Inside Franchise Business - - Contents -

It has been the stal­wart of shop­ping cen­tres for years, but times are chang­ing.

Early this year, fast-food fran­chisor, founder and CEO Luke Baylis an­nounced SumoSalad’s in­ten­tion to steer its net­work growth away from the shop­ping­cen­tre food court - a move that has be­mused re­tail an­a­lyst Fran­cis Loughran, given the fran­chise chain’s suc­cess in this for­mat.

It has been the stal­wart of shop­ping cen­tres for years, but times are chang­ing. Are new food-and-bev­er­age con­cepts set­ting a new path? Sarah Stowe re­ports.

So what is go­ing on? Is Baylis the van­guard of a new move­ment, or is this merely a high-pro­file in­stance of a change in strat­egy?

Re­tail is un­doubt­edly in a state of flux right now. The well-doc­u­mented rise of on­line shop­ping and a trend for cus­tomi­sa­tion are chang­ing re­tail dy­nam­ics. The alarm bells have been rung ex­tra loud over Ama­zon’s plans for an Aus­tralian bricks-and-mor­tar pres­ence. Fash­ion re­tail­ers have been head­line news for all the wrong rea­sons as they strug­gle to achieve vi­a­bil­ity in to­day’s mar­ket.

Where does this leave fast food and fran­chis­ing?

The hun­gry con­sumer has plenty of choice - in fact, there is in­creased com­pe­ti­tion with cen­tres dou­bling or in some cases tripling the num­ber of out­lets in food courts. But the broad­en­ing of the food of­fer does not nec­es­sar­ily equate to ex­tra busi­ness.

“In fash­ion spend you’ll buy four or five dif­fer­ent items from dif­fer­ent ven­dors; in food, you eat just one meal. In a fash­ion­based mall, dif­fer­ent re­tail­ers get more of the wal­let share but this doesn’t ap­ply to food,” says Baylis.


So while fash­ion re­tail­ers are scrap­ping for dol­lars to be spent in-store and not on­line, food re­tail­ers are seek­ing a com­pet­i­tive edge in a space over­flow­ing with brands.

“A lot of new as­pir­ing brands are open­ing in ar­eas away from food courts, and this is driv­ing traf­fic to dif­fer­ent precincts,” Baylis says.

Shop­ping cen­tres may now house a food court, a ca­sual­din­ing precinct, a mar­ket­place and a fresh food of­fer.

“Traf­fic growth is be­ing can­ni­balised. It is not draw­ing in new cus­tomers,” Baylis says. “The food court is no longer the cool spot.”

But other brands be­lieve in the model. Soul Ori­gin, a rel­a­tive new­comer to the fast-food scene, has been ex­pand­ing across the coun­try at a rapid rate. Con­ve­nient, healthy fast-food op­tions are well served in a food court en­vi­ron­ment, and the brand is com­mit­ted to the for­mat, says mar­ket­ing man­ager Monique Grze­siak. She does ad­mit, how­ever, that the com­pany may max­imise ac­cess to din­ing dol­lars by open­ing two sites in one cen­tre.

“The main driv­ing fac­tor will al­ways be that peo­ple are crea­tures of habit.”

Barry Bar­ber at Banro Re­tail Group points out that chang­ing con­sumer trends need a dif­fer­ent ap­proach.

“Group­ing all food op­tions in one lo­ca­tion in a food court makes sense from a de­sign and con­struc­tion per­spec­tive, but this is not nec­es­sar­ily how ev­ery­one wants to eat when they are vis­it­ing a shop­ping cen­tre,” he says.

But Grze­si­aka says land­lords are now in­vest­ing in im­proved ameni­ties and cus­tomer experiences “to en­tice peo­ple to stick to their tra­di­tional shop­ping habits”.


