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Restauranteurs and chefs around the world aspire to set up in London, which is arguably the world’s most cosmopolitan city. For many, succeeding in London equates to having ‘arrived’, and is the stepping stone to success worldwide. Londoners’ high spending power, love of eating out and openness to new concepts, as well as the city’s trendsetting status are why new concepts continue to spring up around the city. IE Singapore highlights key recent trends in the London food scene and key areas of consideration for Singapore food companies when exploring a possible entry into London.

INTERNATIONAL ENTERPRISE SINGAPORE

Recipe for Success in theLondon Food Services Market

Vol. 17_Oct 2014

IE Insights

By Precilia GODART, YEOH Mei Ling Europe [email protected]

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03Summary

04Why London Reigns Supreme for Food Services // A recovering UK economy with growing consumer spending // Why London stands out

07Top Trends in the London Food Scene// Understanding the London consumer// Some popular concepts // Successful chains in London

12Modes of Market Entry// Wholly-owned setup// Joint venture// Franchising

15Understanding Operational Aspects // Securing a Site 101 • Understanding property classes and licenses • How London landlords and agents work • Choosing a location • Understanding lease and rental structure // Marketing and public relations // Employment and salaries// Sourcing and import restrictions

24Challenging But Looking Ahead

Contents

DisclaimerWhile every effort is made to ensure that the information in this document is accurate, the information is provided by IE Singapore to you without any representation or warranty. Any reliance on the information in this document is at your own risk. IE Singapore does not accept any liability for any errors, omissions or misleading information. IE Singapore and its employees shall not be held responsible for any consequence arising from your reliance on any information provided by us. You are advised to consult your own professional advisors.

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// The UK has recovered well from the recent economic downturn, and is expected to be the fastest growing advanced economy in 2014. This underpins the strong and growing food services market in London. The market is supported by an affluent cosmopolitan population which enjoys eating out and trying new concepts as well as a massive tourism market. A successful flagship in a gateway city like London is a big step towards building up the brand globally.

// The London consumer is on the lookout for value-for-money and unique trendy concepts. Some popular concepts include Asian cuisine, casual dining (such as tapas style dining) and more recently, single product offerings like burgers, seafood and ramen. All-day concepts and pop-ups are also increasingly popular.

// Due to London’s importance as a market, many restaurant groups in London operate on their own, including recent successful entry Sushi Samba from the US. Some enter into joint ventures with local partners, usually restaurant or retailer groups with the requisite market knowledge. Franchising tends to be less common and limited to established quick service brands. Regardless, it is important to work with a local partner in some way when entering the market for the first time.

// Securing a suitable site in London is a key challenge, particularly for a new entrant. The availability of restaurant properties in central London is limited. Companies should consider hiring agents for a dedicated site search and be open to various location options. Another key challenge is the high upfront capital expenditures, which companies can overcome through finding a partner or starting in a smaller way. Other operational issues that companies should note are marketing, employment and sourcing. However, with commitment and thorough preparation, Singapore food services companies can make their mark in London.

Summary

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Why London Reigns Supreme for Food ServicesA recovering UK economy is expected to be the fastest growing advanced economy in 20141. London, a cosmopolitan city with a vibrant food services scene, is a strong market and also great stepping stone to other markets.

1 IMF, July 2014. IMF forecasts put UK GDP growth at 3.2% in 2014 and 2.7% in 2015, the best combined performance of any large advanced economy

Source:The World Bank Group, 2013

2013 figures

Population 63.6 million

GDP US$2.5 trillion

GDP growth 1.7%

GDP per capita US$39,351

Snapshot of the UK

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The UK is the third largest economy in Europe and sixth largest economy in the world. Its GDP per capita in 2013 puts it among the top 25 countries in the world. More importantly, the economy has been recovering steadily since the second half of 2013. Consumer spending grew 2% in 2013, and is expected to grow 2.4% in 2014.

For Singapore companies, the UK is a favourable investment location because of the use of English, similar legal and accounting systems, its openness to foreign investments and participation, and relatively low country risks. Critically, it has a large pool of skilled domestic, EU and global workforce as well as flexible labour policies (relative to other EU countries).

