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The severe contraction in the Spanish economy seen since 2009 has dealt a hammer-blow to the country’s vibrant foodservice industry, with sales declining in both 2009 and 2010.
For chained operators, the impact on shopping mall development has proven particularly painful—chains rode the wave during the Spanish real estate boom, as a surge in mall construction fuelled strong demand for branded foodservice. Since 2009, however, construction and retail sales have collapsed, with several existing shopping centres forced to shut their doors due to lack of demand. This has forced a shift in strategy, with many chains returning to central urban locations as price has fallen and the need for steady foot traffic has grown more pressing.
More broadly, the Spanish example provides a stark reminder of the risks inherent in a mall-based expansion strategy—while shopping centres are a highly effective way for chains to reach out to new markets and new consumer groups, they are also quite vulnerable to shifts in the economy, and are often among the first sectors to feel the impact from a severe downturn.
Mall-based development served as a key component of chained expansion during the Spanish real estate boom, considered second only to high street locations in major cities in terms of prestige and foot traffic. Given the difficulty of securing prime real estate in major cities, however, coupled with strong demand for chained brands among mall operators, mall-based locations saw a major expansion, averaging nearly 2% annual growth from 2005 to 2008, well above growth rates for traditional locations, adding more than 2,000 outlets in the process.
The economic crisis of 2009 put an end to all of this, however, with retail foodservice outlet numbers contacting 3% in both 2009 and 2010, according to Euromonitor. The suburban housing boom that drove much of the shopping centre construction frenzy is a mere memory, with many recent housing developments now virtual ghost towns.
This, in turn, has had a baleful effect on shopping centre expansion—according to the Spanish Council of Shopping Centres, just 10 new sites opened in 2010, compared with an annual average of 90 or more during the boom. What’s more, some developments have been forced to close down due to weak demand—both the M40 and Opcion shopping centres in Madrid shut down in 2010, an unthinkable development just a few years prior.
The demise of shopping centres as a growth area has led to a shift in strategy on the part of many chains operating in Spain. Prime city centre locations, once difficult to secure and often astronomically expensive, have grown more attractive, with rents falling and competition for locations less intense. The ongoing pullback in consumer spending has reinforced this trend—with Spanish consumers spending far less on shopping and trips to the cinema, both key drivers of retail foodservice demand, smaller, more centrally-located outlets are increasingly seen as a safe haven, given high levels of foot traffic.
Going forward, this trend is likely to continue—ongoing economic turmoil and looming austerity make a return to the boom environment seen over the review period incredibly unlikely, with total consumer foodservice outlet numbers in 2015 expected to come in well under current totals. While retail foodservice is set to continue expanding, shopping mall locations are expected to account for a much smaller percentage of growth.
A new, more city-centric development strategy could actually prove a positive for chains, which will face far less competition for sites going forward, given the devastation the recession has wrought on the independent sector.
More broadly, the collapse of the Spanish building boom provides a sobering reminder of the risks inherent in a mall-based expansion strategy, one which often takes brands into suburban locations far from downtown urban locations. While suburban areas and regional cities are a continuing centre for growth in many markets, they also tend to be the first areas to feel the impact of an economic downturn, particularly given the importance of steady credit expansion to sustained real estate development. While chained operators can ill-afford to avoid such sites, they will always remain a source of significant volatility.