“One of the big­gest chal­lenges is of­fer­ing con­sumers a va­ri­ety of food of­fer­ings with­out im­pact­ing on the key driv­ers of this model, speed of ser­vice and con­ve­nience,” she says,

“The food-court mar­ket is highly com­pet­i­tive, which we see driv­ing busi­nesses away. There is a trend to­ward ca­sual din­ing, trans­form­ing food courts to be res­tau­rant fo­cussed. Other fac­tors are the in­creas­ing rents and re­duced foot traf­fic in shop­ping cen­tres be­cause of on­line shop­ping.”

The re­stric­tions of the food court’s trad­ing hours also limit rev­enue op­por­tu­ni­ties, gen­er­ally al­low­ing for only lunch.

Step up ca­sual din­ing - one of the buzz­words in food re­tail - whether it be break­fast, lunch or din­ner. The evolv­ing din­ing precinct that of­fers con­sumers a more re­laxed al­ter­na­tive to eat­ing out, one that is des­ti­na­tion-driven, has been the shop­ping-cen­tre ap­proach to keep­ing con­sumers on-site.

Stock­land GM for re­tail leas­ing Tony Tsek­ouras says the $228 mil­lion re­de­vel­op­ment of the Stock­land Wether­ill Park cen­tre in Sydney ex­em­pli­fies a cus­tomer ex­pe­ri­ence de­fined by fresh food and fast-ca­sual din­ing.

“We dou­bled our fresh-food and ca­sual­din­ing of­fer­ing through­out the cen­tre with more than 21 per cent of the re­tail mix fo­cussed on food, in­clud­ing Grill’d, Nan­dos, Rashay’s Pizza Pasta and Grill, and San Churro,” he ex­plains.

“There are two dis­tinct food precincts - Kinchin Lane, a mod­ern twist on laneway-style street-food ven­dors, and a new 800-seat in­door/out­door ca­sual­din­ing precinct, The Grove. This fea­tures 14 restau­rants, cafes and food out­lets in­clud­ing Fogo Brazil­lia, Le Wrap, Mashita Sushi, Soul Ori­gin, Sub­way and Top Juice.”


In Western Aus­tralia, the Per­ron Group’s Bel­mont Fo­rum opened its al­fresco din­ing precinct with five out­lets: Guzman Y Gomez, Nando’s, Sch­nitz and t wo in­de­pen­dents.

“The din­ing precinct ex­tends the tra­di­tional trad­ing times and stim­u­lates an ex­tended night-time econ­omy,” says Per­ron Group CEO Ross Robert­son. “Our ex­pe­ri­ence de­vel­op­ing din­ing precincts demon­strates these changes flow through and ben­e­fit all re­tail­ers within the cen­tre.

“Cus­tomers now ex­pect shop­ping cen­tres to be a lifestyle des­ti­na­tion and of­fer more than just tra­di­tional shop­ping. Shop­ping cen­tres are be­com­ing hubs for the com­mu­nity and must of­fer a va­ri­ety of experiences.”

Con­sumers need an oa­sis, says Ga­van Mead­ows, Sushi Sushi GM - fran­chise sales and mar­ket­ing. “They want qual­ity. They couldn’t care less about who owns the busi­ness.”

Cus­tomers want value for money and con­ve­nience.

In its Mar­ketView re­port, com­mer­cial real-es­tate busi­ness CBRE high­lights the grow­ing em­pha­sis on pro­vid­ing a re­tail of­fer­ing that ex­ceeds cus­tomer ex­pec­ta­tions.


CBRE Aus­tralian head of re­tail leas­ing Leif Ol­son says in­no­va­tion is key in win­ning the war for con­sumer wal­lets. “Con­sumers, par­tic­u­larly mil­len­ni­als, are seek­ing more than just a means to an end, they are look­ing to malls and re­tail out­lets that of­fer an ex­pe­ri­ence.”

Baylis can also see the pos­i­tives in the tra­di­tional site so is not re­ject­ing out­right the shop­ping-cen­tre model.

“We be­lieve the cen­tre en­vi­ron­ment is

vi­able if you’re in the right ar­eas, and that won’t change for a decade. Food courts are vi­able for two to three years.

“If in four or five years’ time food courts are re­vived, then ca­sual din­ing will suf­fer, and traf­fic will be shuf­fled left to right.

