Diversification to derisk the business model
Since 2022 we have seen the Garden Centre sector, like other sectors, affected by the increase in inflation, cost pressures of wages, business rates, energy consumption and rising product costs, which have squeezed both gross and net margins. 2023 was then further impacted by the exceptional weather conditions, an unpredictable factor that the industry is heavily reliant on. The key to remaining agile as a business, to deflect such threats to profit margin, is to remain ahead of consumer trends and keep a close eye on your target audience, expanding it where possible into new or under represented demographics.
MBS Insights reports consumer spend on clothing and footwear has only increased by around 2% since 2019; however, eating out and food & drink spend has increased by around 23% and 25% respectively. This also reflects the increase in year-on-year catering income within garden centres and supports operator strategies to continue to invest in their catering offering. Despite operators commonly selling externally branded food and drink within their food halls, cafés are preferred to be run in-house to maintain consistency and control over the offering.
Whilst the quality and feel of garden centre restaurants has undoubtedly improved over the last few years, could there be further opportunities available by looking to the trends of other leisure sectors? Holiday parks for example have looked to add further food and beverage offerings through pop-up mobile catering units to supplement their core restaurant and draw in new audiences.
A key factor of garden centres being able to maintain strong sales and customer footfall is the increased diversification of sites. The biggest operators in the market have diversified their risk by continuing to keep concessions presence in their stores.
Cafés are the number one concession that an operator would add in given the opportunity, and can account for as much as 20% of turnover.
The most popular concessions have remained mostly consistent since 2021, with the exception of Dobbies new partnership with Waitrose, taking over the Sainsbury’s food halls in early 2023 – an add on which reflects the growing trend of increased demand for food and drink.
Concessions within the top centres are expected to further increase and diversify in future years, as retailers recognise the benefits from attracting a more aspirational customer base. This also emphasises the notion of garden centres as a retail destination and experiential consumer journey. With some operators reporting sales volumes down up to 20% since pre-Covid, which is unlikely to be wholly due to the economic squeeze, retaining turnover through the sale of experiences and not goods may prove an important future aspect of centres, particularly as the key audience demographic shifts.
In addition to focusing on the store itself, this sector has significant growth potential through online channels. The gardening sector is unique in that the continued growth of the online market proposes a weaker threat to the sector compared to other retailer sub-sectors; but working with search engine optimisation and specialist providers to highlight to internet shoppers when goods are available nearby, in the manner used by large DIY stores, could prove an increased draw to stores. Whilst shoppers who are time rich will visit stores for an experiential visit, without such knowledge, those time poor shoppers who are searching for specific items are more likely to be drawn in. Traditionally this sector has not had to focus on their online ability, but with many groups having skilled up teams and improved their web presence during 2020 – 2021, some further tweaks could reap further reward.
As well as the maintenance of concessions, there is a growing trend of garden centre operators partnering up with other operators in different markets such as veterinary practices, children’s day nurseries and medical centres. The garden centre operators can lease space, usually adjacent to the central building, to these alternative uses, which helps diversify their sites and business models. Alternative uses commonly agree to longer than usual leases and therefore provide the freehold owner with secure, often index-linked, long-term income. The garden centre turnover also benefits from this, as customers of the alternative uses will often pop into the centre or café whilst visiting.
Overall, the maintenance of concessions, alternative uses and a strong food and beverage offering increases the dwell time of customers and can increase spending on site. The operators who provide exceptional offerings will also position themselves as a destination site which will pull consumers from a wider catchment.