Rents and wages are killing food retailers, says franchisor

In a commentary sparked by the recent SumoSalad action to put two of its leasing businesses into voluntary administration, Stan Gordon, managing director of Franchised Food Company, has let rip at the costs he sees threathening retail.

“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?” he asks.

Gordon is clear about the corrective steps required: to attract and keep successful retailers in business, he says, “exorbitant shopping centre rents and staff penalty wages must drop. And landlords should become responsible for their unconscionable behaviour.”

He reveals the Franchised FoodCo has just walked away from a deal requiring base occupancy costs in excess of 50 per cent.

“Retailers are being held for ransom by some shopping centres continuously hiking up rents, with annual increases of 5 per cent. That is almost 3 percentage points above inflation,” says Gordon.

“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?”

Echoing a point made by SumoSalad’s Luke Baylis in the Inside Franchise Business (July/August) magazine article ‘Is the food court dead?’, Gordon says “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.”

Gordon believes retailers and shopping centres should be collaborative.

Another thorn in the side of small business is the recently introduced penalty rate cuts for Sunday workers in retail, hospitality, pharmacy and fast food sectors, he says. With changes not fully implemented until two to three years down the track, depending on the industry, Gordon asks “how many more casualties will we see between now and then?”.

“If (and I underline if) staff are being paid the legislated penalty rates, 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.”

Also swooping in on the rental issue, in early July food franchise Freshii suggested its own brand could be an alternative option for lease-troubled franchisees in other food chains.

  • Want to get a different perspective on the food court issue? The latest edition of Inside Franchise Business features the article ‘Is the food court dead?‘ with comment from franchisors Gavan Meadows at Sushi Sushi, Luke Baylis at SumoSalad, Stan Gordon from Franchised FoodCo, Kate McMahon at Pacific Retail and marketer Monique Grzesiak at Soul Origin as well as retail leasing experts and Tony Tsekouras, general manager for retail leasing at Stockland.