“Ca­sual din­ing is trad­ing in­cred­i­bly well, but if you ex­clude this growth, the rest of food is in se­vere de­cline.”

He is de­ter­mined to wait it out to see how much food re­tail re­mains sus­tain­able in a mall.

For fran­chisees stuck in a long lease, there is no op­tion other than to sit out the term, but where pos­si­ble, Baylis is look­ing for al­ter­na­tives.


What is tak­ing cen­tre stage in SumoSalad’s devel­op­ment is petrol con­ve­nience. The busi­ness is one of sev­eral ex­ter­nal brands to part­ner with Cal­tex for its lat­est ini­tia­tive, a re-imag­in­ing of the petrol re­tail store.

In­tro­duced at Con­cord in Sydney’s in­ner west, the new en­vi­ron­ment gives con­sumers the chance to grab a healthy fast meal, take a cof­fee break or buy snack­able fresh food.

“Our ob­jec­tive is to try to democra­tise healthy fast food and make it ac­ces­si­ble to all Aus­tralians, in places where they have a phys­i­cal pres­ence,” says Baylis. “We’re look­ing at trans­port, ed­u­ca­tion, health - a more cap­tive au­di­ence. These are less sus­cep­ti­ble right now and are not be­ing can­ni­balised through on­line.

“Sumo can reach the cus­tomer more di­rectly from a strip or con­ve­nience lo­ca­tion. In a food court you can’t de­liver, and that means you are miss­ing ma­jor growth.”


Baylis has spot­ted a ma­jor shift in the US with home-de­liv­ered food re­tail grow­ing ex­po­nen­tially, and he wants a piece of the Aussie home-de­liv­ery pie.

“Domino’s in Aus­tralia has 44 per cent on­line busi­ness, and pizza is the incumbent food. The on­line food mar­ket is worth $1.5 bil­lion, with pre­dic­tions of up to $20 bil­lion,” he says.

That is why re­tail­ers will be mov­ing out of high-cap­i­tal, high-cost en­vi­ron­ments, he sug­gests.


Kate McMa­hon heads up the Pa­cific Re­tail fast-food brands Go Sushi, Kick Juice Bars, The Cheeky Beans and Wasabi War­riors.

“We have never gone into food courts be­cause the lo­ca­tions are hid­den and des­ti­na­tion fo­cussed, and sushi is grab and go. We have been in cor­ner or edge sites or kiosks.”

She says “mas­sive” rents are a clear de­ter­rent for shop­ping-cen­tre lo­ca­tions. “We want our fran­chisees to con­trol rents so they can in­vest back into the busi­ness and mar­ket­ing.”

McMa­hon echoes Baylis’ view that vi­able busi­ness op­por­tu­ni­ties lie else­where, and is tak­ing the ini­tia­tive to move the Pa­cific Re­tail brands into the su­per­mar­ket fresh­food space.

“We’re es­sen­tially pick­ing up the model, chang­ing the dis­plays to an open grab’n’go counter, putting kiosks into su­per­mar­kets. That’s for all our brands.

“You cap the rents at 10 per cent. We know it’s a fi­nan­cial model that gets the fran­chise off to a good start. Sushi is so sea­sonal that the busi­ness model with rental caps is a mas­sive ben­e­fit.”

Longer trad­ing hours, lower up­front costs and the abil­ity to match fran­chisees with other pas­sion­ate re­tail­ers are also strong driv­ers for the new part­ner­ship.

“We’re work­ing with Supa IGAs, which are be­ing re­ally in­no­va­tive, think­ing through how they do fresh food and en­hanc­ing the cus­tomer ex­pe­ri­ence. Work­ing with them is ex­cit­ing. We think about how we can bring theatre into it, the cus­tomer watch­ing sushi be­ing made.”


McMa­hon says the su­per­mar­ket link also opens up the din­ner trade, a long-term am­bi­tion for the brands that has yet to be re­alised.

“It’s a mas­sive mar­ket. We know that when we keep a store open on a Thurs­day late night, the sales equal lunchtime, so it dou­bles turnover.”