In 2012, the UK food services market turnover was £55.8 billion from 164,715 food services units2, which is only 0.3% under the peak sales of 2007. Full-service restaurants accounted for revenues of £16.4 billion3. The London food services market is sizeable at an estimated £16 billion in 20134. We expect the market to strengthen as the economy improves. The profitability of the average London restaurant ranges from 10% to 15%, according to various restaurant groups.

Top reasons to be optimistic about LondonLondon is a trendsetting city where the world looks to for interesting, new conceptsSuccessful establishment in London would provide tremendous brand exposure worldwide. Because London has large Asian, Middle Eastern, and Russian populations, and attracts large tourist numbers from these markets, a successful setup in London could help companies enter these lucrative markets later on. Many brands that took off in London have expanded successfully into the Middle East, including Hakkasan (phenomenally successful in the Middle East, Mumbai and Shanghai) and Zuma.

Why London Reigns Supreme

for Food Services

2 ”Consumer Foodservices in the UK”, Euromonitor, Nov 20133 “Full service restaurants in the UK”, Euromonitor, Nov 2013 4 Zagat, 2013. Calculations are made based on the average spend of Londoners per week

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There is a strong captive local marketLondoners eat out a lot Londoners have the highest earning power in the UK (£622 per week vs £517 per week for the rest of the UK)5, and there is a strong culture of eating out. In 2013, Londoners spent 36% of total food expenditures eating out6, eating out 3.7 times per week and spending more money than New Yorkers (£37.35 in London vs £31 in New York City)7.

Demographics in London are favourable36.7% of London’s 8.3 million residents born outside the UK, and among them, a third are born in Asia (predominantly Indians). The population is relatively young – 43% are aged 20-44 years old, and the average age of the Londoner is 34 years old. Hence the market is open to new concepts. London market will grow with improved transport linksWhen completed in 2018, the major transport project Crossrail will link London’s key employment, leisure and business districts (Heathrow, West End, the City, Docklands), and increase the number of domestic visitors into central London. It will bring an extra 1.5 million people to within 45 minutes of central London.

Food services benefit from London’s huge tourism marketRiding the success of the 2012 Olympics, London emerged second after Bangkok in the Mastercard Global Destination Cities 2013. In 2013, they attracted close to 17 million visitors, who spent £11.2 billion. The Chinese and Russians accounted for the biggest increase of inbound tourists. With visa application relief for Chinese citizens expected soon8, we can expect to see more Chinese tourists. This may bolster the demand for Asian concepts.

Why London Reigns Supreme

for Food Services

5 Office for National Statistics (ONS) UK6 Department for Environment, Food and Rural Affairs (DEFRA), December 20137 Zagat, 20138 Administration procedures for visa applications to enter the UK are being simplified. Chinese

visitors coming to EU Schengen area used to apply for a separate visa to enter the UK. Today, mobility has been increased (only 1 visa application for Europe will be required) and the application process will be shorter

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Top Trends in theLondon Food SceneThe London consumer enjoys a variety of cuisines from the ubiquitous English pub food, to European tapas and Asian food, which has risen in popularity. Alcoholic beverage offerings are an important part of the dining experience.

The general London consumer looks for options that offer good value for money, and are unique and trendy. Reasonably priced food for the quality is the crucial starting point. They also seek new cuisines or unique dining experiences, such as special entertainment while dining or dining in a secret location. Londoners enjoy a holistic leisure experience.

While London consumers are open to new options and are quite spoilt for choice, longstanding restaurants stay popular by keeping the quality of their food consistently good and updating their offerings.

The UK has a strong drinking culture and alcohol consumption is a considerable source of revenues for food service operators. On average, 30% to 35% of total restaurant revenues are derived from alcohol sales.

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Interestingly, ethnic food has become almost as popular as the traditional pub food in the UK: 52% visited an ethnic restaurant at least once in the past 3 months, compared to 57% for pubs.

Full-services restaurant sales in the UK in 2012

Some popular concepts in LondonAsian foodAsian food is popular, because it is perceived to be more affordable and healthier. Asian restaurants account for 45% of the revenues for full service restaurant chains in the UK, outperforming European chains.

