SumoSalad’s founder says the game has significantly changed since the healthy food franchise network signed a range of current shopping centre leases, prompting the company to put two leasing entities in voluntary administration as negotiations with landlords over rental terms heat up.
On Tuesday, administrators at were appointed to two companies relating to the lease agreements of SumoSalad stores at Westfield shopping centres.
Chief executive Luke Baylis says 12 to 14 franchises are affected by the decision, but the outlets will continue to trade as normal while administrators renegotiate rental terms with the landlord.
“We want to work amicably with landlords,” he tells SmartCompany.
However, if no resolution is found, Baylis warns “we want to be able to repudiate the leases and exit the sites”. SumoSalad currently operates 104 sites across the country, all of which are trading as usual.
Last month, Baylis told SmartCompany the franchise network was looking to move away from shopping centre sites, citing the difficulties caused by changes in strategy at big malls that have resulted in an over saturation of food options.
This morning he explained the decision to place the leasing entities in voluntary administration comes down to the fact circumstances have significantly changed since the lease agreements were signed.
“What we’re saying is there has been such a major change in strategy in the shopping centres,” he says.
Weak retail sales have seen big landlords pivot towards food as a strategy to secure food traffic, but Baylis believes this has been done without proper planning.
“I think everyone’s aware that fashion and department stores are under distress,” he says.
“You’re seeing the shopping centres’ main strategy has been food, but there are consequences to that when appropriate sustainability studies haven’t been conducted.
“If you look at how a consumer behaves, a consumer will go to a shopping centre to eat, but they’ll only eat one meal. In a fashion spend, it’s a very different type of purchase — you might go to three or four or five retailers.”
Baylis says despite tough retail conditions, he believes big shopping centre formats are here to stay, but says large landlords need to “be careful” to ensure their terms let smaller tenants stay afloat.
“If the do that well, then everyone can survive,” he says.
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Owner of Westfield, ASX-listed Scentre Group, has told Fairfax it works closely with retail partners to resolve trading issues. SmartCompany contacted Scentre Group for further comment but did not receive a response prior to publication.
SMEs have “learned the hard way” about shopping centres
Tensions between small businesses and franchise owners are nothing new, with many business owners previously speaking out about the power imbalances often present in at-times confusing rental negotiations. Others have been locked out of their stores when rent disputes turn sour.
Council of Small Business Australia chief executive Peter Strong says while he had hoped communication between big centres and small businesses had been improving over the past couple of years, he still has one piece of advice for optimistic small business owners wanting to bag space in shopping centres: don’t.
“We always say if you’re going to move into a mall, think about it and then don’t. Independent people have learned the hard way,” Strong says.
Part of the challenge lies in the fact that big entities have entire teams dedicated to negotiating rental agreements, while SME owners tend to come to these conversations while juggling other tasks.
“The first time you go into business, it’s often people going into franchises, you’re excited, you’re trusting. But what usually happens with these [contracts] is a special negotiation team will come from head office, [and] their only job is to negotiate a lease,” Strong says.
Strong says business owners would benefit from a bit more cynicism, because too often enthusiasm gets in the way of negotiating an agreement that is actually fair to the small business.
“People get so excited, you think, ‘oh, I’ll be fine’,” he says.
Commercial lease terms at shopping centres are also tricky to negotiate or change at the moment due to the tough broader conditions in the retail, says Strong.
“The landlords have retail monopolies and too often they’ve acted like that, but at the moment the big landlords are also struggling,” he says.