IS THE FOOD COURT DEAD?
It has been the stalwart of shopping centres for years, but times are changing.
Early this year, fast-food franchisor, founder and CEO Luke Baylis announced SumoSalad’s intention to steer its network growth away from the shoppingcentre food court - a move that has bemused retail analyst Francis Loughran, given the franchise chain’s success in this format.
It has been the stalwart of shopping centres for years, but times are changing. Are new food-and-beverage concepts setting a new path? Sarah Stowe reports.
So what is going on? Is Baylis the vanguard of a new movement, or is this merely a high-profile instance of a change in strategy?
Retail is undoubtedly in a state of flux right now. The well-documented rise of online shopping and a trend for customisation are changing retail dynamics. The alarm bells have been rung extra loud over Amazon’s plans for an Australian bricks-and-mortar presence. Fashion retailers have been headline news for all the wrong reasons as they struggle to achieve viability in today’s market.
Where does this leave fast food and franchising?
The hungry consumer has plenty of choice - in fact, there is increased competition with centres doubling or in some cases tripling the number of outlets in food courts. But the broadening of the food offer does not necessarily equate to extra business.
“In fashion spend you’ll buy four or five different items from different vendors; in food, you eat just one meal. In a fashionbased mall, different retailers get more of the wallet share but this doesn’t apply to food,” says Baylis.
DIFFERENT PRECINCTS
So while fashion retailers are scrapping for dollars to be spent in-store and not online, food retailers are seeking a competitive edge in a space overflowing with brands.
“A lot of new aspiring brands are opening in areas away from food courts, and this is driving traffic to different precincts,” Baylis says.
Shopping centres may now house a food court, a casualdining precinct, a marketplace and a fresh food offer.
“Traffic growth is being cannibalised. It is not drawing in new customers,” Baylis says. “The food court is no longer the cool spot.”
But other brands believe in the model. Soul Origin, a relative newcomer to the fast-food scene, has been expanding across the country at a rapid rate. Convenient, healthy fast-food options are well served in a food court environment, and the brand is committed to the format, says marketing manager Monique Grzesiak. She does admit, however, that the company may maximise access to dining dollars by opening two sites in one centre.
“The main driving factor will always be that people are creatures of habit.”
Barry Barber at Banro Retail Group points out that changing consumer trends need a different approach.
“Grouping all food options in one location in a food court makes sense from a design and construction perspective, but this is not necessarily how everyone wants to eat when they are visiting a shopping centre,” he says.
But Grzesiaka says landlords are now investing in improved amenities and customer experiences “to entice people to stick to their traditional shopping habits”.
BIG CHALLENGE
“One of the biggest challenges is offering consumers a variety of food offerings without impacting on the key drivers of this model, speed of service and convenience,” she says,
“The food-court market is highly competitive, which we see driving businesses away. There is a trend toward casual dining, transforming food courts to be restaurant focussed. Other factors are the increasing rents and reduced foot traffic in shopping centres because of online shopping.”
The restrictions of the food court’s trading hours also limit revenue opportunities, generally allowing for only lunch.
Step up casual dining - one of the buzzwords in food retail - whether it be breakfast, lunch or dinner. The evolving dining precinct that offers consumers a more relaxed alternative to eating out, one that is destination-driven, has been the shopping-centre approach to keeping consumers on-site.
Stockland GM for retail leasing Tony Tsekouras says the $228 million redevelopment of the Stockland Wetherill Park centre in Sydney exemplifies a customer experience defined by fresh food and fast-casual dining.
“We doubled our fresh-food and casualdining offering throughout the centre with more than 21 per cent of the retail mix focussed on food, including Grill’d, Nandos, Rashay’s Pizza Pasta and Grill, and San Churro,” he explains.
“There are two distinct food precincts - Kinchin Lane, a modern twist on laneway-style street-food vendors, and a new 800-seat indoor/outdoor casualdining precinct, The Grove. This features 14 restaurants, cafes and food outlets including Fogo Brazillia, Le Wrap, Mashita Sushi, Soul Origin, Subway and Top Juice.”
EXTENDED ECONOMY
In Western Australia, the Perron Group’s Belmont Forum opened its alfresco dining precinct with five outlets: Guzman Y Gomez, Nando’s, Schnitz and t wo independents.
“The dining precinct extends the traditional trading times and stimulates an extended night-time economy,” says Perron Group CEO Ross Robertson. “Our experience developing dining precincts demonstrates these changes flow through and benefit all retailers within the centre.
“Customers now expect shopping centres to be a lifestyle destination and offer more than just traditional shopping. Shopping centres are becoming hubs for the community and must offer a variety of experiences.”