Top Trends in theLondon Food

Scene

Source: “Full Service Restaurants in the UK”, Euromonitor, November 2013

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Type of full service restaurants GBP Millions %

Independent Asian 201.4 1.23

Chain Asian 7,346 44.88

Independent European 1,369.7 8.37

Chain European 5,143.5 31.43

Independent Latin American 62.2 0.38

Chain Latin American 149.2 0.91

Independent Middle-Eastern 24.6 0.15

Chain Middle-Eastern 199.1 1.22

Independent North American 67.4 0.41

Chain North American 16 0.10

Independent Pizza 1,159.5 7.08

Chain Pizza 68.2 0.42

Independent Others 106.6 0.65

Chain Others 453.8 2.77

TOTAL 16,367.2 100.00

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Casual diningThere has been a shift towards casual dining, as the middle class enjoys eating out at an affordable price. // Fast casual dining can be defined by the price point (£15-20 per head for dinner,

excluding drinks), a relaxed eating environment and quick service. To cater to price-sensitive consumers, restaurants offer flexible menus and different size options. Successful operators include Pizza Express, Busaba Eat Thai and Nandos.

// Even fine dining has evolved to assume a more casual style. Michelin-star restaurants such as Dabbous and Lima are adopting a more relaxed atmosphere, and renowned chefs are opening less formal establishments such as Gordon Ramsay’s Bread Street Kitchen and Heston Blumenthal’s Dinner.

// Tapas style dining has also surged in popularity. Beyond Chinese dim sum and Spanish tapas, Italian tapas concepts like Polpo and Bocca di Lupo and French tapas concepts like Blanchette have also sprung up.


Scene

Source: “Eating Out Review”, Mintel, 2013

Type of restaurants %

Pubs, restaurants and bars 57

Ethnic restaurants (Chinese, Indian, Thai, Japanese, Mexican and others)

52

Pizza, pasta 45

Burger and chicken restaurants 32

British restaurants 25

Other restaurants 35

European restaurants 17

American restaurants 16

Steak houses 13

Type of restaurants visited in the last 3 months – April 2013

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Product specialisationRestaurants, which offer single products and do them well, are also popular.

// Burgers: Burger joints have boomed in the capital. Local players such as Meat Liquor and Patty and Bun started the trend, offering quality fast food in a trendy full service restaurant. In 2013, popular US chains Five Guys and Shake Shack also entered the market.

// Seafood: Offering a premium product at a reasonable price is the unique selling point of the very successful Burger and Lobster. It offers only three dishes on its menu – burger, lobster and lobster roll – all priced at £20 each.

// Ramen: Ramen craze has been slow to hit London, but it has recently seen decent offerings from Shoryu Ramen, Bone Daddies, and Ippudo.

All-day dining restaurantsBreakfast is gaining popularity among consumers, and all day dining concepts are becoming more common. Though London pubs started this trend, more sophisticated offerings have appeared on the market. Bill’s restaurants are a fast growing all-day-dining chain in London, which will have more than 50 restaurants in the UK after the opening of 20 restaurants in 20149.

Innovative conceptsCreating a memorable experience is as important as the food quality. Newly-opened Restaurant Story cleverly designs its menu around well-known childhood stories. House of Wolf hosts different chefs on a regular basis to encourage consumers to revisit.

Pop-upsPop-up restaurants are extremely popular in London. They are an excellent way to test the market and provide great publicity. The venue could be a bar, restaurant or a premise with the appropriate license, and usually lasts for weeks up to months. In London, places such as Dalston rooftop park or luxury hotel Claridges welcome pop-ups all year round.


Scene

9 “Business Profile: Bill’s”, Big Hospitality, January 2014

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Successful chains in LondonPub groups, such as Mitchells & Butlers, JD Wetherspoon and Greene King dominate the UK chain food services market. Within the restaurant segment, the three largest chains are Gondola Holdings, Yum! brands and Mitchells & Butlers, which account for around 40% of all outlets in the UK. Because of their financial strength, these chains are able to react quickly to changing demand and offer attractive deals to consumers.

Among the Asian chains, Alan Yau is a famous chef-restauranteur in London behind successful ones including Hakkasan and Busabba Eat Thai.


