Franchised Food Company chief Stan Gordon: High rents and wages are killing food retailers

food retailers in a shopping centre

Crazy rents. Relentlessly increasing utilities. Unaffordable penalty wages. How can retailers survive in an environment where their rent and overhead costs far outweigh their profitability?

I am outraged that the rise of rents in some shopping centres have, yet again, seen yet another victim in SumoSalad. This story is becoming all too common — a negative trend we’re seeing affecting businesses far too often. To attract and keep successful retailers in business, exorbitant shopping centre rents and staff penalty wages must drop!

And landlords should become responsible for their unconscionable behaviour. At Franchised Food Company, we have just recently been given an ultimatum to accept base occupancy costs in excess of 50% (when our sector should be a maximum of 18% – 20%). We walked away, resulting in yet another retail outlet closing, and some poor sucker being set up for damnation. Simply put it set the retailer up for failure … and they know it!

Retailers are being held for ransom by some shopping centres continuously hiking up rents, with annual increases of 5%. That is almost three percentage points above inflation. Yes, these shopping centres are often undergoing multi-million dollar upgrades — another reason for the unsustainable increases in rent — but this is only in response to the rise of online shopping. How else do they attract customers through their doors? They’re using food retailers and their unique “non-online” offerings to re-engage and increase visitation. Choice is great, but when more and more food retailers are invited to join a centre’s food precinct, a myriad of problems are created for food vendors.

Shoppers, even when spoiled for choice, are not going to eat at three food outlets during their visit to their local shopping centre! Lifestyle stores may be reaping the benefits, but the food outlets are certainly not. Especially with low cost food options and sky-high rental prices!

Shopping centres are putting too much pressure on retailers with rental prices, and food retailers are suffering. It is so counteractive for the centres themselves. Store turn over costs centres money to source new tenants. If rental prices were reasonable, more food operators could stay in the centres, giving shoppers more options to eat. Retailers and shopping centres should be amicable and work together — not against one another.

Additionally, the Fair Work Commission has recently announced penalty rate cuts for Sunday workers in retail, hospitality, pharmacy and fast food sectors. Roll out started on July 1, but the changes will not be fully implemented until two to three years down the track, depending on the industry. How can these crucial wage cost changes take so long to implement? And how many more casualties will we see between now and then?

If — and I emphasise if — staff are being paid the legislated penalty rates, by just do the simple maths, you will see that the sales don’t cover the wages, let alone the silly rents. The result? The absolute plethora of reported underpayment of staff. And the outcome is more people not working; more people on welfare; more taxes needed to cover this; more loss of self-dignity; and the final result? I don’t know.

You only need to look at general businesses to realise that something needs to be done now to ensure retailers survive.

Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on TwitterFacebookLinkedIn and Instagram.


Notify of
1 Comment
Newest Most Voted
Inline Feedbacks
View all comments
Scott Ferguson
4 years ago

Stan, before you start dictating to Landlords what their rents should be as a function of sales, how about you disclose your own charges? In my experience franchisors are the ones being unscrupulous towards mum-and-dad retailers, often charging them hundreds of thousands of dollars to buy a licence, hundreds of thousands in compulsory fitout costs, taking 10% of gross sales, charging exhorbitant “marketing/consulting/software” fees, and forcing their franchisees to source ALL supplies from their office – which they onsell at significant profit margins.

When the franchise suffers, their idea of assistance is “go in to bat” to argue with the Landlord for rent abatement – but will not consider any possibility of a reduction in their own fees.

But of course it’s much eaiser to blame the Landlord.