Building solid relationships with local property agents can give retailers a headstart when looking for premises
The convenience property market is as busy as ever, with independents jostling with the multiples for a slice of the pie. According to commercial agent Christie & Co, there are a record number of applicants registering on its website for the first time, while transactions were up 11% last year.
“There are a lot of cash buyers at the lower end, but there is also more willingness among banks to lend, especially for independent retailers with multiple sites,” says Christie’s head of retail Steve Rodell. “And ultimately the involvement of private equity in the market, as in Mike Greene’s case with My Local, shows confidence in the market.”
The ACS Local Shop Report shows 71% of independent retailers are first-time investors, while only 29% inherited the family business - highlighting the current dynamism of the independent market. Of the premises operated by independents, 65% are owned and 35% are rented.
Rodell says diversification has been a feature of recent years. “Retailers are proving that c-stores can fit in anything. Small shops in high-footfall locations with food to go is an upward trend, while the forecourt market is resurgent. Car showrooms have become popular, especially as car repair businesses are making a lot of money at the moment and may want to move to bigger premises, so there’s an opportunity there.”
LOCATION, LOCATION, LOCATION
Raj Aggarwal recently switched from Londis to Spar and has leased a new site in Market Harborough. He emphasises the importance of keeping an open mind about location. “It’s not about whether it’s a good time to buy, it’s all about location. It could be on a university site, on a high street, in a pub site, it doesn’t matter. Just carry on looking, stick in there, and then you can gain traction,” he says. “It’s all about who you know. We haven’t got deep pockets like the mults.”
Nisa retailer Harj Dhasee, who owns the Village Store in Mickleton, Gloucestershire, is looking for a new site and agrees that networking is key. “I’ve got a good contact at the Co-op, which may come in useful if they sell a nearby site, and I know the Simply Fresh guys well. It’s also about speaking to agents before places become available. Agents are in bed with retailers so I’m building relationships with agents,” he says. “I’m looking at pubs, forecourts, anything really. The key is to take time out and keep looking. It’s about the right size in the right place - I’m open to any kind of site over 2,000sq ft, as long as it’s within my region. If you want to put a manager in it has to be over 2,000sq ft, because you’d need to clear £25,000 a week to afford it.”
Spar retailer James Brundle, who operates two Eat 17 stores in east London, is currently looking for a couple more sites in the capital and, like Harj, is looking at a range of premises. “Our Hackney site was a cinema, so we’re used to working with things that are a bit different. We don’t mind being near the multiples, either. We’re interested in any kind of site with a minimum of 2,900sq ft so it’s big enough for food service.”
Solicitor’s fees, including stamp duty land tax/lease assignment fees
Agents fees (if buying through an acquisition agent)
Finance arrangement costs
Redundancy for existing staff (subject to TUPE)
Stock and stocktaking
Redevelopment costs, including architect, planning permission, building regulations
Refit costs including chillers, shelving, signage and so on
Source: Christie & Co
Tristan King, who also recently switched from Londis to Spar, has just bought his fourth store in Clarborough, a rural part of Nottinghamshire. He emphasises the importance of identifying the right area. “Once you’ve identified an area where there’s no strong retail offer, or without any retailing (as in Clarborough’s case), then it’s about finding the right site at the right price. Just because a site is not a ready box for retail, it doesn’t mean it’s not a good site,” he says.
Budgens retailer David Knight, who owns two stores in West Sussex, says it’s all about local knowledge. “I find the right demographic and area we want to be in, often by driving around and getting a feel for things. I contact all the local agents on the ground who don’t deal with the mults, and I hand them a criteria list - what footfall we’re looking for, pound per sq ft and so on.”
Sukhjit Khera, director of the Simply Fresh symbol group, agrees that local knowledge is vital. “Visit the local council to enquire about any developments that may affect your chosen site. Speak to locals. Visit the local pub. You can also get analysis reports commissioned that give you more insight to an area,” he says.
“New commercial and housing schemes are good if you can secure these locations,” he adds. “The potential turnover should dictate the size of the store - we do not always need 2,000-plus sq ft to get the optimum sales out of a unit.”
David points out that a recent change in law which allows disused office space to be converted to retail has offered an extra dimension. “It means that suddenly there are options where there weren’t options before, because I can look at smaller units if there is a vacant office next door with the potential to knock down the walls,” he says.
“Also, we were looking at 3,000sq ft stores, but now we’re looking at 2,000sq ft to 2,500sq ft because that’s where the market is going.”
Paul Cheema, director of Malcolm’s Stores, recently acquired a forecourt store in Tile Hill, Coventry, near his well-established Malcolm’s Nisa store. “One of the reasons it’s doing so well is because it’s so close to our original store so people already believed in us,” he says. “We’re trying to find another forecourt site, but it’s really difficult as you’re up against the oil giants.”