Scene

Position Group Number of outlets

Share of UK chained FSR market

1 Gondola Holdings 692 19%

2 Yum! brands 473 13%

3 Mitchells & Butlers 437 12%

Subtotal 1602 44%

Total 3642 100%

Type of restaurants visited in the last 3 months – April 2013

Main Asian chain operators in the UK

Source: “Full Service Restaurants in the UK”, Euromonitor, November 2013

Source: Big Hospitality, GFC report 2010

Brand/ Company Concept Average Spend

Busabba Eat Thai Fast casual modern Thai

£13 lunch, £16 dinner

Thai Square Mid-market traditional Thai


Wagamama Fast casual Japanese noodles


Yo! Sushi Conveyor belt sushi £13 lunch, £22 dinner

Ping Pong Contemporary dim-sum


Zuma/ Roka High-end, modern Japanese


Hakkasan/ Yauatcha High-end, modern Chinese


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Modes of Market Entry Costs, control and connections are the key concerns when considering a market entry. As such, each mode of entry – via own setup, a joint venture partner, or a franchisee – has its own pros and cons.

Entering via own setupMany restaurant owners (of independents, small groups and large chains) retain full or majority ownership of their operations in London. This allows them to control their brand and management in a key market and appears to be the modus operandi. A recent successful foreign entrant is Samba Brands Management. This New York-based group successfully brought two concepts into London on their own - Duck and Waffle (European 24-hour bar and restaurant) and Sushi Samba (fusion cuisine from Japan, Brazil and Peru). London is the group’s first international expansion.

Entering the market alone can be challenging, as operators may lack a good understanding of the local market, and upfront costs are high. The capital outlay is around £1-2 million for quick casual restaurants, and at least £2-3 million for a higher end restaurant.

One strategy is to enlist the successful restaurant groups such as Salt Yard Group, which may be willing to work on a consulting basis, to adapt the offering (in terms of menu, pricing and branding) to the local market. There are also London-based consultants who provide similar services. It is also important to bring in an experienced management team to helm the operations.

A Singapore company making its first entry could consider starting in a smaller way, through a pop-up, deli, or even food truck. There are several successful London restaurants which had humble beginnings, such as Brindisa Group, Ottolenghi and Shoryu Ramen. Besides allowing the company to test the market, the initial capital expenditure is reduced, with average costs starting from £10,000 onwards, according to a pop-up agency. Furthermore, it can create some brand awareness, which could help in the search for a partner in market.

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Joint venture (JV) with local partnerA partnership can help to lower investment risks, but such partnerships tend to be more opportunistic. Restaurants and retailers can be potential partners and can lend their experience in local retail operations. Some may be open to partnerships with new entrants; however it is not uncommon for them to want to influence the operations.

Another group of potential partners are private equity (PE) firms. PE firms are fairly active in the London food scene, and generally invest in concepts that have a proven track record in London and are scalable. Hence, PE firms could provide the capital for established concepts to scale up. PE firms usually take a controlling stake and want to have a hand in the business. A typical exit is after five to seven years, via a trade sale.

Case study: Five Guys – JV with Carphone Warehouse For its entry into the UK market, Five Guys partnered Sir Dunstone, the founder of Carphone Warehouse, in a 50-50 JV. Five Guys benefitted from the increased credibility by having an established UK partner, as well as from the partner’s experience in property acquisition and retail operations. In less than a year from the flagship opening in July 2013, the group secured nine sites in the UK and is planning to open 20 restaurants by the end of 2014.

Modes of Market Entry

Funder Portfolio companies

Active Private Equity Leon, Soho House, Deliverance

Risk Capital Partners GAILS, Patisserie Valerie, Laine Pub Company

Phoenix Equity Partners Busaba Eathai

Limecourt Ventures Galvins, Goodman, Steam and Rye

Rutland Partners Pizza Hut

CBPE Cote

LDC D&D Restaurants

Graphite Capital Hawksmoor

List of UK PE firms with interests in leisure (non-exhaustive)

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Modes of Market Entry

Entering via a franchising arrangementFranchising is naturally the preferred mode of entry for many Singapore operators. In London, however, apart from the quick service segment, franchised restaurants are not common as most restaurant groups want to control their operations and protect their brand equity in such an important location.

Like JVs, franchising can be very opportunistic, where the interested franchisee may have just chanced upon the brand. Without a track record in the UK, it is challenging to find a franchisee, especially if the franchisor is only interested in master franchising arrangements.

There is no specific profile for a franchisee, which can be a PE firm, food-related group or an individual. PE firm Rutland Partners is the master franchisee for Pizza Hut in the UK. Kuwait-based Kout Food Group (KFG) is the franchisee for Burger King and KFC in the UK.

