Greetings from the United Kingdom — land of fish and chips, warm beer, gloomy weather, and one of the most eclectic and vibrant restaurant collections on the planet.
I have played a leading role in the leisure sector this side of the pond for more than 40 years. During that period, I have been struck by the intrinsic links between key players and trends over here and stateside. In the coming months I will endeavor to analyze the nuances, key issues, similarities and distinctions between our two markets — differences in corporate and property investment, funding, operational and statutory challenges, economic realities, yields and margins — as well as look at restaurant trends around the globe.
But we’ll start with a snapshot of my homeland. U.S. interest in the U.K. market has grown exponentially since KFC, McDonald’s, Denny’s and Wendy’s first entered several decades ago. The market currently is split into two sectors: London and everywhere else. International restaurateurs have an enduring love affair with London. Its sophisticated client base, diverse culture and architecture, position as a global financial center, spending power, and the sheer magnitude of unique and accessible dining hubs have given London high-quality food in every thinkable category and at every price point.
Many U.S. operators see “London calling” as a first pit stop on the international expansion trail with two benefits: There are a third as many restaurants in central London as in New York, or approximately 7,000 to at least 20,000, respectively, and the annual attrition rate is around 6 percent in London, compared with an estimated 10 percent or more in New York.
Following the initial success of flag bearers such as McDonald’s, various brands, including Domino’s Pizza, Krispy Kreme and T.G.I. Friday’s, have established themselves as staples of the U.K. leisure sector. Indeed, after a rebranding in the United Kingdom that turned its fortunes around, T.G.I. Friday’s recently celebrated opening its 50th U.K. site at one of Europe’s largest urban shopping centers, Westfield Stratford City. The £1.45 billion development in East London opened in September 2011 next to London’s 2012 Olympic site.
The marriage of offering food and beverage in shopping destinations is a testament to lessons we learned from America. Twenty years ago, one might have struggled to find more than a fast-food counter or tearoom in a shopping mall here, but at Stratford City there are nearly 70 food outlets. The U.K. market has also embraced the U.S. concept of grazing. For example, frozen yogurt chains have finally taken off here, with operators such as Pinkberry now in the fold. The chain expected to add 30 new international sites by the end of 2011.
U.S. operators are bringing a style and panache that is being lapped up by U.K. consumers. Chipotle Mexican Grill opened its second London site in September, and wants to open up to 10 restaurants in the U.K. before stepping into France and Germany in 2012. We have recently learned that Five Guys Burgers and Fries also plans to open its first U.K. site in London’s West End in 2012, before looking at further opportunities in the capital.
U.S. celebrity chefs also are being chased to take on the restaurants of top-end U.K. hotels. Wolfgang Puck recently opened Cut at The Dorchester, and Daniel Boulud opened in May 2010 in the Mandarin Oriental Hyde Park. Keith McNally is due to open a London version of his famous brasserie Balthazar at the site of the former Theatre Museum in London’s Covent Garden with U.K. restaurant luminary Richard Caring. Caring, the man behind Le Caprice and The Ivy, has also just revealed plans to bring Thomas Keller’s three-strong Bouchon bistro concept to the U.K., after meeting Keller at his French Laundry pop-up at Harrods.
After invading U.S. restaurants and TV screens, Jamie Oliver, Gordon Ramsay and other culinary spies have come back inspired. Barbecue is taking London by storm. Adam Perry Lang of Daisy May’s BBQ in Hell’s Kitchen opened Barbecoa, a barbecue concept with Jamie Oliver at London’s One New Change in October 2010. Although Perry-Lang announced in January 2012 that he is now taking a step back from the project, he is still involved with the business as a shareholder. Oliver also joined forces with U.S. restaurateur Chris Bianco for Union Jacks, a fast-casual chain featuring wood-fired flatbreads that opened in London in November. And now the Brit-Am team behind The Spotted Pig, New York’s first gastropub, is scouting sites for a London project, where gastropubs are well-established.
We don’t just take, however. Many U.K. chains have successfully entered the U.S. market in recent years, including Wagamama, La Tasca, Yo! Sushi and Pret A Manger.
Of course, it’s not always rosy in the English garden. One of the biggest challenges U.S. operators struggle to surmount is the difference in lease structures. The U.K. real estate market commands far longer lease terms. Banks won’t lend on leasehold interests of less than 10 years, and tenants typically seek longer terms of more than 15 years to offset high fit-out costs and help raise finance. Restaurants don’t favor break clauses, either, while tenants prefer to sell a lease to another operator in return for a premium — a further obstacle to entrants from abroad, requiring upfront capital expense.
And times remain undeniably challenging for many restaurant operators amid the U.K.’s challenging economic climate. Economic pressures on consumers, such as value-added tax increases, unemployment and, most recently, rioting in several areas, confront operators.
Yet despite the tumultuous environment, the Coffer Peach Business Tracker, our proprietary monthly analysis of operator performance, showed Britain’s leading pub and restaurant groups enjoyed a major sales boost over the Christmas and New Year holidays. Collective same-store sales for the month of December were up 9.9 percent compared to the same period last year, with total December sales, which include the effect of new openings, up 13.7 percent from the year earlier. Eating out has become ingrained in consumer behavior, and pub and restaurant chains continue to prove more resilient than retailers. Let’s stay optimistic.
I hope this gives you a taste for the U.K.’s active and innovative market. I’ll be writing next month on such issues as the antipodean takeover of the coffee market, the attitude toward franchises over here, M&A activity and what’s going on in other parts of Europe.
David Coffer is chairman of London-based The Coffer Group, a 40-year-old consulting firm specializing in the leisure sector and comprising Davis Coffer Lyons, Coffer Corporate Leisure, Coffer Hotels and Coffer Leisure Investment Advisory.
