Shopping centre or strip location - What's the best choice for a new cafe or food business?

Both types of locations offer a variety of benefits or disadvantages depending on the type of venue and the concept in question.

A shopping centre will deliver a measurable number of people to their space, and their greater patronage is underpinned by major retailers, known as anchor tenants, such as Coles, Woolworths or Aldi. In some cases it may be all three, and usually a K Mart, Big W or Target are a part of the attraction.

Shopping centres also provide benefits like ease of parking, public transport hubs and a variety of retailers and retail products to attract a repeat customer with diverse shopping needs. Though the convenience of having a wide range of customers guaranteed in one destination comes at a price, the privilege comes at a higher gross rental.

More recently, shopping centres have been updating their food and beverage spaces allows them to really define their precincts. A good example being food courts predominately housing franchised based businesses. While there are many franchised cafes spaced throughout the centres, the explosion of coffee specialty retailers has opened this market up and you would now be hard pressed to find a shopping centre without a coffee roaster in it.

This expansion into food & beverage entertainment precincts has given shopping centres the ability to attract independent operators, those who previously would never have entertained the idea of having their brand represented in a shopping centre environment. Most centres will now seek inspiration from independent operators located in strip locations and try and bring them into the centres as a way of providing new retail concepts to their customers and also to get one up on their competition.

Strip locations offer different benefits and are generally more flexible in how you can enter and operate in this type of location. Strip shop locations offer food and beverage operators a chance to build their own identity by being part of the fabric of a local community. They give the operator the freedom to adapt their menus and their operations at will, with minimal interference from the landlord. By not having the stringent lease requirements that a shopping centres does, businesses are able to enter the market via a lower cost of entry and lower ongoing fixed cost.

In a strip location you have the freedom to deliver your own marketing strategy at your cost, and you can control when and how the marketing is delivered – whereas shopping centres will have a monthly marketing fee payable by each tenant. Strip locations on average will have a lower gross rental as these marketing fees aren’t included in the lease, the outgoings are cheaper and the per square metre lease rates are far less.

Strip Location or Shopping Centre - how do I choose?

The first important piece of the puzzle is understanding your target market and the size of your budget. Doing your due diligence, i.e. completing your business and financial plans, is vital as the result of this process will give you both those answers. The information will help you define the criteria for your site selection and will dictate whether your site is best suited to a shopping centre or strip location.

While there are cross over markets that will frequent both shopping centres and strip locations, you need to focus on the habits of your core target market to define whether you are best looking at a shopping centre or strip location.

When to Choose a Strip Location

If your core target market is the local community, early adopters or a younger demographic then you will be more suited to strip location. You will find that these customers are looking for alternatives to the mainstream shopping centre, they prefer destinations they can discover and call their own, something they feel a part of. This type of market is usually extremely loyal.

Whilst these customers will frequent shopping centres when necessary, they are less likely to go to a shopping centre specifically to seek out a food & beverage experiences. However this is the exact customer shopping centres actually desire, so they chase the retailers that can provide this kind experience in their centres.

The clearest example of this is the introduction of coffee specialty retailers, now scattered throughout most shopping centres. The second major shift is the emergence of entertainment and dining precincts within centres that have been specifically built to feel like you are not in a traditional shopping centre.

When to Choose a Shopping Centre

If your core target market is families, a middle age to older demographic, a mainstream customer that follow the trends not starts them, then your brand will typically be more suited to a shopping centre.

This is generally why franchises have been successful in shopping centres, their customers know what they are going to get, they are family orientated and they follow products trends not create them - they are a safe choice.

Since the early 2000’s shopping centres have developed strong night-time entertainment precincts that attract families and a younger demographic looking for a fun night out. Nevertheless, this younger customer is a mainstream customer and again, is following trends not setting them.

You simply cannot underestimate what effect the planning and research of your core target market has on making an informed decision regarding what location is best suited to your business. Essentially the site selection process is one of the most important aspects of building or buying a successful café or restaurant.

