Friday, December 20, 2002

I am sitting in a branch of Easy Internet Cafe in central London. This is a chain of internet highly functional internet cafes that exist in many of the major tourist cities in Europe, as well as in New York. (They are owned by Stelios Haji-Ioannou, who is also owns the discount airline EasyJet). These are as automated as possible: you buy a ticket for a certain value from a ticket machine, and you then walk up to a PC and type in the number on the ticket. The amount of internet time you get is calculated dynamically. If the store is very busy, you get a shorter time for your money than if the store is empty. (Therefore the system charges higher rates automatically at peak times). These particular internet cafes have for some time had kiosks selling food and drink just inside the doors. Nothing fancy, just coffee, sandwiches, chocolate bars, that kinds of thing.

This week, however, the generic food kiosks have been demolished and very small branches of the Subway sandwich shops are being built in their place. This seems to be something of a trend, in which a chains of stores requiring a large floor area are subleasing parts of their stores to chains of stores (particularly those offering food and drink) requring smaller floor areas. Earlier this year, Borders bookstores in Australia, the UK, and no doubt other places as well, removed their own brand cafes, and replaced them with in store Starbucks outlets. In a slightly more unusual move, the Costa Coffee chain of Starbucks like coffee shops, has opened cafes in most branches of the Abbey National Bank in the UK.

This type of move makes good sense for both parties. The store with the large floorspace (be it a bookstore or internet cafe or bank or whatever) can presumably negotiate a much smaller rent per square meter than can a fast food restaurant or cafe (and a large bookstore may even get a concessional rent from a mall in the hope that it brings customers to other stores). The store can sublet a bit of space for less than the Subway or Starbucks would pay for its own lease, and in doing so the store manages to outsource its cafe or restaurant, and can then concentrate on its core business. The smaller business custom from the customers of the larger business, and if it is positioned near the entrance (or at least if it is well signposted) it can get passing trade as well. The smaller business doesn't have to worry about things like security, as the larger store has already taken care of this.

None of this is new. Department stores have long sold space in the store to the outlets of particular fashion labels and the like. The question is why I am seeing so much of it this year and why the smaller stores, be they Starbucks, Subway, or whatever, are well known brands in their own right.

I think part of this is that the large franchise businesses such as Subway are becoming much cleverer in terms of their ability to use space. The Subway outlets being installed in the internet cafes are really very small, but the necessary counters, ovens and whatever are all there. Subway have learned how to prefabricate the contents of their stores in such a way that they can operate in extemely small and odd shaped locations, if necessary. Starbucks are widely acknowledged to be masters of taking advantage of available space. (McDonald's are good at this, too. The smallest prefabricated McDonald's kitchen and counter (used mainly in mall foodcourts) can really fit into a tiny area also. I think the logistics of lots of businesses are improving, and this is one more type of example.

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