While the ini­tia­tive is launch­ing in part­ner­ship with Supa IGA there will be fur­ther part­ner­ship op­por­tu­ni­ties for the con­ces­sion-style out­lets, says McMa­hon. “It might be Cal­tex, su­per­mar­kets, aquatic


In New Zealand, Pa­cific Re­tail launched The Cheeky Beans cafe, fo­cussed on healthy eat­ing, in aquatic cen­tres.

“You need cof­fee, a few of the naugh­ties, but it’s re­ally about healthy sushi, fruit juice, salad, sand­wiches, wraps, healthy muffins. This has a cafe feel but the menu is fresh, healthy food.”

McMa­hon is look­ing at ex­pand­ing from the two out­lets - not just in aquatic cen­tres but su­per­mar­kets.


Stan Gor­don, fran­chisor at Fran­chisedFood Co, which in­cludes Cold Rock Ice Cream, Nut­shack, Pret­zel World and the Healthy Habits sand­wich chain, has lit­tle faith in the current it­er­a­tion of the shop­ping cen­tre for food fran­chises.

“I think cen­tres are ques­tion­able go­ing for­ward. Look at big­ger cen­tres like West­field Bondi Junc­tion, be­spoke and up­mar­ket. But fran­chisees have to spend so much to set up, are they vi­able? Shop­ping cen­tres might be sexy, but sexy doesn’t make money,” he says.

Gor­don is vo­cal about the costs of sit­ing fast-food out­lets in shop­ping cen­tres, de­scrib­ing rents of 30 to 40 per cent of turnover as “delu­sional, un­re­al­is­tic”.

“For land­lords to say ‘You should be do­ing this num­ber of dol­lars, why aren’t you?’, well, smaller busi­nesses have a ceil­ing. If they’re sell­ing $5 or $10 prod­ucts they’ll never do it.

“It can’t be a win for the land­lords and lose, lose for ev­ery­one else.”

In one high pro­file in­stance, Sumo’s Luke Baylis has taken the fight over costs to the land­lords, putting into vol­un­tary ad­min­is­tra­tion two leas­ing en­ti­ties that ne­go­ti­ate rent agree­ments for a dozen SumoSalad stores with the in­ten­tion of forc­ing the cen­tres into ne­go­ti­at­ing bet­ter deals.

The ca­pac­ity and un­der­stand­ing of how to ne­go­ti­ate for op­ti­mum re­sults is one ad­van­tage fran­chises have over the in­de­pen­dent out­let, says Gor­don.

But with an in­creas­ing de­sire for cus­tomi­sa­tion, will land­lords be seek­ing the uni­for­mity that is in­te­gral to many fran­chised brands?


At prop­erty firm CRS, head of as­set man­age­ment Lin­coln McCon­nell-Brown, says the com­pany’s in­volve­ment is in neigh­bour­hood cen­tres with a su­per­mar­ket an­chor and dis­count de­part­ment stores. “We are see­ing food as flavour of the month.”

Food can now ac­count for 30 per cent of a cen­tre’s gross leasable area, he says.

House­hold names such as Glo­ria Jean’s Cof­fees, Hud­sons Cof­fee and SumoSalad are still on the go-to list, but what CRS is seek­ing now is a fresh ap­proach.

“Peo­ple don’t want a brand name. They are look­ing for lo­cal peo­ple - some­thing they can’t get reg­u­larly, Mum-and-Dad op­er­a­tions.”

So typ­i­cally, in a mix of six food out­lets in a new neigh­bour­hood venue, three of those stores will be big brands, three will lo­cal in­de­pen­dents.

Strip shops are also be­com­ing a new food des­ti­na­tion out of ma­jor metro hubs.

“Food is the new fash­ion,” says McCon­nell-Brown.


Does this mean the death of the food court?

No, says Ga­van Mead­ows at Sushi Sushi. But it is no longer a spe­cial des­ti­na­tion for many peo­ple as shop­ping habits change.

