administration in July 2020, leading to the closure of 75 sites – notably none of which were the takeaway-led format Coco Di Mama sites.

The performance of casual dining brands with more current and widespread appeal is equally informative. Nando's, whose appeal across age ranges and notably different cultures provides a best-in-class example of maximising consumer appeal, saw revenues to Feb 2020 grow by 4.2% but underlying operating profit fall by -5.7%, with the above inflation increase in the National Living Wage identified as a contributory factor. Group loss before tax, IFRS 16 and exceptionals of £24m highlight the challenges in building and maintaining a leading international casual dining brand. Similarly, despite revenue growth to the end of 2019 of +16%, Five Guy's UK company profit before tax amounted to just £696k.

Lockdown Impact

Home delivery has been the clear beneficiary of lockdown: Just Eat saw 4th quarter delivery orders increase by almost 400% vs. Q4 2019. Deliveroo now works with 115,000 restaurants and 100,000 delivery riders and intends to raise £1 billion of new funding through an IPO in early April.

Agile businesses, such as Five Guys, have been able to pivot to react, with click and collect generating 38% of sales and delivery 57% of sales in May 2020. Other formats have been less flexible – Market Halls, which operated sites in Fulham, Victoria and on Oxford St, will remain closed whilst social distancing measures are in place whilst Pret closed 30 locations, including 11 in London, in Sept 2020. Without the footfall, the economics just do not work.

Future opportunity

The rush to anoint food halls as the saviour of town centres and the high street is to be avoided; what works for one location does not work for all and expectations on price and ambiance will vary significantly inside and outside the capital, despite a consistent demand for quality, authenticity and relevance. Whilst undoubtedly a welcome addition, food halls require a critical mass of footfall to truly thrive and, on their own, will struggle to provide the length of engagement required to reverse decreasing town centre footfall.

Hybrid kitchens provide a fascinating response from the industry as to how to potentially satisfy ever-changing consumer demands via a sustainable format. Similar to a dark kitchen, operations are takeaway focused but unlike dark kitchens, they provide a branded (changeable) fascia and in store environment, allowing consumers to click and collect, takeaway and engage and learn about the brand. With kitchen facilities largely standardised, multiple brand cuisines can be created to test consumer relevance in a particular location and store front branding can be consistently changed for a relatively small cost, creating consumer interest. As the store provides a dual delivery and marketing role, hybrid kitchens are increasingly seeking prime space to increase brand awareness.

Whilst no single format will exclusively dominate the future F&B sector, if town and city centres provide the much-needed investment in public realm required to regain relevance with consumers, then the hybrid kitchen would appear well-placed as a format to appeal to consumers, occupiers and investors.

Andrew McVicker