David is also looking at pub sites. “Pubs are interesting because they’re in a built-up area, they have a car park and are ready to go. I saw one in Redhill recently, but we lost out to a housing developer. You’re often competing with housing.”
Sanjeev Vadhera, director of North East Convenience Stores which operates 27 stores and counting, agrees that parking has become more important with changing shopping habits. “In the past we didn’t look at car park provision in enough depth, but people are shopping around more now and are more likely to do it in their cars,” he says.
Tristan, who converted a pub site in Retford, Nottinghamshire, also points out that most pub sites have existing planning consent so can be easily changed to a retail unit. However, another recent law change means that pubs listed as ‘assets of community value’ now require a planning application. According to Rodell, 1,000 pubs have now been listed. For a number of independents, this may not necessarily be a negative, given the pace at which the multiples have been converting pubs to c-stores. One of the reasons Tristan bought his pub site was to prevent a multiple from doing so first, while Raj’s store in Wigston has suffered from the opening of a Co-op in a nearby pub site - as part of The Co-operative Food’s deal to open 63 c-stores on Marston sites. But Rodell says independent retailers are in a good position to move in before the mults. “Independents are in the best place to keep an ear to the ground. If, for example, you see a flagging pub, that’s an early sign. We can phone the pub and see what their plans are,” he says.
However, Sanjeev warns of unforeseen obstacles in taking on a pub site. “When you rip it apart you don’t know what you’re going to find. We’re developing a pub site in Blyth at the moment and didn’t take advice on electricity provision. We’ve had to put in new wiring and a transformer, which has set us back £40k. We also had an issue with a tree under the site,” he says.
Paul adds that pub cellars are redundant because of the dampness. “But on the plus side, where there was a pub, there was already footfall,” he says, referring to Malcolm’s Stores new ex-pub site in Chelmsley Wood, Birmingham.
BEATING THE MULTIPLES
Sanjeev says independents can have a distinct advantage over the multiples: they can’t move as quickly as indies. “Our specification requirements are less than those of the mults, which can be pretty onerous on a developer if you’re leasing a site. We’re more nimble and flexible, so we can reduce our costs for a developer,” he says. “Also the likes of Tesco and the Co-op take much longer to get over the line, there are so many departments they have to go through.”
Sukhjit explains that the mults are “quite formulaic” in their property criteria. “They will rarely look at urban sites sub-2,300sq ft retail; they do not like complex floor plans. This gives the independent scope to take on sites in good locations that do not fit the mults,” he adds. “We have also found there is more landlord interest in adding value to a scheme with a good independent rather than a mult. If the retailer can demonstrate professionalism combined with our strengths of being community-led, this can sway landlords on larger schemes.”
Tristan says he joined Spar to leverage the buying power of Blakemore Trade Partners, the symbol group’s largest UK distributor. “One of the reasons we joined Blakemore is because they allow indies to find good sites as they have deeper pockets. Until now we’ve taken on all our sites ourselves, but now we plan to use the leverage of Blakemore and Spar to look for sites together,” he says.
“So we’re developing a two-pronged approach: smaller, less profitable sites that the mults aren’t interested in, and using Blakemore for higher-value sites. Their strength is working with retailers.” Each year Blakemore sets aside £2m to co-invest in developments across its independent estate.
But if your symbol group doesn’t co-invest, you can lean on it for other types of support, such as advice on the area, Sanjeev points out. David says Budgens will produce a demographic report on an area to determine whether a Budgens store would succeed there. Meanwhile, Sukhjit says Simply Fresh is offered sites from commercial agents on a regular basis. He adds: “We also will look at viability of sites for our retailers and help in negotiating terms with agents.”
As Tristan advises, analyse the market and make sure the lease is right for you. This doesn’t have to require sophisticated data analysis, though. Adds Paul: “My advice is to spend a lot of time sitting outside the store checking the footfall, as well as the footfall in nearby stores. Then you can make a decision.”
Get the right advice to avoid nasty surprises
Once you’ve found a new site, it is vital to surround yourself with the right people. “Always employ a solicitor experienced in commercial property. I have seen many occasions where retailers have not been correctly advised or made aware of issues with the freehold/lease of a property that later affect its viability,” says Sukhjit Khera, director of Simply Fresh.
Sanjeev Vadhera, director of North East Convenience Stores, adds: “You need to be advised well, with the right team of engineers and architects. Look at professional fees such as development, architect and project management fees. People forget to look at things like drainage.”
There are other financial considerations, too. “In residential areas councils insist on noise assessment reports, which cost about £2,000-£3,000. It can all start adding up and you can get a nasty shock,” he adds.
Paul Cheema, director of Malcolm’s Stores, says he relies on his agent, Christie & Co, to do all the paperwork. “Make sure you do all the surveys and due diligence before signing off,” he says.
Eat 17 director James Brundle says that Blakemore takes care of the legal processes when needed. “The best thing about our partnership with Blakemore is their expertise on that side of things.”