Hospitality and retail are often paired together for purposes of statistical analysis. They’re both part of the service industry, and they have similar internal cultures. Although retail is earning a larger annual profit than the hospitality industry, hospitality is growing at a faster rate.

The June 2017 Retail Trade Survey from Stats NZ showed that the food and beverage industry had the largest increase in the series, up 4.2 percent, while retail sales only rose 2.0 percent.

Looking between the two, the total value of retail sales rose 1.6 percent ($351 million), while the food and beverage services industry rose 4.6 percent ($117 million). While food and beverage is rising off a smaller base, it’s growing much faster than retail.

The rise of mixed-use spaces has seen substantial growth as retailers look to hospitality to revamp their own consumer experience.

Besides the obvious differences of one focusing on dining experiences and the other on product retail, the two sectors are depending more on the other as consumers turn to demand a cohesive experience from each rather than just standard separate services.

According to a 2016 study by Nielsen titled, What’s in our food and on our mind: Ingredient and dining-out trends around the world, eating out isn’t just for special occasions; it’s a way of life for nearly half of global respondents (48 percent), who say they eat at restaurants or other out-of-home dining establishments weekly or more.

But dining out may not always be about the experience of sitting and enjoying a meal. Stats NZ’s study showed that ready-to-go meals rose in popularity by 48.7 percent from 2013-2016, while the Nielsen study also shows quick-service and casual-dining restaurants are the most popular types of out-of-home dining establishments frequented in every region.

Vicki Lee, chief executive of Hospitality New Zealand, offers insight into why these two different sectors are working together to enhance both experience and profit. 

“We are seeing more and more mixed-use developments being built and with this comes the need for multiple types of businesses and people to co-exist,” she says. “As more of these developments come to fruition, the more retail and hospitality will morph together. Done well, it can be a great combination and can often become a real community hub for the people working, living and staying there.”

Lee credits the rise of online shopping with the change in consumer habits, saying the prevalence of ecommerce may hinder retailers’ ability to catch shoppers’ attention.

“Online shopping has likely had an impact on a retailer’s ability to attract people into their stores and no doubt they will be looking at ways to revitalise the shopping experience. A hospitality offering might be what they need to get people in the door or even in the precinct where the retailers are located, it’s about creating a destination or a hub of activity that people want to come to.”

Mixed-use destination spaces are trending as retailers strive to compete with ecommerce by filling the consumer’s every need. But do these hubs increase profit or just add foot traffic? Lee suggests the mixed-use model probably does increase retail spend.

“It probably gets people to stay longer in an area,” she says. “Malls with traditional food courts might be slightly different if the food courts act more as a space for young people to congregate and hang out, rather than being there for the purpose of eating and drinking. In that instance increased foot traffic rather than customers might be the scenario. But you have to remember, one day these teenagers are going to become the coffee-drinking, lunching and shopping customers you want to attract – we all have to start somewhere.”

Lee says the rise of these mix-use spaces could have been thanks to both a growth in tourism, which has boosted hospitality, and a growing obsession with eateries.

She acknowledges the importance of a retailer using hospitality to enhance the current retail model, rather than focusing on one or the other.

“The trick for the operator is being able to deliver both those aspects of their business model.  Done well, this could well increase customer spend.”

Running a business that incorporates hospitality and retail in the one space, according to Lee, is not always an easy feat as retailers, those in the hospitality industry and consumers all have different opinions on how these businesses should operate and what they should offer.

“Mixed-use spaces can take a bit of managing as people are trying to use them for different things, while still trying to be complementary to each other. A café located within a clothes store can be problematic, as people may think that gives them permission to walk around the shop with a takeaway coffee in hand. If that’s OK, then make sure you tell the customer and likewise make sure you manage it if it’s not.”

Incorporating a hospitality offering unfortunately isn’t as easy as throwing a coffee store into every retail outlet. Lee stresses that a hospitality product must be right for its area.

“Being close to a retail precinct certainly helps bring customers through the door… But you want to be sure that the hospitality businesses in your area suit your retail offering and are open at similar times to you. If you are predominantly a daytime and weekend retailer make sure there are cafes and restaurants in your area who are keen to re-caffeinate and re-fuel your shoppers.”

In the last 10-15 years, Lee says, there has been a massive resurgence in consumer interest in food, whether cooking at home or dining out.

“Eating out is no longer something you do on a special occasion and people are eating out more and more often. With this comes the desire for inexpensive but delicious, quick food.”

This story first appeared at The Register.