Savills predicts further cinema sector consolidation
25 September 2007
The UK cinema market will see further consolidation and expansion, with new technology and improving facilities driving growth, according to the latest research from Savills. The report predicts that there is at least one more major deal in the sector, further focusing a market which has 85% of screens controlled by three operators.
Cinemas are still reaping the benefits of the 1980s / 90s development drive, with admissions having risen by an average of 4% pa over the past 20 years. Over 165 million tickets have been bought every year since 2002 and this has impacted on proposed schemes: an estimated 100 cinema developments will be built over the next eight years.
Mat Oakley of Savills’ research team comments: “The cinema sector has seen massive changes in the past two decades, with rising admissions and 66% of customers now from the affluent ABC1 demographic. As the sector grows, the successful cinemas will be the ones that manage to maximise their occupancy with alternative content such as live sporting events and 3D presentations, new technologies and supporting offers such as bars and restaurants.”
Of the three major cinema players, Odeon in particular is looking at the purchase of a smaller competitor – with Apollo the likeliest target – mirroring the acquisitions and mergers in other elements of the leisure sector. London & Regional purchased David Lloyd Leisure for £925 million in 2006 and a further £500 million of transactions have taken place so far this year. A number of OpCo/PropCo deals are expected to take place in the bar and restaurant sectors in the near future.
The report also looked at the probable effects of the newly-introduced smoking ban on bars and restaurants. Anecdotal and empirical evidence from New York, Ireland and Scotland, where similar bans have been introduced in recent times, suggest that any effect will be short-lived and minimal. While it is expected that the ban will hasten the closure of establishments that were already struggling, the average decline in sales in other areas has been a mere 3.3%, with its impact lasting between 18 and 24 months.
Consolidations, acquisitions and disposals are already occurring at a higher rate as the operators jostle for position and identify the locations that will be worst hit by the ban; many of these pubs will be very suitable for residential development, especially those in city fringe areas. After an initial adjustment period, it is expected that pubs will become more approachable and open, attracting back the non-traditional pub-goer: families and the over-65s. Food sales are expected to rise in line with Scotland’s’ experience (15%).
Oakley continues: “The smoking ban will undoubtedly have a short-term effect on the pub and restaurant sector, but the long-term result of this will merely be to sort the wheat from the chaff – the best outlets will continue to thrive while the unpopular ones will fail unless they embrace the change. In 18 months’ time the smoking ban will be seen as a storm in a teacup or ashtray!”
