Opening a restaurant: Have you thought about going "in-house"?

Opening a restaurant: Have you thought about going “in-house”?

With the casual dining crunch still frequenting the headlines in 2019 existing operators, and new entrants alike, are looking for alternative ways to open new sites while minimising potential risk and exposure.

Traditionally these savings were achieved via the franchise model with operators providing the knowhow (and sometimes the premises) in return for a licence fee. However, the increase in the number of co-working providers, and a number of forward-thinking employers looking to improve talent retention, has given rise to an opportunity for hospitality businesses to effectively go “in-house” by setting up mini outposts in serviced offices and workplaces.

The potential benefits of opening in-house are clear for both parties and can include:

1. Operators will enjoy a captive audience which would be difficult to replicate in standalone premises. If the office is in an out of the way location a well-placed offering is likely to ensure people make use of the on-site facilities;
2. Many co-working providers will have fitted out the premises to a high standard so as to appeal to their target customer base. They will therefore be seeking an operator to fit into a “plug and play” space immediately reducing the capital expenditure required to get up and running.
3. Food and beverage provision in offices is likely to be limited to breakfast and lunch service, with the potential for after work drinks. This reduces staffing costs whilst offering a better work life balance when compared to many standalone restaurants – a possible selling point for operators when recruiting.
4. Rent is more likely to be tied to turnover thereby reducing overheads if the site isn’t performing as expected;
5. Finally, from the co-working provider’s perspective they are able to replace a traditional outlay (the provision of F&B services) with a source of income having rentalised the space.

Conversely there are some drawbacks to take into account when deciding if an in-house offer is the next step for your brand:

1. Whilst a captive audience may seem like every restaurateur’s dream if the office is in a well-served location you may find your audience taking lunch elsewhere - once initial interest has waned. Unlike their standalone counterparts; in-house providers are unable to increase their customer base by appealing to a wider audience as only members/employees will be able to use the on-site facilities.
2. The provider may require some input in to the look and feel of the space or offering, to ensure it meets their expectations, which may not tie in with a restaurateur’s vision for their brand;
3. Finally, in-house restaurants are typically documented by way of a licence to occupy or management agreement which may be personal to the named operator and either:
   1. do not provide a guaranteed space or
   2. can be terminated at any time and so are somewhat transient in nature.

The threat of termination on short notice can make it difficult to build a sustainable business, plan an exit strategy and may discourage investment in a location.

Conclusion:

When discussing in-house opportunities, it is important to consider what the basis of your occupation will be, how quickly can you be moved on, and do you need to consider setting key performance indicators for the Landlord to ensure a certain level of occupancy at the location.

With the casual dining market still going through a period of correction the idea of rolling out a number of in-house units with lower capital expenditure is an attractive proposition. Nevertheless, given the potential short-term nature of the agreements in-house opportunities should, in my view, be seen as a supplemental market for existing operators to form part of a broader expansion strategy as opposed to a new market of its own.

If you are a co-working provider looking to offer your members something different or an operator looking to provide in-house food and beverage services, then contact Alex Hutchings on 020 7462 6961 or ah@cbglaw.co.uk to see how CBG Law can assist with your plans.