It may have been a long time coming, but, based on market activity in 2024, it looks like we are starting to see a recovery in the casual dining sector. At last, brands are looking for new sites and reporting an uptick in margins.
The number of full-service restaurants has fallen from 32,000 to 26,000, but, as operators’ profitability has started to stabilise, it is predicted that we will see outlet growth in 2025.
A particular success story is the Quick Service Restaurant (QSR) sector. In 2024 we saw a 10% increase in QSR outlets compared to a 26% decline in high street brand sites. With over 100,000 take-aways and cafes in the UK, it may seem surprising that less than 20% are operated by the ‘big brands’. The rapid expansion of the likes of German Doner Kebab and Slim Chickens, alongside the continued growth of McDonalds and Starbucks, is compelling.
We are also seeing more proven international brands entering the UK with the likes of Carls Jr. teaming up with Boparan, to open in the UK early this year. Wendy’s has re-entered the UK, and Chick-fil-A, the legendary US brand which opened in Reading in 2019 but subsequently quickly closed, is trying again this year, such is the prize.
Those who used to go to the high street for family dining are dropping down in price to QSR. This has made operators improve their quality as they chase the customer, and the younger generation loves the speed and reliability. Such is the growth and demand for drive-thru sites, we are finding their rents are now higher than in key city centres: the average London restaurant rent per square foot is £87 and in Manchester the average is £28, while drive-thru sites are up at £50 per square foot.
This growth has been supported by the acceptance of the franchise model. Stats suggest that over 80% of franchise businesses remain open and trading over five years after launching, nearly double that of independents. At a time when businesses are being hit by financial pressures, it can be gratifying to know that you have a multi-national on your side offering support and advice.
There is however no doubt that the hospitality sector is facing continuing difficulties. At the start of last year, food inflation was still at 7%, operating costs remained high, and consumers were dining out less as prices increased to compensate. With a reduction in profit margins and continuing closures of both high street branded sites and headline-grabbing fine-dining venues, many investors were unwilling to take the risk. There was also little to cheer about in the Autumn Budget delivered by the government in October, which saw an increase in employers’ National Insurance contributions alongside an increase in the National Living Wage and Minimum Wage, together with the reduction on business rate relief from 75% to 40%.
However, we have seen many landlord-incentivised deals, and food entrepreneurs coming back into the market, towards the end of last year, and there are signs of positive market activity for the year ahead. We predicted that there will be a continued gradual recovery in the casual dining sector, as well as in QSR. Fine dining may become more ‘exclusive’ and expensive for customers, while on the other hand we will see ever increasing demand for drive-thru sites outside of towns to accommodate their popularity.