Consumers need an oasis, says Gavan Meadows, Sushi Sushi GM - franchise sales and marketing. “They want quality. They couldn’t care less about who owns the business.”
Customers want value for money and convenience.
In its MarketView report, commercial real-estate business CBRE highlights the growing emphasis on providing a retail offering that exceeds customer expectations.
INNOVATION KEY
CBRE Australian head of retail leasing Leif Olson says innovation is key in winning the war for consumer wallets. “Consumers, particularly millennials, are seeking more than just a means to an end, they are looking to malls and retail outlets that offer an experience.”
Baylis can also see the positives in the traditional site so is not rejecting outright the shopping-centre model.
“We believe the centre environment is
viable if you’re in the right areas, and that won’t change for a decade. Food courts are viable for two to three years.
“If in four or five years’ time food courts are revived, then casual dining will suffer, and traffic will be shuffled left to right.
“Casual dining is trading incredibly well, but if you exclude this growth, the rest of food is in severe decline.”
He is determined to wait it out to see how much food retail remains sustainable in a mall.
For franchisees stuck in a long lease, there is no option other than to sit out the term, but where possible, Baylis is looking for alternatives.
THE ALTERNATIVES
What is taking centre stage in SumoSalad’s development is petrol convenience. The business is one of several external brands to partner with Caltex for its latest initiative, a re-imagining of the petrol retail store.
Introduced at Concord in Sydney’s inner west, the new environment gives consumers the chance to grab a healthy fast meal, take a coffee break or buy snackable fresh food.
“Our objective is to try to democratise healthy fast food and make it accessible to all Australians, in places where they have a physical presence,” says Baylis. “We’re looking at transport, education, health - a more captive audience. These are less susceptible right now and are not being cannibalised through online.
“Sumo can reach the customer more directly from a strip or convenience location. In a food court you can’t deliver, and that means you are missing major growth.”
HOME DELIVERY
Baylis has spotted a major shift in the US with home-delivered food retail growing exponentially, and he wants a piece of the Aussie home-delivery pie.
“Domino’s in Australia has 44 per cent online business, and pizza is the incumbent food. The online food market is worth $1.5 billion, with predictions of up to $20 billion,” he says.
That is why retailers will be moving out of high-capital, high-cost environments, he suggests.
THE SUPERMARKET
Kate McMahon heads up the Pacific Retail fast-food brands Go Sushi, Kick Juice Bars, The Cheeky Beans and Wasabi Warriors.
“We have never gone into food courts because the locations are hidden and destination focussed, and sushi is grab and go. We have been in corner or edge sites or kiosks.”
She says “massive” rents are a clear deterrent for shopping-centre locations. “We want our franchisees to control rents so they can invest back into the business and marketing.”
McMahon echoes Baylis’ view that viable business opportunities lie elsewhere, and is taking the initiative to move the Pacific Retail brands into the supermarket freshfood space.
“We’re essentially picking up the model, changing the displays to an open grab’n’go counter, putting kiosks into supermarkets. That’s for all our brands.
“You cap the rents at 10 per cent. We know it’s a financial model that gets the franchise off to a good start. Sushi is so seasonal that the business model with rental caps is a massive benefit.”
Longer trading hours, lower upfront costs and the ability to match franchisees with other passionate retailers are also strong drivers for the new partnership.
“We’re working with Supa IGAs, which are being really innovative, thinking through how they do fresh food and enhancing the customer experience. Working with them is exciting. We think about how we can bring theatre into it, the customer watching sushi being made.”
DINNER TRADE
McMahon says the supermarket link also opens up the dinner trade, a long-term ambition for the brands that has yet to be realised.
“It’s a massive market. We know that when we keep a store open on a Thursday late night, the sales equal lunchtime, so it doubles turnover.”
While the initiative is launching in partnership with Supa IGA there will be further partnership opportunities for the concession-style outlets, says McMahon. “It might be Caltex, supermarkets, aquatic
centres.”
In New Zealand, Pacific Retail launched The Cheeky Beans cafe, focussed on healthy eating, in aquatic centres.
“You need coffee, a few of the naughties, but it’s really about healthy sushi, fruit juice, salad, sandwiches, wraps, healthy muffins. This has a cafe feel but the menu is fresh, healthy food.”
McMahon is looking at expanding from the two outlets - not just in aquatic centres but supermarkets.
‘DELUSIONAL’ RENTS
Stan Gordon, franchisor at FranchisedFood Co, which includes Cold Rock Ice Cream, Nutshack, Pretzel World and the Healthy Habits sandwich chain, has little faith in the current iteration of the shopping centre for food franchises.
“I think centres are questionable going forward. Look at bigger centres like Westfield Bondi Junction, bespoke and upmarket. But franchisees have to spend so much to set up, are they viable? Shopping centres might be sexy, but sexy doesn’t make money,” he says.
