Ikea has all the ingredients for successful stand-alone restaurants

Ikea could open stand-alone restaurants, with the concept mentioned by Michael La Cour, Ikea Food’s managing director, in an interview with Fast Company.

Ikea would have advantages in this space through its recognized brand, iconic meatball dish, existing supply chain, and ability to tap into the current fashion for Scandinavian lifestyle and design.

However the city centre locations and high costs of running stand-alone restaurants would be a departure from Ikea’s current business practice of focusing on large, low-rent, out-of-town locations. Profitability expectations would need to be adjusted against the increased costs of running a stand-alone restaurant, as opposed to being solely a big box retailer.

Historically, the performance of retailer-run restaurant chains has been mixed. For example, British retailer Tesco bought the Giraffe restaurant chain for £49m in 2013. Tesco sold the chain three years later after poor results and in an attempt to refocus on its retail operations.

However Ikea has all the ingredients for success. It has an iconic, traffic-driving dish. It has an established consumer base; according to La Cour, 30% of Ikea Food’s customers visit stores just to eat. It has learnt from its pop-up restaurants in London, Oslo, and Paris. And it has experience in foodservice provision; rather than starting from scratch, Ikea has an existing supply chain it can ramp up to meet the increased demand.

The recent popularity of the Danish concept of Hygge also shows how Scandinavian design and lifestyle is fashionable. Ikea restaurants could offer a unique design ethos centred on minimalism, comfort, and natural design motifs.

The need to open small, city-centre locations would mean operating costs would be higher than those incurred under Ikea’s current business model, which focuses on out-of-town retail park locations. Prices might therefore be higher in the standalone restaurants, with the potential to limit demand and generate negative publicity for the restaurant launch.

Restaurants could also distract from the company’s retail operations, which have recorded strong growth and continue to expand internationally. This has been a stumbling block for retailers in foodservice in the past, but one Ikea should be able to overcome with its existing corporate know-how in the foodservice industry.

For more strategic insight into leading foodservice companies, take a look at GlobalData’s latest reports.