UK rail station caterers 'charging 10% premium' for food - ORR

Britain's railway station catering market is uncompetitive, stifling investment in stations and forcing passengers to at least 10% more for their sausage rolls and coffees, the industry regulator said on Tuesday.

The Office of Rail and Road (ORR) report found that outlets can stay in the same hands for extended periods because their leases are protected, adding that station operators "are not sufficiently incentivised to invite competition for outlets" in a market worth £700m a year.

Most railway station catering space is leased to London-listed SSP Group which owns the Upper Crust, Ritazza and the Camden Food Co, while it also operates franchises for Burger King, Greggs, Starbucks and M&S Food.

SSP was found to own 20-30% of all outlets, bringing in 30-40% of all rents paid by station catering companies with a 40-50% share of all passenger spending.

Its share of all outlets is larger than that of the next six largest players combined. Costa Coffee and WH Smith are the next largest players, the ORR report said, with one competitor saying SSP's position was "verging on monopoly in many locations".

"This is a uniquely British problem – to [our] knowledge there is no equivalent situation, where one dominant competitor controls food and beverage in any other railway station market within Europe," the unnamed company told the ORR in its submission.

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.

"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," the ORR said.

This "natural barrier to head-to-head competition" meant that customers paid a 10% price premium at stations compared to the high street.

The ORR added that 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.

The investigation would now focus on what recommendations should be made to government, station operators, funders and other stakeholders to improve the functioning of the market.

"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," said Will Godfrey the regulator's director of economics, finance and markets.

"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."

It's investigation looked at 2,367 railway stations including all the mainline stations operated by Network Rail and train operators funded by the UK and Scottish governments.

Reporting by Frank Prenesti for Sharecast.com