To make your decision of a shopping centre or a strip location, it's important to understand some of the key lease terms. I have listed some below, but this is a specialised area and seeking legal advice is advised.

Understanding Lease Options & Obligations

Shopping Centres prefer shorter lease terms than most other private landlords. Lease terms will vary between cafés and restaurants, with restaurants generally given longer terms due to a higher capital investment. On average the lease term will be between five and seven years. The main reason for the shorter lease terms in shopping centres is to allow for the tenancy design and build be kept up to date and maintained to the shopping centre standard.

Strip Landlords are more likely to accept a longer lease as they would like to lock in the property income and do not have the stringent refurbishment requirements that Shopping Centre Landlords do.

Strip Landlords are more likely to accept options on your lease - options are set time extensions on your existing lease if you wish to make the term of the lease longer. Always be aware that you have to exercise the option by a specified date, or the landlord may choose not to accept it.

Refurbishment: this is a Shopping Centre requirement. It will be part of your lease that at the end of your tenure you will be required to refurbish your premises. This can range from minor upgrades to a full refurbishment that will have you closed for a short period of time. Whilst the extent of the refurbishment is negotiable this needs to be factored into your long-term plans and financial position.

Strip Landlords are not likely to have as stringent requirements on a refurbishment during the term of your lease, this clause is generally for Shopping Centre Landlords only.

However in my experience as both an ex-restaurateur and a leasing executive you should be planning to spend money on a refurbishment around the 5-7 year mark, and the size of the refurbishment will depend on wear and tear and brand upgrades. Your customers both internal and external and your staff expect to see you spending money on your business and will reward you with their loyalty.

Permitted Use: As Shopping Centres have a large number of food and beverage tenants, they maintain some level of control as to what items each tenancy is permitted to sell - this will be done through the ‘permitted use’ clause within the lease.

Although the permitted use clause can be somewhat generic at times such as ‘café serving breakfast, lunch and dinner trading as xxxxx’, your menu will be an attachment to the lease which will have the items that you are permitted to sell. You may negotiate or amend the menu items at the beginning and during your lease term however the final approval sits with the landlord. This is often a juggle as they will need to be mindful of fairness between all the food and beverage operators within the centre.

Whilst this may seem onerous and controlling, it's designed to protect tenants from cannibalising each other’s sales by selling the same items - in effect it’s an umbrella protection.

Strip Landlords take less control over your usage of the venue allowing tenants to make unfettered choices about menus etc with ease. Regardless, you need to be aware of what your permitted use is within your lease at all times.

The lack of interference via the permitted use clause from Strip Landlords isn’t all good news - in this type of site you will be exposed to whatever other types of food and beverage businesses the Landlord signs on. Other landlords in the Strip may have a different agenda to your landlord and that leaves the possibility of having a competitive business being signed on directly next door without any regard to the success of either businesses. Currently in my own neighbourhood there have been 3 new Indian restaurants open in the same street as an existing Indian restaurant - the existing restaurant is an institution and will be hard to compete against, but the newcomers want to try! Not all these similar businesses can survive so physically close to each other – there’s only so much target market to share.

Making Your Decision

The debate between selecting a site in a shopping centre vs a strip location does not have a clear yes or no answer. There are very successful food & beverage businesses in both environments, both franchised and non-franchised.

The question you need to ask is 'has my business done the appropriate planning to make the most informed decision as to whether the site should be in a shopping centre or strip location?'

The most common traits of successful food and beverage businesses in both shopping centres and strip shops is they know who and where their customer are, they know their numbers and can access them in real time, use best practice operations and exceed their customers’ expectations.

As food and beverage trends continue to evolve and landlords continue to chase the next new thing, retailers need to educate themselves as to what arena they want to play in and what the framework is in each arena.

Author: Julian Mero, Food & Beverage Specialist