Evolve or Die

Restaurants, cafés and bars are constantly trying to find new revenue streams and some operators are diversifying their offer beyond their traditional models to remain competitive.

We look at four main ways they are doing this:

Subscription models

Pret’s launch of its subscription service ‘Club Pret’ in 2020 caused significant disruption in the café and grab & go market, triggering a battle for market share and customer loyalty. Its original model of five barista-made drinks per day at a monthly cost of £20 shook the market, with 17.8 million redemptions within the first three months, and 57.9 million by the end of 2022. Since the launch, Pret has increased its price to £30 a month due to increased costs, adding an additional 20% off food offer, but it continues to drive revenue, with subscribers spending around four times more than non-subscribers.

Leon recently launched a new ‘Roast Rewards’ that undercuts Pret’s offer, offering five barista-made drinks per day plus 20% off food for £5 less, as well as a points system where customers collect points on purchased items and can claim free items through points.

Brand partnerships

F&B operators are leveraging partnerships with brands to build on their positioning and benefit from potential new customer segments.

The trend of café brands such as Costa and Starbucks moving into big box retail stores such as Next and supermarkets has emerged over the last few decades, however, we are starting to see smaller up-and-coming brands adopting similar strategies. Joe & the Juice partnered with the flagship Gymshark store on Regent Street, complementing the health and wellness ethos and enhancing its position as a ‘lifestyle’ brand.

Grind has partnered with Brewdog, with a coffee bar within the Brewdog Waterloo branch serving an all-day offer of coffee and brunch and an evening offer after 5pm. This benefits both parties involved by creating an offer to drive daytime footfall for Brewdog prior to their core wet-led footfall in the evening, while Grind can benefit from cheaper rent than setting up an individual store as well as brand exposure. This could become a larger trend going forward as operators seek ways to maximise profitability of disused space.

Online

Takeaway has been a popular concept for decades but it is important to recognise the role the explosion of online order and delivery apps have made in impacting the viability of physical F&B units. Though the operating model of the major delivery operators severely impacts the margin F&B operators achieve, and makes tertiary ‘dark kitchen’ locations a potential competitor, trading online through delivery apps can significantly support and drive the viability of F&B units, augmenting the revenue driven by in-store visits. Many F&B operators, tied into long leases in locations that are underperforming, are supplementing sales and driving viability through use of online sales. Similarly, locations that couldn’t on their own sustain a brand’s presence can often become viable with online sales potential included.

Merchandising new products

Many restaurant brands are recognising the opportunity to capitalise on customer loyalty and brand image by selling merchandise related to the brand, allowing customers to expand the brand experience into their home. Brands such as Hawksmoor, Big Mamma Group and Wagamama launching cookbooks of their most popular dishes is a prime example of this.

Premium brands such as Ottolenghi, Dishoom, Eataly and Lina Stores have expanded beyond the sale of cookbooks, allowing customers to purchase hampers, pantry items, tableware and cooking tools on their websites, enabling the ultimate at-home experience for their customers through continuation of the brand storytelling.

Movement into grocery

Over the past decade, restaurant and grab & go brands have ventured into the grocery market, recognising the potential to retain customer loyalty as well as capture a wider customer base. The success of pioneers such as Pizza Express now achieving over £100m in annual sales, has caused many grab & go operators to have followed, including Leon, Pret, Wasabi, Itsu and Yo! Sushi. However, it is important for operators to recognise the potential impact of selling products available at restaurants such as a pizza for a fraction of the price on customer perception of the brand. In addition, not all brands have been successful within the grocery market, however. Giraffe, Byron Burger and Prezzo failed due to market competition and lack of differentiation, demonstrating the importance of brand storytelling.

Some more premium brands have expanded into the grocery market, albeit through more specialised distribution strategies to avoid impacting brand perception. Brands such as Hawksmoor and Brindisa sell products through Ocado, while Lina Stores sells through Selfridges Pantry, to ensure their premium positioning. Ottolenghi has recently launched a product line in Waitrose, which has achieved 97% higher sales than forecast, demonstrating the demand for growth for this market, and likelihood of other premium brands following this trend.

As consumer preferences continue to evolve, F&B operators must adapt and diversify to remain competitive and maintain customer loyalty. Movement away from traditional brick-and-mortar single purpose formats towards multi-channel methods will likely become more of a trend, as brands seek ways to maximise reach of new customers while retaining loyalty.