THE BACKGROUND
Once the preserve of hardened gamblers, betting shops have had to transform themselves from the dark and dingy haunt of mainly old men to bright, high-tech establishments capable of attracting a wider audience and promoting betting as a legitimate leisure activity. The revamp, fuelled by the need to compete with digital gambling services, is having an impact: revenue rose from 拢10bn in 2002 to 拢31bn in 2006. The challenge is to continue bringing in more revenue and widen the customer base - an aim that could be helped by the lifting of ad restrictions.
The opportunities for punters looking to part with their cash in exchange for the thrill of a bet and the possibility of a win have never been greater. The changes that have taken place in this industry in recent years have shifted betting from a shady pastime, associated with older men in smoke-filled shops, to a mainstream leisure activity attracting a broader spectrum of adults.
The high street bookies have long been the public face of betting, but they are no longer dimly lit, smoked glass-fronted shops, forbidding to all but the hardened gambler. In their place, high-tech, colourful, plasma-screen-filled premises have sprung up to welcome in the hesitant.
This face-lift has not been a vanity project. Betting shops face a number of challenges and the transformation is intended to bring in more revenue and convince a wider audience that betting is a legitimate activity. The shops need to broaden their customer base and increase spend per head as competition mounts from online and mobile and the high-street market becomes increasingly saturated. On top of tough market conditions, betting shops also have to tread a delicate expansion path to avoid being slammed by the anti-gambling lobby.
The modernisation of betting shops has had an impact. Licensed betting shops generated more than 拢31bn in 2006, up from about 拢10bn in 2002, according to Mintel. A significant revenue source has come from fixed-odds betting terminals (FOBTs). Last year, there was estimated to be 24,600 machines in UK betting shops, with an average annual expenditure of 拢25,000 per machine.
But while the changes in the shops have helped to boost revenue, not everyone is convinced. Only 9% of adults think betting shops now have a friendlier atmosphere and 27% (mostly women) still wouldn't feel comfortable going into one, according to research by GfK NOP. About one adult in five visits betting shops, with the majority being men. The most frequent users tend to be from lower socio-economic groups.
But the diversity of channels via which people can now place a bet is shaking up the market. Online gambling has become an easy and, for many, less intimidating way to bet. Although smaller, telephone and TV channel options offer a similarly immediate method of playing.
Tougher market conditions have taken their toll on the smaller independent shops, with consolidation rife. As a result, the top three players - William Hill, Ladbrokes and Coral Eurobet - accounted for two-thirds of all betting shops by the end of 2006. Independent share dropped to just over 19%.
Brand loyalty is rare in this sector: most punters visit their nearest shop. Consequently, high penetration is important for the chains. However, there has been some backlash against the number of outlets clogging up the high street and this is amid the general concern about faceless high streets being filled with the same chains at the expense of original independent stores.
William Hill is the biggest operator since acquiring Stanley Leisure in March 2006 for 拢504m. This added 624 shops to William Hill's estate, and bolstered its presence in the North West, where the firm's shops had been thin on the ground. The company has recognised the importance of an online presence and in August redesigned its website, adding a BetLive portal. Up to 30% of its revenues now come from its online business. It also set up a mobile betting site this year.
Ladbrokes has more than 2600 outlets and has embarked on an ambitious extension plan. In 2005, it added Welsh operator Jack Brown's shops to its portfolio, and is focused on expanding its operation in Europe and Asia. The company offers people a single account that they can use for betting via all platforms.
September this year saw advertising restrictions lifted from betting shops as part of the implementation of the Gambling Act 2005. But since Gordon Brown became prime minister in June the sector has seen government support diminish, with indications that the initial plans to allow advertising might be overturned. The industry instead agreed on a voluntary code that would restrict advertising until after the 9pm watershed.
'We have agreed an industry code that promotes the gambleaware.co.uk website and limits when ads can be shown, says Russ Phillips, deputy chief executive of the Association of British Bookmakers. It is early days, but we suspect that bookmakers are not rushing to advertise on TV - it's expensive. Ladbrokes has been running an ad campaign that has been very responsible. This may come as a surprise to some, but not to those who have made a study of bookmakers over the years.'
