For years I have proclaimed the robust virtues of the leisure sector compared with its sister asset class, retail.
The surge in popularity of online shopping has swept through high streets and shopping malls like a tsunami, with only the most adaptable or flexible retailers able to cling to any buoyancy aids.
Yet restaurants and entertainment venues have proved to be far more capable swimmers.
Why? Put simply, there is hardly anything you can buy in a shop that cannot be found cheaper or more conveniently with the click of a mouse from your home or office. Yet, by contrast, it is impossible to replicate online that romantic night at the movies or drink-infused dinner with friends or even just a bite to eat on the run.
So unlike many U.K. commentators, I was not all that surprised to see our biggest retailer make a play in the restaurant world when supermarket giant Tesco PLC purchased 50-unit family-dining chain Giraffe last month for about $75 million.
For two decades supermarket chains like Tesco and Wal-Mart Stores Inc.-owned Asda set Britain’s grocery shopping agenda, luring customers by the millions to their huge out-of-town stores to stock up on weekly household goods “at unbeatable prices.” But the industry has taken a beating in recent years and is now battling to win back customers who are increasingly buying online or defecting to smaller, independent outlets.
How? Through leisure — making the everyday or once-weekly grocery shopping trip an “experience.”
In Asia and the United States, it isn’t unusual to go shopping and grab some food in the same place. So does buying a chain of restaurants mark what will be the “new norm” for retailers in the United Kingdom?
We have learned valuable lessons from the United States when it comes to shopping malls. And now, spearheaded by visionary developers like Westfield Group LLC, the latest generation of U.K. malls includes entertainment and food offerings that create their own destinations in isolation. These are destinations that can stand up with pride to any restaurant-only area of London — and in many cases stick their tongues out at them.
The same trends will emerge among supermarkets. Gone are the days when Mom heads down to Tesco for some carrots and peas. The new “hypermarkets” are giant units on acres of land, and they need to convince shoppers to come — and, crucially, return time and time again — by offering something more than can be bought simply with the click of a mouse online.
Why Giraffe? For those unfamiliar with the brand, it is a full-service concept that would position itself as, say, a “classier” T.G.I. Friday’s. But what set it apart as an ideal target for Tesco was that it is unofficially obligatory to take a child with you when you eat there — balloons, bright colors, high chairs and coloring pencils litter the units like confetti, and the menu boasts options of healthful, diverse food. Giraffe has a good customer base and is well-established in the United Kingdom as a family-friendly eatery.
For Tesco, a retailer that takes in more than 12.5 percent of all money spent in U.K. shops, with U.K. sales of 47.3 billion pounds, or $72.5 billion, the deal is small change. It follows Tesco’s recent 49-percent investment in artisan coffee shop Harris + Hoole and a stake in the luxury Euphorium Bakery.
You can see the shift in strategy emerging — a drive to make stores more family friendly with the inclusion of a restaurant and leisure offering. Rival Sainsbury’s has also already attempted this by housing Starbucks in its outlets, while Asda has gone down the route of creating a “high street” within its stores with independent local butchers and concessions for retailers such as the shoe repairer Timpson and Disney.
The moves highlight U.K. supermarket giants’ intent to not only improve profits, but also provide a more compelling, complete and enhanced shopping experience — where families can go for coffee, meet friends, have a nice meal and then do the weekly shopping.
All three non-core brands for Tesco — Giraffe, Euphorium and Harris + Hoole — boast modern, slick designs, and Tesco’s commercial director, Kevin Grace, admitted the company’s strategy involves creating a “warmer and less clinical” experience, inspired by the Westfield shopping malls’ large, open and well-designed spaces for customers to eat, drink and socialize. They are, I might add, a source of great pride, given that the Davis Coffer Lyons development team assembled the leisure content at these schemes.
The past 10 to 20 years saw a sea change for supermarkets as they rushed to stock any retail item imaginable, expanding their offerings to include toys, electronics, furnishings, pharmaceuticals, DVDs, books, clothes and hardware. At first these offerings seemed alien to U.K. grocery shoppers, but they have now become expected rather than exceptional.
However, Amazon and eBay have destroyed the success of that model — supermarket stores over 25,000 square feet are predicted to see just 6.4-percent sales growth between now and 2017, but online grocery sales are expected to almost double in that period.
As a result, the next few years will see an emergence of a new wave of grocery stores in the United Kingdom, with restaurants at the heart of their attraction and a veritable in-store high street.
When coupled with free parking — a premium offering in the United Kingdom — this might trigger the next challenge: protecting the high-street restaurants. However, it is going to take some cultural change before diners believe eating a succulent fillet steak next to the produce department in Tesco beats watching the world go by in The Wolseley or Balthazar.
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.