To reach out to potential franchisees, a brand can exhibit in key franchise shows such as the annual National Franchise exhibition in London, or use the service of a franchisee recruitment consultant. Companies can consider paying a fee to join the British Franchise Association, which could add credibility to new entrants.

RecommendationRegardless of the entry mode, it is important to work with a local partner in some way to get a better market understanding and ease the process of market entry. It will be helpful to keep an open mind towards different modes of collaboration with a suitable partner.

Case Study: Chatime - Working with Unit Franchisees in London A recent successful entry from Asia is Taiwanese bubble tea chain Chatime. They set up their first outlet in Soho, London in July 2012 and now have five outlets in London. Chatime considers London a springboard into Europe and plans to open more outlets before entering Germany and France. Though in some countries Chatime works with a master franchisee, the Group is open to different franchisees in the UK.

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Securing a Site 101Understanding property classes and licensesOnce the decision to go ahead is made, the next step is to secure a suitable site. There are five commercial property classes in London, and a full service restaurant can only operate in an A3 site which allows the sale of food and drink for consumption on the premise. Hot takeaways are allowed on A5 sites and an A1 site is a shop without cooking facilities. A bakery for instance could operate with such a license. A3 sites in Central London are limited, and conversions of property class require planning permission from the local council and can be very long drawn.

Subsequently, an operator has to apply for licence from the local council for the following activities:// To sell alcohol. There are two types of premise licences. The on-license enables

an operator to sell alcohol that can be consumed on the premises. The off-license establishment does not allow alcohol to be consumed on the premises.

// To host entertainment such as live music, theatre and cinema.// To sell hot food and drinks late-night (from 11pm to 5am). This licence can be difficult to

obtain in city centre areas or residential areas to avoid public disturbances. Licences are usually given up to 12 midnight or 1am.

Understanding Operational Aspects

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Understanding Operational

Aspects

Interestingly, landlords of new developments are open to interesting concepts, which are popular in other markets. For instance, Shaftesbury is keen to work with new entrants to set up first European outlets in their villages. Some landlords even shop for new concepts overseas. For example, Shake Shack was spotted by the Covent Garden landlord, Capital and Counties which went out of its way to secure a site for Shake Shack.

Operators should be prepared with a landlord’s pack, and ready to pitch their concepts to the landlord. They should also retain an agent for a dedicated site search in the tight market, and also since some landlords only operate through agents. For a small or medium enterprise, it may make sense to work with smaller boutique firms that specialise in securing sites in Central London, rather than the large property agents. Agents typically require an exclusive arrangement (break clause included), and charge a success fee.

Main landlords/ developers in London

Landlords/ Developers Properties in London

Capital and Counties Major landlord in Covent Garden

Shaftesbury Major landlord in Carnaby, Soho, Chinatown, Covent Garden and Charlotte Street

Grosvenor Estates Major landlord in Mayfair

Bourne Capital Property management and leisure operations group, holding two London commercial estates: Queensway and Waterloo

Crown Estates Landlord in Mayfair, Westminster areas

Westfield Westfield Shopping Centre – Shepherd’s Bush, Stratford

Hammerson Brent Cross Shopping Centre

Land Securities Major developer of commercial properties in West End and the City, e.g. Victoria

British Land Major developer of commercial properties in West End and the City, e.g. Broadgate

Delancey Developer of mix of commercial and retail properties across the UK including Shopstop at Clapham Junction

Lend Lease Developer of commercial properties, e.g. 201 Bishopsgate

Network rail Owner of railway stations and retail space there

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How London landlords and agents workAt the moment, London is a landlords’ market. They have their pick of tenants, and understandably prefer established operators with proven track records and revenues, and good financial standing.

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Where to set up the restaurantThe most popular locations are in the West End (mainly Soho, Covent Garden, Mayfair, Fitzrovia and Knightsbridge), which see high footfall from both locals and tourists. The City (the original financial district) is gaining popularity, with new restaurants taking up sites in iconic new skyscrapers, including the successful Duck and Waffle and Sushi Samba at Heron Tower at Liverpool Street.