Gordon is vocal about the costs of siting fast-food outlets in shopping centres, describing rents of 30 to 40 per cent of turnover as “delusional, unrealistic”.
“For landlords to say ‘You should be doing this number of dollars, why aren’t you?’, well, smaller businesses have a ceiling. If they’re selling $5 or $10 products they’ll never do it.
“It can’t be a win for the landlords and lose, lose for everyone else.”
In one high profile instance, Sumo’s Luke Baylis has taken the fight over costs to the landlords, putting into voluntary administration two leasing entities that negotiate rent agreements for a dozen SumoSalad stores with the intention of forcing the centres into negotiating better deals.
The capacity and understanding of how to negotiate for optimum results is one advantage franchises have over the independent outlet, says Gordon.
But with an increasing desire for customisation, will landlords be seeking the uniformity that is integral to many franchised brands?
CUSTOMISATION TREND
At property firm CRS, head of asset management Lincoln McConnell-Brown, says the company’s involvement is in neighbourhood centres with a supermarket anchor and discount department stores. “We are seeing food as flavour of the month.”
Food can now account for 30 per cent of a centre’s gross leasable area, he says.
Household names such as Gloria Jean’s Coffees, Hudsons Coffee and SumoSalad are still on the go-to list, but what CRS is seeking now is a fresh approach.
“People don’t want a brand name. They are looking for local people - something they can’t get regularly, Mum-and-Dad operations.”
So typically, in a mix of six food outlets in a new neighbourhood venue, three of those stores will be big brands, three will local independents.
Strip shops are also becoming a new food destination out of major metro hubs.
“Food is the new fashion,” says McConnell-Brown.
‘MORE CLEVER’
Does this mean the death of the food court?
No, says Gavan Meadows at Sushi Sushi. But it is no longer a special destination for many people as shopping habits change.
“I think food courts are a lot more clever now. Chadstone is wowing with its offering. If the food court is dull, it’s dead. You need a few bells and whistles.
“What’s the next stage? There’s always a place for the food court if it is evolving. Business needs to keep inventing.”
Landlords can charge a premium, says Meadows, as long as the rate can be justified. Constant promotion to bring in foot traffic is crucial.
“I have a lot of confidence in the food court, and shopping centres. They’re pretty switched on, they’re pretty red hot.”
Analyst Francis Loughran is sceptical of any attempt to diminish the importance of the food court. “You only have to look at what Soul Origin is doing,” he says.
He also draws attention to the Chatswood hawker market and Chadstone food courts as lively, good-looking imaginings of a food court, delivering fast food at a price.
“The food court might have been a platform to develop a food and beverage mix, it’s the offspring that are new and exciting,” he says.
WILL CONTINUE
The platform principle of convenience, meals for less than $10 and shared tables, is going to continue, he says. That means the future for fast-food retailing could be a cafe court, a dining terrace, a food emporium or a food gallery.
“Experience had been the buzzword for the trendy, but now it is the mantra for survival,” says senior VP Katie Sprague of US-based RTKL, a global architecture, planning and design practice. “Shopping centres are no longer venues that simply sell stuff… they are innovative environments that offer experiences. The best in class around the world provide a vibrant social scene, with customisable, exclusive, entertaining and even educational content.
“Food is at the forefront of this trend, a social activity that is seen less as a commodity and more as a leisure activity. The mix of food-versus-retail in shopping centres around the world has been shifting dramatically.”
There has already been the evolution from the rigid model of in-line food tenants to more of a deconstructed food court, she says. Newer venues host a variety of household-name brands and international food in a much more fluid arrangement with several stand-alone tenants with open kitchens. “We’re models
HYBRID MODELS
seeing new hybrid food-hall that create a ‘collection’ of fast-casual tenants with less commonarea seating. This allows the tenants more space for their own seating and a greater ability to express their own brand and sense of space,” says Sprague.
“The same trend of local authenticity that we see as a driver for retail is also a driver for food. The millennial generation is looking for bespoke local food offerings that are healthy alternatives to largescale fast-food chains. The rise in market halls is a prime example of this, where the mix of tenants features local brands/chefs or restaurants.”
Food continues to be key to the retail mix, says Stockland’s Tony Tsekouras.
“Twenty years ago, you weren’t in the main game without a department store, but we now have the latitude and retail palette to create and curate destinations based on a far more intricate and complex retail mix, and far more sophisticated, less homogenous customers who expect modern malls to cater to a wider range of tastes and senses.
“We see this continuing to evolve and expand across our portfolio reaching even the far regional centres such as Bundaberg or Ballarat, and we don’t see the focus on destination dining within retail slowing down anytime soon.”