REG - Office of Rail&Road SSP Holdings PLC WH Smith PLC - More competition needed in rail station catering

WH SmithAnnouncement

12/12/2023 07:00

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RNS Number : 3944W  Office of Rail and Road  12 December 2023

Rail Regulator calls for greater competition in railway station catering

More competitive market would give better value for passengers, taxpayers and
station operators.

The Office of Rail and Road (ORR) has found that the railway station catering
market is not working as effectively as it should be. Greater competition in
this market would drive better value for passengers and for taxpayers.

ORR is investigating this sector because it believes that a more competitive
market would provide better options for passengers and allow station operators
to increase investment in the railway. The regulator's report finds that
outlets can stay in the same hands for extended periods because their leases
are protected. Those who run stations are not sufficiently incentivised to
invite competition for outlets. Even when unprotected leases come up for
renewal, the most common practice is to roll over or extend the lease without
an open competition. Competition for outlets is a crucial factor across the
market, because nearly half of all stations (47%) with retail space have just
one outlet.

These weaknesses in the station catering market also mean that station
operators may have less income to invest in improving stations and services,
increasing the need for taxpayer support.

ORR's report finds that the features of the railway station catering market
may also contribute to an average 10% price premium at stations compared to
the high street.

ORR's investigation is continuing, and the next stage will focus on what
recommendations should be made to government, station operators, funders and
other stakeholders to improve the functioning of the market.

Will Godfrey, Director, Economics, Finance and Markets, said: "The railway
station catering market isn't working as effectively as it should be. More
competition between companies to operate at stations would bring real benefits
to passengers and taxpayers.

"Because money earned from leases at stations ultimately makes its way back to
those who operate railway stations and infrastructure, this is money that
could be invested in improving services for passengers or reducing the need
for taxpayer support.

"We will now work with the industry on the best way forward and will make
recommendations on how the market needs to change, with the ultimate goal of
improving value and outcomes for customers and funders of the railway."

 

Notes to editor

1.    Railway station catering market study | Office of Rail and Road
(orr.gov.uk) (https://www.orr.gov.uk/railway-station-catering-market-study)
Station catering retailers earned total revenue of around £700m in 2022/23.
Station operators (Network Rail and train operators combined) earned a little
over £100m in rental income from leasing outlets for catering services in
2022/23.

2.    In total 2,367 railway stations fell within the scope of the ORR's
study. This includes all the mainline stations operated by Network Rail and
train operators funded by the UK and Scottish governments.

3.    Of the approximately 20% of stations which have catering offered,
almost half (47%) have only one outlet. This large number of single-outlet
stations acts as a natural barrier to head-to-head competition at stations.

4.    Protected leases: 24% of station outlets are currently covered by
'protected' leases formed under Part II of the Landlord and Tenant Act 1954.
Such leases provide an automatic renewal on similar lease terms (subject to
rent reviews). There are grounds of opposition for the landlord (usually the
station operator) to terminate protected leases, but in practice they are
difficult to apply.

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