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The Leisure Industry’s Perfect Storm

Monday 11 December 2017 Catchment AnalysisData Insight & AnalyticsRetail Consultancy

Antony Hunt's picture
By Antony Hunt

The UK leisure industry is evolving and the impact this is having on businesses is significant. The Office for National Statistics (ONS) has announced the largest population increase in 70 years. Officially, there are more people in the market and that means demand is increasing. Falling margins, market saturation, increasing competition through new innovative brands and concepts, combined with expectations of greater quality and a better experience by the consumer are all instigators of change.

In our latest white paper, we look at how these factors are causing a true ‘coming of age’ for the leisure industry and examine ways operators can optimise profit generation through their business and location strategies to thrive in these new market conditions. 
So what are the four key factors causing this storm of uncertainty?

1. Falling margins

Business rate increases, increasing labour costs, and inflation have led to unprecedented rising operating costs for food and beverage operators. As a result, margins are being squeezed and remaining profitable is quickly becoming a challenge.

Business rates are increasing

Costa Coffee are already experiencing the squeeze. Tastes have developed, with customers now favouring artisan and boutique propositions that provide quality, fresh food in an experiential environment. With like-for-like sales slowing across their estate, it seems that Costa’s attempts to adapt (with new drinks and a fresh look-and-feel) are yet to pay off. 
While Costa is sure to bounce back, some operators may not be as well placed to deal with such adversity. The amount customers are willing to spend comes down to the level of perceived value they attribute to an experience. Placing the customer at the heart of business strategy will ensure an experience customers will both enjoy and value – ultimately making business more profitable. 

2. Growing competition

There is over 2 million square metres of new retail space coming to the UK market by 2020; and 25% of this could be allocated to A3 land use. Landlords and developers have been turning to A3 to provide the complete experience that consumers are demanding - causing competition in local markets to grow.

Demand for leisure is matched by available spend. Consumers need sufficient disposable income to justify spending on non-essential activities. Even the population of high-affluence towns and cities have a limit to how far their spend stretches.
In Tunbridge Wells, the development of Royal Victoria Place, including a new cinema and restaurants, is mirrored by a potential development of the old ABC cinema only 500m away. How many more restaurants the town can accommodate (considering those already in-situ) is unclear. 
Operators will need to be increasingly focused on the strategic fit on new sites in their expansion strategy to optimise profitability. Prime pitch sites may be offset by higher costs, making smaller sites a better overall strategic fit even though the level of achievable sales may be slightly lower.

3. Proposition Evolution

The leisure market continues to evolve. Brands such as Meat Liquor, Mowgli, The Alchemist, and Vapiano have raised consumer expectations for quality and experience, as well as feeding their appetite for something new. The one thing that each of these brands have in common is that they all have a story to tell.
Nisha Katona, the owner and founder of Mowgli, has successfully delivered a concept based around the tradition of home cooked Indian food, delivered in tiffin boxes to the workplace and school every day for lunch. A highlight of the day being when you get to open the tin to see what’s inside. In “Tiffin Roulette” customers can order a tiffin experience for themselves, placing trust in the restaurant’s chef for what they’re served. From walking-in, to the uniquely designed restaurant, to eating the food and leaving – it is completely experiential.
A well thought out proposition, with a strong format, delivered effectively seems to answer consumer’s desire for a genuine experience in these changing market conditions. 

4. Location Inflexibility

For a long time, landlords have only offered traditional retail leasing models, tying operators to high-premium, long-term leases. This inability to adapt at speed is increasing risk for leisure operators.
The Lexicon is a 580,000-square foot regeneration of Bracknell town centre, featuring indoor and outdoor shopping areas alongside a new, purpose-built leisure hub with a 12 screen Cineworld cinema and a substantial casual dining offer. The post-war town has long needed a regeneration; however, it raises questions for the operators located 300m away in the Peel Centre retail park.  Should one of these operators need to relocate to the new leisure hub in Bracknell Lexicon, their ability to move quickly will no doubt be restricted by their current lease. 
Such scenarios often force a trade-off to limit impact on the business – the choice between paying termination fees or potentially trading with lower sales until relocation or exiting becomes viable. Landlords will inevitably need to accept the state of the leisure sector as their tenants increasingly need to be able to adapt by having shorter lease periods on their new sites, whilst also pro-actively optimising their current estate by establishing a ‘strategy for every site’ to ensure that legacy issues are pro-actively resolved.

What does this mean for the future of the Leisure industry?

The leisure bubble has not burst. What we are seeing is a course correction born-out of market exposure. The perfect storm of cost increases has revealed legacy issues. Locations that were once successful have now become untenable, overleveraged with unsustainable costs. Operators now need to look at their estate in this challenging and ever-evolving environment and find ways they can innovate to ensure they stay ahead. 
By applying a philosophy of continuous improvement to identify where efficiencies can be gained to optimise component parts of their business, operators will be in a perfect position to deliver a great customer proposition, profitably. The most successful businesses will be the ones that use data to make informed decisions in response to the shifting landscape; turning new trends into clear strategic actions.
Find out how you can Optimise to Survive and Thrive in our latest white paper, where we present our key strategies for success in this changing environment.
Optimise to survive and thrive - leisure industry


Further Information

If you want to hear more about how CACI's Leisure expertise can help you, get in contact now

The UK leisure industry is evolving and the impact this is having on businesses is significant. The ONS has announced the largest population increase in 70 years. Officially, there are more people in the market and that means demand is increasing. So why the storm of uncertainty?

The Leisure Industry’s Perfect Storm