One of Australia’s largest health-focused fast food chains says poor trading conditions and shopping centres’ approach to food retail are having a “cannibalisation” effect and that has led to its decision to ditch food courts and search for other retail sites.
A strategic pivot from salad chain SumoSalad will see the retailer establish new stores in locations such as hospitals, universities, and transport hubs in an effort to find locations more “in line” with the brand.
SumoSalad chief executive officer Luke Baylis told SmartCompany the business has “put a freeze” on its food court sites, hoping to expand into new locations and also put more focus on home and office deliveries.
When the business started in 2003, Baylis said the mix of food other retailers in shopping centres sat around 14% food retailers to 86% other retail offerings. Today, he says shopping centres are aiming for a 50-50 split, leading to a “significant increase” in competition.
“We’ve seen a lack of control in these trading environments which leads to shopping centres putting direct competition right in front of you,” Baylis says.
“It’s making it increasingly difficult to differentiate yourself, and is creating a large cannibalisation effect in that trade environment.”
Currently SumoSalad has 108 retail locations across Australia, but the move out of food courts will see 10 stores close. Baylis says this was a “very difficult” decision, but believes his business had to be on the front foot to reposition franchisees.
Additionally, “intentionally or otherwise”, Baylis believes traffic to food courts has been affected by a rise in “upmarket food precincts”.
“Shoppers have moved away from the more traditional eating destinations in food courts and are moving into malls, which means food court traffic is significantly down,” he says.
“It’s too volatile for us to expand in that market, so we’re looking for growth in other channels.”
Business currently too “food court centric”
The retailer has successfully trialled new locations at two hospital sites and two universities, as well as planning to set up shop at some terminals at Sydney and Melbourne airports, along with a site at Monash University.
“We’re looking to increase number of stores by about seven percent over 2017, and we’re showing good growth in the core of the business. We need to establish physical presence in new locations though, as the business is too food court-centric at the moment,” he says.
Baylis hasn’t ruled out heading back to shopping centres and food courts in the future, as long as the conditions improve.
“At the moment need to be prudent to wait to things to stabilise in that trade environment,” he says.
“If it does become more viable, with a significant correction in occupancy costs, then we would look at the area again.”
Chief executive of Retail Doctor Group Brian Walker also believes food courts are problematic, telling SmartCompany many retailers in food courts are “not in control of their own destiny”.
“The landlords are in control. Retailers can be moved around at will, and competitors can establish themselves without warning,” he says.
“Ultimately the decision by SumoSalad is about controlling the destiny of the business and diversifying their distribution model, whilst also spreading risk.”
“Businesses need to adapt to their environments and evolve.”