“I think food courts are a lot more clever now. Chad­stone is wow­ing with its of­fer­ing. If the food court is dull, it’s dead. You need a few bells and whis­tles.

“What’s the next stage? There’s al­ways a place for the food court if it is evolv­ing. Busi­ness needs to keep in­vent­ing.”

Land­lords can charge a pre­mium, says Mead­ows, as long as the rate can be jus­ti­fied. Con­stant pro­mo­tion to bring in foot traf­fic is cru­cial.

“I have a lot of con­fi­dence in the food court, and shop­ping cen­tres. They’re pretty switched on, they’re pretty red hot.”

An­a­lyst Fran­cis Loughran is scep­ti­cal of any at­tempt to di­min­ish the im­por­tance of the food court. “You only have to look at what Soul Ori­gin is do­ing,” he says.

He also draws at­ten­tion to the Chatswood hawker mar­ket and Chad­stone food courts as lively, good-look­ing imag­in­ings of a food court, de­liv­er­ing fast food at a price.

“The food court might have been a plat­form to de­velop a food and bev­er­age mix, it’s the off­spring that are new and ex­cit­ing,” he says.


The plat­form prin­ci­ple of con­ve­nience, meals for less than $10 and shared ta­bles, is go­ing to con­tinue, he says. That means the fu­ture for fast-food re­tail­ing could be a cafe court, a din­ing ter­race, a food em­po­rium or a food gallery.

“Ex­pe­ri­ence had been the buzz­word for the trendy, but now it is the mantra for sur­vival,” says se­nior VP Katie Sprague of US-based RTKL, a global ar­chi­tec­ture, plan­ning and de­sign prac­tice. “Shop­ping cen­tres are no longer venues that sim­ply sell stuff… they are in­no­va­tive en­vi­ron­ments that of­fer experiences. The best in class around the world pro­vide a vi­brant so­cial scene, with cus­tomis­able, exclusive, en­ter­tain­ing and even ed­u­ca­tional con­tent.

“Food is at the fore­front of this trend, a so­cial ac­tiv­ity that is seen less as a com­mod­ity and more as a leisure ac­tiv­ity. The mix of food-ver­sus-re­tail in shop­ping cen­tres around the world has been shift­ing dra­mat­i­cally.”

There has al­ready been the evo­lu­tion from the rigid model of in-line food ten­ants to more of a de­con­structed food court, she says. Newer venues host a va­ri­ety of house­hold-name brands and in­ter­na­tional food in a much more fluid ar­range­ment with sev­eral stand-alone ten­ants with open kitchens. “We’re mod­els


see­ing new hy­brid food-hall that cre­ate a ‘col­lec­tion’ of fast-ca­sual ten­ants with less com­monarea seat­ing. This al­lows the ten­ants more space for their own seat­ing and a greater abil­ity to ex­press their own brand and sense of space,” says Sprague.

“The same trend of lo­cal au­then­tic­ity that we see as a driver for re­tail is also a driver for food. The mil­len­nial gen­er­a­tion is look­ing for be­spoke lo­cal food of­fer­ings that are healthy al­ter­na­tives to largescale fast-food chains. The rise in mar­ket halls is a prime ex­am­ple of this, where the mix of ten­ants fea­tures lo­cal brands/chefs or restau­rants.”

Food con­tin­ues to be key to the re­tail mix, says Stock­land’s Tony Tsek­ouras.

“Twenty years ago, you weren’t in the main game with­out a de­part­ment store, but we now have the lat­i­tude and re­tail pal­ette to cre­ate and cu­rate des­ti­na­tions based on a far more in­tri­cate and com­plex re­tail mix, and far more so­phis­ti­cated, less ho­moge­nous cus­tomers who ex­pect mod­ern malls to cater to a wider range of tastes and senses.

“We see this con­tin­u­ing to evolve and ex­pand across our port­fo­lio reach­ing even the far re­gional cen­tres such as Bund­aberg or Bal­larat, and we don’t see the fo­cus on des­ti­na­tion din­ing within re­tail slow­ing down any­time soon.”

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