There are other less central (but still popular and attractive) options, depending on the target clientele.// Areas such as Shoreditch, Bethnal Green, Hackney (East London), Bermondsey (Southeast London), and even Brixton (South London), have an ever growing cluster of restaurants and a vibrant night life, and draw a younger local crowd.// More suburban middle class locations, such as Richmond, Chiswick and Wimbledon, could be good options for a first setup targeted at the middle class local population. For example, Nandos opened its first restaurants in the west London suburbs of Ealing and Earls Court; Cote opened its own restaurant in Wimbledon in 2007. // Shopping centre developments such as Westfield in Shepherd’s Bush and Stratford are other options, though these are limited in London.

New projects under development may present opportunities for operators. One is the iconic Battersea Power Station, which will be a mixed residential, retail and leisure development. London’s St James area is undergoing a £500 million redevelopment plan, which will see the creation of a 10,000 square foot pedestrian square surrounded by retail and leisure sites.


Aspects

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Aspects

Landlord Type of development

Location Retail info Completion date

Land Securities Mall Crawley, West Sussex

Four restaurants In development

Hammerson and Westfield

Mall Whitgift, Croydon Retail, leisure andresidential (potential for hotels and offices)

2015

Hammerson Area The Goodsyard (London E1)

Large scale residential (2,000 homes), office, retail and leisure, including 1.8 hectares of new public open space

2016

Hammerson Mall Brent Cross extension

No specifications 2016

Crown Estates Building Block W4 (153-167 Regent Street)

New flagship store 2015

Crown Estates Area - 3 sites St James - Central London)

Office, retail, leisure and residential

2016

Westfield Mall extension London White City Office, retail, leisure

NC

Capital and Counties Area Earls Court Residential, office, retail, leisure

20-year planning programme from 2014

Capital and Counties Building Covent Garden Office and one restaurant

2016

Capital and Counties Site betweenKing Street and Floral Street

Covent Garden Revamped mixed-use space

Approx June 2017

British Land Green Park area The Clarges Estate Mixed-use space 2017

British Land Retail Milton Keynes Retail 2014

British Land Area Surrey Quays Retail Consented

Network Rail Area Victoria Place Shopping

Retail Construction started in 2013

Battersea Power Station Development

Area Battersea Residential, retail, leisure, office

Power station to be completed in 2018

ABPRoyal Albert Docks

Area Royal Albert Dock Office, residential, retail, leisure

Phase 1 to be completed in 2018

Main landlords and their key developments in London

Source: Developers’ websites

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Key elements of lease and rental structureTypical London retail leases are 15-20 years long. For central locations and new developments, landlords may shorten term leases (to five years) to minimise exposure to under-performing outlets.

London rentals are also among the most expensive in Europe. Rents are usually quoted per annum, exclusive of charges such as utilities, business rate and service charges. Rents are paid quarterly and the lease usually comprises rent reviews, usually every 3 to 5 years, where rents are adjusted upwards.


Aspects

London prime location rental (London Zone 1)

Source: Knight Frank Research, 2014

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Aspects

Deposit For a company with no track record in the UK, landlords can ask for a deposit of up to 12 months’ rental as guarantee of the lease. In some cases, part of the deposit can be returned later.

Key money (premium) A premium can be requested by the existing tenant to pass on his current lease, and is common practice in London. The premium is determined by the tenant and can range greatly from site to site, from hundreds of thousands to several million pounds for prime locations.

Upside profit The landlord may ask tenants to pay a percentage of the profit if the tenants exceed its turnover target. This is common practice in shopping malls, and may become more common for street sites in new developments. Typically, it represents 7.5-8% of the excess profits.

Service charge The commercial site is subject to a service charge payable to the landlord for maintenance and repair of the building. This can go up to 8% of the rent.

Marketing charges Marketing charges are common practice in shopping malls. In certain areas, even at street levels, these can be applied. This charge costs about £3 per square foot per annum.

Business rates Business rates are calculated on a case by case basis by multiplying the ‘rateable value’ of a property by a ‘multiplier’ (called Uniform Business Rate), provided by the Government every 1st of April. JLL and Knight Frank estimate business rates in London to be 40-45% of the annual rent.

Agency fees This is the fee payable to the agency and is a percentage of the annual rent (around 10%) and a percentage of the premium (1-3%). This may be negotiable if there are plans for at least three sites.

