Down­siz­ing op­er­a­tions to up­size profit

Busi­ness hope­fuls turn to small-scale shops to trim startup costs

Toronto Star - - STAR BUSINESS JOURNAL - ALEK­SAN­DRA SAGAN

Cus­tomers who don’t work in the build­ing that houses Kento Ki­tayama’s tiny café near Van­cou­ver’s Gas­town neigh­bour­hood bet­ter be pre­pared to set­tle for take­out. He can only take or­ders through a lit­tle win­dow fac­ing the side­walk. Ik­t­suar­pok Cof­fee Stand, which opened late last month, has no seat­ing and sparse fur­nish­ings. Ki­tayama could likely stand in the mid­dle of the roughly 17-square-me­tre shop and reach out to touch the sink, re­frig­er­a­tor and shelv­ing unit, counter and es­presso ma­chine that mark the shop’s bound­aries with­out mov­ing.

The café re­minds the co-owner of how to­bacco shops sold goods in his na­tive Ja­pan, but also suits his bud­getary con- straints. Ki­tayama and other busi­ness own­ers chal­lenged by high rents in Canada’s two most ex­pen­sive hous­ing mar­kets are turn­ing to cre­ative so­lu­tions in tiny spa­ces to open cafés that oth­er­wise might not be prof­itable.

For a typ­i­cal 85-square-me­tre café space in the city, Ki­tayama said he’d likely pay about $3,000 monthly. That’s unaf­ford­able for his new busi­ness.

Ro­bust data on av­er­age food re­tail lease prices in Canada doesn’t ex­ist, but some fig­ures help shape a sense of the mar­ket.

Last Oc­to­ber, Toronto’s av­er­age com­mer­cial lease rate per square foot was $21.31, ac­cord­ing to the Toronto Real Es­tate Board — down 1.1 per cent from the same month in 2017. But that in­cludes all re­tail­ers, and the data is part of only 40 to­tal lease trans­ac­tions that month where the price was dis­closed.

Three of the four most ex­pen­sive main streets in Canada are in Toronto and Van­cou­ver, ac­cord­ing to an an­nual re­port from Cush­man & Wake­field. The com­pany tracks nearly 450 of the top re­tail streets in 65 coun­tries. In June 2018, rents on Toronto’s Bloor St. were $300 per square foot and $100 on Queen St. West. On Van­cou­ver’s Rob­son St., rents av­er­aged $183.

High and ris­ing rents have caused sev­eral restau­rants in both cities to shut­ter their doors in re­cent years.

Wild Rice Mar­ket Bistro in New West­min­ster, B.C., served its last pa­trons on New Year’s Eve.

“We are all fa­mil­iar with our high cost of liv­ing, which is re­flected in higher

rents, in­creas­ing food costs and the dif­fi­culty in re­cruit­ing and re­tain­ing staff,” pro­pri­etor An­drew Wong wrote in a note to cus­tomers, adding the restau­rant “is no longer vi­able in our cur­rent eco­nomic cli­mate.”

Lease prices also pose a big bar­rier to en­try for new hope­fuls like Ki­tayama, who have turned to smaller-scale op­er­a­tions in an ef­fort to trim startup costs.

Ik­t­suar­pok Cof­fee Stand may be the new­est diminu­tive shop, but it’s not the small­est in the coun­try.

Joshua Cam­pos be­lieves his less-than-two-square-me­tre shop (roughly the area of a twin mat­tress) may be the small­est in the world. He’s ap­plied for the Guin­ness world record but has yet to hear back.

The Cof­fee Lab, which opened about seven months ago, op­er­ates out of a win­dow in a small nook of a Toronto build­ing. Floor-to-ceil­ing glass lets cu­ri­ous passersby or cus­tomers see one staff mem­ber pre­pare drinks in­side.

Cam­pos, who pre­vi­ously op­er­ated a café out of a book­store un­til the land­lord sold the build­ing, no­ticed a “for lease” sign in the win­dow of what is now his new café.

The land­lord first re­jected Cam­pos’s idea, say­ing the lease sign was for an of­fice space in a dif­fer­ent part of the build­ing. But Cam­pos per­sisted and even­tu­ally the land­lord caved.

“The idea is just to keep the over­head su­per low,” he said.

It came with a few lo­gis­ti­cal chal­lenges. He had to find smaller es­presso ma­chines to fit the space while main­tain­ing drink qual­ity.

Only one staff mem­ber can work at a time, and the cold win­ter slowed busi­ness as cus­tomers balked at the idea of wait­ing out­side for their caf­feine fix.

Cam­pos has ap­plied for a pa­tio li­cence and plans to build a roughly five- to nine-squareme­tre heated en­clo­sure.

An­other Toronto cof­fee shop, The Nugget, is housed in­side a for­mer garage nes­tled be­tween two build­ings.

Co-owner Jake Holton rented the at­tached build­ing to open an­other lo­ca­tion of his pizza chain, Vil­lage Pizza, and asked the land­lord if they cared if he con­verted the garage into an­other eatery.

The roughly 15-square-me­tre cafe opened July 2017, in part to help off­set rent for the pizze­ria, said Holton.

NATHAN DENETTE THE CANA­DIAN PRESS

Joshua Cam­pos, owner of the Cof­fee Lab, brews a cup in his less-than-two-square-me­tre re­tail space on Spad­ina Ave.

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