Tony Boyd
June 13, 2017
AFR
The fight between fast food chain SumoSalad and several Westfield shopping centres over lease payments brings into sharp focus the rising tension between tenants and landlords amid rapidly changing consumer shopping habits.
Luke Baylis, the chief executive and co-founder of SumoSalad, on Tuesday took the extraordinary step of putting two of the 20 companies in his group into voluntary administration in order to force several Westfield centres to the negotiating table.
After many failed attempts over the past six months to negotiate cuts in leasing charges Baylis put two companies, Sumo Westfield Leasing Pty Ltd and Sumo Leasing Pty Ltd, into voluntary administration.
These companies hold the leases over about 12 SumoSalad outlets in Westfield shopping centres managed by Scentre Group. SumoSalad has a total of 104 stores and Baylis says the dispute will not affect them trading normally.
Baylis says the dispute was triggered by the decision of the shopping centres to dramatically expand the number of food outlets within shopping centres.
Talks have failed
He says that over the past three years foot traffic in shopping centres has only risen about six per cent but the number of food outlets has tripled or quadrupled. This has affected the profitability of SumoSalad stores.
“Sumo has been working with landlords over the past few months to negotiate more realistic food court leases for our stores, with no success,” Baylis said in a statement. “Regrettably, landlords have opened the door to more and more food businesses in recent times, as well as opening whole new eating areas within the same precinct, which has essentially cannibalised existing tenants.
“One shopping centre went from 34 food outlets to 93 in a three-year period with flat foot traffic growth.
“Our negotiations with landlords have failed to reach an outcome that adequately compensates our franchisees, with landlords now demanding that Sumo and our franchisees collectively pay millions of dollars to surrender the existing shopping centre leases.
“This is an untenable and unfair demand on small business owners, which would send our franchisees in those shopping centres broke.
“Placing the leasing entities into voluntary administration is the only way to protect our franchisees, and we are confident this will help us restructure our leasing entities in a manner that will create more favourable conditions for our franchisees.”
One of the SumoSalad leases affected by Tuesday’s decision is in the Westfield shopping centre at Chatswood on Sydney’s North Shore.
GPT’s similar experience
Baylis said the expansion of the choice of eating venues over the past couple of years had badly affected the SumoSalad outlet in the centre. He says the lease payments must be cut by 30 per cent.
Earlier this year, Scentre Group chief executive Peter Allen said that his company was closely monitoring the rash of new voluntary administrations among retailers. Scentre has avoided exposure to specialty fashion chains that have struggled because of slack consumer demand.
GPT is another shopping centre owner which has experienced difficulties because of companies going into voluntary administration. The collapse of the Top Shop specialty fashion chain impacted upon all the leading shopping centre owners.
The SumoSalad case is different because the overall group remains profitably and continues trading in a range of shopping centres and other outlets including airports.
Baylis said the decision to put two of the 20 companies in the SumoSalad group into voluntary administration was in line with strategic plans by SumoSalad to move stores out of shopping centre food courts into more profitable sites.
SumoSalad is opening franchise outlets in hospitals, airports, service stations and universities. The company has recently entered a partnership with Caltex called Foodiary in Condord in Sydney’s west.
Baylis said SumoSalad had been considering its strategic shift away from shopping centre food courts for some time but it had only become a reality following the trialling of pilot sites.
Follow us: @FinancialReview on Twitter | financialreview on Facebook
Subscribe to our free mailing list and always be the first to receive the latest news and updates.