Additional taxes and charges

Operators of a licensed establishment are expected to pay duty charges on alcohol, determined by the level of alcohol content in the beverage.

Fit-out costs This can quite substantial in London where creating a holistic dining experience is crucial. Fit-out costs for a casual dining concept ranges from £100-150 per square foot, and can easily double for high-end restaurants.

Additional cost components

Overall rental and related costs typically account for around 10% of the total revenues. To lower rental costs and increase site options, one could reduce the kitchen space in the actual restaurant site by setting up a separate central kitchen. This lends itself best where there is scale and less on-site cooking. There is a ground floor central kitchen available for lease by private operators.

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Marketing and public relationsDigital marketing is critical in hospitality and can be done in-house at a low cost. A powerful avenue is food review websites such as Hot Dinners (http://www.hot-dinners.com) and blogs of food critics. Marketing on social media and putting a restaurant on online reservation systems such as Open Table are important for creating online visibility.

Depending on the positioning of the restaurant and the target customers, an operator may consider promotions for off-peak periods. For instance, Taste card, a card giving access to discount among thousands of restaurants. Taste card has more than 800,000 members in the UK.

Companies should also not underestimate the value of good public relations (PR) and marketing. A PR agency can be hired on a project basis (for instance for a new launch) or retainer basis.


Aspects

Importance of digital marketing! A 2013 private study from xAd/ Telmetrics Mobile Path-to-Purchase on UK restaurants revealed that 80% of mobile restaurant searchers made a booking within a day; and 58% of searchers use reviews to make a booking.

US research company NPD found out that 26% of first visits to a restaurant was generated following an online search versus 11% via another vehicle.

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Employment and salariesLondon is able to draw from the wider EU labour pool for its hospitality industry. Most workers are quite well qualified and their pay is not excessively high. Waiters are usually paid by the hour, and the national minimum wage is £6.50 per hour. Employment costs are estimated to account for around 30% of total revenues11.

Employing migrant workers in the UK can be challenging, especially in hospitality. Skilled chefs and the first management staff are exceptions. Skilled Chefs, included in the Shortage Occupation List, can be brought in under the Tier 2 visa, provided that criteria of pay, experience and roles are met. Each application must be sponsored by a UK-registered company. To bring in the first management staff, companies can apply for the Tier 1 entrepreneur visa. Companies can employ the services of work permit agencies to apply for visa12.

Source: Reed Hospitality and Leisure Guide 2011, London and Partners


Aspects

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Position Minimum salary Maximum salary Salary average

Area Manager 35,000 50,000 42,500

GM 25,000 60,000 42,500

Training Manager 25,000 45,000 35,000

Assistant Manager 22,000 28,000 25,000

Executive Chef 38,000 60,000 49,000

Head chef 25,000 50,000 37,500

Sous Chef 22,000 28,000 25,000

Chef de Partie 16,500 25,000 20,750

Commis Chef 14,000 16,000 15,000

Supervisors 19,000 24,000 21,500

Bar Manager 22,000 35,000 28,500

Waiters 13,000 13,500 13,250

Salary range in the hospitality sector (£ per annum)

11 Anecdotal from Mazars12 More information is available here: https://www.gov.uk/browse/visas-immigration/work-visas

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Aspects

Sourcing and import restrictionsIt is easy to source ethnic products locally from wholesalers. Food service operators would source from wholesalers like 3663, Brakes, Sodexo, and Wing Yip (for oriental products), or even source directly from the producers.

There are strict import restrictions for products of animal origin, which include meat products, fish, shellfish, eggs and dairy products. These can only be imported from EU-approved establishments13. However it is very easy to source fresh and cooked meat and poultry in Europe.

13 The full listing is available here: http://europa.eu/legislation_summaries/food_safety/veterinary_checks_and_food_hygiene/index_en.htm

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Challenging but looking ahead

The two key typical challenges are site acquisition and high capital outlay. On average, an operator can spend 12 to 24 months to secure a site. New entrants facing the difficulties of a lack of track record and strong financial backing. There is a limited number of A3 sites and conversions to A3 sites are challenging. Furthermore, because of the large well-backed restaurant groups in London, for the prime sites, it becomes a ‘trading (of sites) game’ for incumbent players. This drives up the site premiums, which makes it difficult for new entrants to enter.

