The Alchemy of Oversupply — Turning A1 into A3

As retail continues to move out of brick & mortar, who is left to fill the void?

By Jack Brumby

The casual dining land-grab:

• The internet’s disruptive effect on retail has been well-documented – just look at the contrasting fortunes of BHS and Debenhams with Boohoo and ASOS.
• Brick & mortar retail sites are less in-demand. Gamers don’t shop at Game Digital anymore.
• Casual dining is getting pulled into these former retail units, which shift their licenses from A1 (retail) to A3 (bars, cafes and restaurants).
• While a solution of sorts, it also provides a shot in the arm to the long-standing (though recently moderating) trend of casual dining oversupply.

What does this mean?

• Just another ingredient in a cocktail including high rents and business rates, rising labour costs, rising input costs, Brexit uncertainty, and the ever-present spectre of rising interest rates.
• A wave of bars and casual dining operators are currently in expansion mode. A few have, recently, come unstuck as a result of problem sites picked up along the way. Others may, perhaps, be a little too used to historically low interest rates.
• Meanwhile, prime casual dining units such as those in destination retail parks are more crowded, competitive and expensive than ever.

The Outlook:

• Bars and restaurants have benefitted in recent times from the fact that the UK’s economic recovery is largely consumer spending-led.
• On-trade like-for-likes have been rising in tandem with increasing consumer disposable spending on leisure activities. Meanwhile, wage growth has been weak and consumer credit lending has boomed.
• The above suggests it is prudent for operators to strengthen their finances and to become more discerning with their site openings and other postponable costs.