Over this past weekend, I took a trip to the Global Harbor shopping mall in Shanghai. With a total GFA of 320,000 sqm, it became the second largest shopping centre in Shanghai when completed last year. I was curious to see how this massive new mall was performing at a time when there is a booming amount of new retail supply in Shanghai.

My trip helped to reinforce my view on some major trends in retail and F&B:

• Casual dining restaurants are becoming extremely popular. Similar to the “affordable-luxury” phenomenon in fashion, where people want to buy high quality products without splurging on the best-of the-best, mid-to-high-end restaurants targeting meals of around RMB100-200 per person – although expensive – are extremely popular. The more expensive “banquet-style” restaurants in Shanghai, on the other hand, appear to be suffering of late. Growth in the restaurant industry is now going to come mainly from those that cater to the middle and upper-middle classes, just as fast fashion and affordable-luxury retailers have usurped traditional luxury brands as the most active players in fashion.

• High-end restaurants are closing branches to concentrate on smaller and more affordable restaurants. We saw the closure of 14 restaurants with GFA of more than 1,000 sqm in the last year. Many restaurant chains are refocusing their efforts on smaller, more affordable sub-brands, like the very popular The Dining Room brand from high-end chain Shanghai Min. Likewise, Pankoo has closed several of its large locations (1,000sqm+) this quarter but opened a newly-designed 560 sqm location in Global Harbor that seemed very popular.
• New chains are expanding rapidly, but only the cream will rise to the top. Looking around in Global Harbor, I saw some familiar names from back in the U.S. like Pizza Hut, which has branches all over China, and Outback Steakhouse, a more recent arrival. Despite its high price-point, Outback was completely filled with customers, as were most restaurants at a similar price point, such as Simply Thai. One floor below, however, a new Mexican restaurant was nearly empty. If restaurants cannot create an attractive, family-friendly environment and adjust their menus to the local palate, they will not succeed.
• Landlords need to go even further with F&B. Global Harbor was fairly conservative with their allocation to F&B, at around 22% of occupied NLA, roughly in line with the average for non-prime shopping malls. In the future, I think malls in China will have a much higher likelihood of success if they allocate a similar or greater amount of space to F&B offerings. Even though these tenants pay lower rents, the alternative for landlords will be empty malls as customers seek out competing malls for their dinner time excursions. If future malls decide to forego on F&B tenants, it is also hard to renovate later to add more F&B space if the necessary infrastructure is not included in the original design of the mall.
• China is a golden opportunity for chain restaurants. Middle class customers are plentiful, rents are affordable, and there are hundreds of new shopping centre locations to choose from across all of China’s major cities. As people’s incomes grow and they become global travellers, they are becoming more enthusiastic diners as well, and restaurant chains of all types should be able to capitalise on their hunger for more interesting flavours and variety.

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