It will help to pitch a unique concept with a good business model, and demonstrate a good understanding of the local market. It is important to adapt the offering to local preferences, and local partners or consultants could help. It also helps for the operator to incorporate a UK entity, and provide clear proof of its financial strength.

Singapore operators should be open to different possibilities for location in London, for instance less central locations and new developments. It is also good to cultivate relationships with developers directly. For certain concepts, companies can consider leasing A1 sites and separate central kitchen premises.

Setting up in London is very capital intensive. Entering the market with a JV partner could help to lower the investment risk. However, it does take time to find a suitable partner and some control will be ceded in a JV. It may be worthwhile entering via a small JV or pop-up store first to catch the interest of potential local partners.

Financials need to be worked through thoroughly. It also makes sense for companies to consider entering with a plan to scale up to leverage economies of scale, e.g. through setup of a central kitchen, bulk imports. Operators can avoid paying a premium, by focusing on new leases or mall sites.

London has its challenges but also some positive aspects: manpower availability, long lease periods and decent profitability above 10%. More importantly, London serves as an important launch-pad for brands worldwide, as many foreign food groups continue to hunt for interesting concepts in London. It is possible to overcome challenges through careful planning and forming local partnerships.

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Looking AheadNo doubt there are challenges in entering the London market, but they are not insurmountable. Singapore food companies need to come prepared with a strong business plan and adequate financial backing. They must spend sufficient time in the market to understand the dynamics and players, and find suitable local partner for the project. IE Singapore has built up relationships with various developers/ landlords, property agents, consultants, and various potential partners in the market. These can help provide some initial market insights for companies.

Challenging but looking ahead

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International Enterprise SingaporeInternational Enterprise (IE) Singapore is the government agency driving Singapore’s external economy. We spearhead the overseas growth of Singapore-based companies and promote international trade. Our vision is a thriving business hub in Singapore with Globally Competitive Companies (GCCs) and leading international traders.

Trade has always been the backbone of Singapore’s economy. In addition to promoting export of goods and services, IE Singapore also attracts global commodities traders to establish their global or Asian home base in Singapore. Today, Singapore is a thriving trading hub with a complete ecosystem for the energy, agri-commodities and metals & minerals trading clusters.

GCCs are a critical growth engine for the next phase of Singapore’s development. GCCs compete on the global stage against the very best in their industries. They contribute to Singapore’s economic resilience, develop Singaporeans into global business leaders and strengthen the Singapore brand. Through our Global Company Partnership, we work with Singapore-based companies in their various stages of growth towards being globally competitive. We customise total solutions in capability building, market access and financing for these companies as they internationalise.

Our global network of overseas centres in over 35 locations provides the necessary connections in many developed and emerging markets. In Europe, we are present in four locations namely Frankfurt, Istanbul, London and Moscow.

Visit www.iesingapore.com for more information.

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Our Past Issues// Vol.1_Jul 2012 China’s Twin Paradigm Shifts - Beacons in a Sea of Change// Vol.2_Jul 2012 Myanmar: Opportunities in Asia’s Last Frontier Economy// Vol.3_Sep 2012 Thailand: Resilience and Economic Revival// Vol.4_Oct 2012 A Win-Wind Situation: Opportunities in the European Offshore Wind Industry// Vol.5_Nov 2012 Indonesia: Partnering the Private Sector for Growth// Vol.6_Jan 2013 Malaysia: State of Transformation// Vol.7_Mar 2013 Forging Ahead in China: A Survey of Singapore Companies// Vol.8_Apr 2013 Japan: Opportunities Amid Change and Recovery// Vol.9_Jun 2013 Central China: A Growth Story// Vol.10_Sep 2013 Driving Singapore’s External Economy Beyond 30 Years// Vol.11_Sep 2013 Vietnam: Prospects Amidst Challenges// Vol.12_Oct 2013 Brazil: Beyond the World Cup and Olympics // Vol.13_Nov 2013 Indonesia’s Consumer Sector: Tapping the Consumer Dollar in Food and Retail// Vol.14_Jan 2014 Myanmar: Navigating the Risks and Opportunities// Vol.15_Feb 2014 China’s Third Plenum: Decisive Shifts towards a Market-Oriented Economy and People-Centric Urbanisation// Vol.16_Oct 2014 Mexico: The Aztec Tiger

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