Article

Garden Centres: where the opportunity lies in Operational Real Estate

June 28, 2023 4 Minute Read

By Alice Marwick Alfie Stephenson

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Garden centres fared well compared to other retail sectors during the COVID-19 pandemic, partly because they were one of the first non-essential retail sectors to reopen. But it also reflected a surge in new green-finger enthusiasts, who were taking delight in growing their own vegetables in the back garden and customers were spending 35% more on gardening products. However, as lockdown restrictions ended and people rediscovered their pre-pandemic hobbies, has momentum for garden centres faded? Or are garden centres the next investment trend for the Operational Real Estate market?

The operator environment

Following the COVID-19 boom, 2022 was another significant year for garden centre operators which has carried into 2023 with much activity including new openings, partnerships, significant CapEx deployment and strategic M&A. For example, Dobbies Garden Centres formed a partnership with Waitrose, offering 2,000 Waitrose products in over 50 centres across the UK. Meanwhile, Blue Diamond focussed their efforts on strategic M&A, acquiring Van Hage in November and a further two independent stores in 2023, to seal their reputation as the UK’s largest operator in terms of turnover.

Despite the current economic climate, operators have been investing and upgrading their existing spaces, and expanding products and services offered to appeal to an array of demographics. Garden centres are no longer solely reliant on selling plants and horticultural supplies, but have diversified to more than 50% of their revenue being derived from non-seasonal sources such as homeware, food halls, children’s play areas and restaurants, with the aim to increase footfall, dwell time and spend per head. Typically, the target demographic are baby boomers who are money and time-rich, however with garden centres expanding their on-site social spaces, they have also been targeting young families.

Rising wage and utility costs have been impacting margins, and while turnover has generally been rising, many operators attribute revenue growth to phenomenal Food and Beverage and restaurant trade. With horticultural and gardening sales having declined since COVID-19, restaurant and food sales have been pivotal in maintaining EBITDA. Nevertheless, operators have reported an uptick in trading and 2023 profit levels are forecast to surpass the 2019 pre-COVID benchmark year, highlighting the positive fundamentals for the sector.

The garden centres market remains highly fragmented, with an estimated 85% of garden centres still owned by independent or family operators. As a result, opportunities lie for further market consolidation and continued expansion of larger chains which benefit from economies of scale and better financing.

The investment environment

Overall, the UK garden centres market is one that has proven resilience in recessionary environments. Investment sentiment amongst green-fingered investors remains high, owing to healthy operational performance, strong tenant covenants and reliable long income, which is an incentive for investors looking to enter the market.

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