The evolution of Food & Beverage in shopping destinations
Since our arrival in the Middle East in 2003, we have seen a drastic change in the way shopping destinations have increased their gross GLA portion of F&B, leisure and entertainment. This was inevitable with the increasing popularity of stand-alone restaurants outside the shopping environment; the mall industry had to follow in order to compete.
For mall operators, the F&B scene is a vital component of their business model as it 1) brings footfall, 2) increases dwelling time of shoppers and 3) the rate per square foot is very attractive for a relatively small space compared to larger retailers.
We have seen three game changers in malls in the last 5 to 10 years:
1) Increase in GLA
Ten years ago, F&B used to make up 5% to 8% of the GLA while today this has evolved to 12% to 18% for larger shopping destinations. The increase in GLA has mostly been taken up by casual dining and this should not surprise us as the warm climate in the Middle East dictates where people spend their time: mostly indoors. Malls have adapted into a more complete experience.
2) The popularity of casual and fast-casual dining
Casual dining is finding its place firmly in both stand-alone units as well as in a separate dining destination. This allows for a different 1) target audience, 2) spend per head and 3) diversification of experience. Fast food is losing ground to more fast-casual and casual concepts as in this family and friend-oriented culture, lingering over a meal on an evening or weekend is preferable to grabbing something on the run. It is important to note it is not only international franchise brands that have flooded the casual market, but more local homegrown concepts have given them a run for their money.
3) Adapted business models
Landlords have traditionally managed an aggressive leasing strategy that was based on high rents combined with a revenue-based incentive of 10% -15%. Leasing periods have been for terms of 3 to 5 years, while the tenants were fully responsible for the entire fit-out of their store. This model suits the larger franchise operators and owners with deeper pockets, but not the smaller entrepreneur with limited capital for investment. More recently, more mall operators are looking to include entrepreneurial concepts in their mix and are assisting them with a shorter lease term and partial fit-out with regards to back of house equipment. For the mall, the turnaround in changing a brand will decrease and the mall operator is able to innovate with new trends on regular basis. The tenant’s reward is a smaller investment upfront.
We anticipate more smaller shopping and F&B destinations will pop up with a business model focused on homegrown casual dining, preferably from a local chef that brings a following with him/ her.
If you are a mall operator, developer, franchise collector or entrepreneur who could benefit from our F&B expertise in this market and region, we would be happy to talk with you.