A shift in the perception of what's worth a bet has also been good news for the sector. Many punters, especially the occasional ones, are as likely to have a flutter on who will be evicted from Big Brother as the winner of the Grand National. But betting shops still need to encourage people to spend more time in them. If they can increase the dwell time, revenues are also likely to rise.
The market is expected to reach 拢36.3bn in value by 2012, according to Mintel. This is a rise of 8% from 2007's values, although when inflation is taken into consideration, it means an 8% drop. Events such as Euro 2008 and the Beijing Olympics will provide boosts to the sector, as well as longer opening hours for the shops.
LEADING BOOKMAKERS BY NUMBER OF OUTLETS
2006 2002 02-06
Number % Number % % chng
1 William Hill 2165 24.9 1540 17.9 40.6
2 Ladbrokes 2141 24.6 1825 21.2 17.3
3 Coral Eurobet 1500 17.2 865 10.1 73.4
4 Betfred 670 7.7 n/a n/a n/a
5 Tote 540 6.2 340 4.0 58.8
6 Stanley * n/a 635 7.4 n/a
Others 1684 19.3 3395 39.5 -50.4
Total 8700 100 8600 100 1.2
Source: Mintel
*Incorporated into William Hill
NOTE: Number of outlets at year end
UK GAMBLING STAKES BY KEY SECTOR
2006 2002 02-06
pounds m % pounds m % % chng
1 Betting** 44,438 67 10,123 34 339.0
2 Football pools 90 * 144 * -37.5
3 Casinos 4231 6 3582 12 18.1
4 Gaming machines 10,300 16 10,340 34 -0.4
5 Bingo 1826 3 1164 4 56.9
6 National Lottery 5009 8 4833 16 3.6
Total 65,894 100 30,186 100 118.3
Source: HM Revenue & Customs/Gambling Commission/Mintel
*less than 1%
** Off-course betting only. Includes betting shops, online, mobile.
NOTE year ending March of that year
BETTING PLATFORM USED BY TYPE
2006 2004 04-06
% % % chng
1 Bookmakers - high street 74.3 74.9 -0.6
2 Bookmakers - on-course 12.9 12.0 0.9
3 Bookmakers - telephone 4.9 2.7 2.2
4 Bookmakers - internet 12.3 9.2 3.1
5 Tote 8.1 9.5 -1.4
6 Betting exchange 2.1 2.7 -0.6
Source: GB TGI, BMRB Q2 2005-07/Mintel
Base: Adults aged 18+ who have used bookmakers or betting exchange in
the past 12 months. From TGI survey of about 25,000 adults
ANALYST COMMENT - ANNE BENOIST, ASSOCIATE DIRECTOR, ENLIGHTENMENT
Over the past five years, betting shops have suffered from a triple-whammy effect that has radically altered their business mix and market dynamics. First, internet betting opened up the possibility of real choice in the market based on value. Previously, punters would simply use the 'local' shop of choice. Then, facilitated by odds-comparison sites, choice suddenly jumped from three or four shops to some 20 bookies, all fighting for a share of the same market.
The second factor is online exchanges such as Betfair, which now offer any punter the ability to lay bets, thus increasing competition. Finally, the smoking ban is having an effect on time spent in betting shops, if slightly less on footfall.
TGI data shows that the big three are just holding share; however, the change in mix is having its effect. Internet betting now accounts for 17% of more than once-a-month punters (up from 12% in 2006) and is attracting an affluent customer more likely to be inclined to bet on football or golf - a further move away from the dogs and horses of the old-school gambler and bookmaker. Meanwhile, the highly profitably FOBTs offering games such as virtual roulette are likely to further change the profile of the betting shop visitor.
With such differentiation now in the market, and with the ability to develop niche offerings becoming increasingly apparent, brands can finally perform a genuine function. Betting shops have to reach out to new customers and provide an exciting experience with quality racing content, variety and comfort. Ladbrokes has been the first to exploit this opportunity and others will follow, accelerating the dynamism of this once staid sector.