"By focusing on a small amount of deals, we’re able to get well-tailored deals."
How Coffee Guru boss Dean Crowe negotiates better rents with retail landlords
Dean Crowe is the managing director of retail coffee shop chain Coffee Guru. It’s been a hard year for retail, but Crowe has managed to turn his chain into a strong group of franchises, turning over $2.8 million a year.
Part of the reason Crowe has been so successful is his ability to negotiate good rent deals with landlords, even when they’re being picky. He says it’s all about his approach, which relies on setting deals in small groups of locations, which he claims can reap a better result.
So how’s business been?
It’s good. We’re not breaking any records, but it’s still good.
You’ve done a bit of rebranding lately. What was the motivation for that?
Well, we wanted to get into franchised coffee stores and we felt they were all starting to look the same. We wanted a point of difference in our product, and not only in the way we appear but also in the way customers can perceive who we are.
With us being new in the market, many of the larger chains are trying to formulate a growth strategy based on what other people have done. We’re trying to stay away from that.
Last year you did $2.8 million. Are you looking at improving on that?
I’d have to confirm and check, but I know it’s going to be at least that for this year, I’m just not sure of the growth rate. It will be at least that figure.
Has the rental market tightened on you in the past year or so?
It has been [tighter]. There’s a perception that things are tightening up a little bit, and that’s true, they are, but we still haven’t seen the same reductions in rent. We feel like landlords are recognising the situation is hard right now, but publicly listed landlords are just doing business as per usual and expecting there will be a high amount of churn with their tenancies.
So landlords are negotiating?
They’re negotiating, yes. They’re talking.
What are these types of discussions like now?
In a negotiation like this, the bottom line comes in fairly quickly. And if you’re not willing to go to that bottom line, then that changes the nature of the discussion.
You’ve got your publicly listed companies like Westfield, and not so much Centro, but other ones, and they’re really looking at their per square metre rate. If you can’t reach that, then they’re just as happy to leave the site vacant for another few months.
Whereas in smaller properties, and with private landlords, they can’t really afford to leave their sites vacant.
Is there a shift in mentality you’ve seen on the part of landlords, compared to the past few years?
There definitely isn’t an arrogance there, or at least there’s not anymore, in terms of how the leases are approached. Because you don’t have retailers climbing over each other with franchisees in tow, we’re finding that landlords are actually approaching us first.
So what happens in a normal lease negotiation, and how is it different to what you’re doing?
What may happen with a normal leasing agent is that they’ll have 20 or 30 sites on the radar, and then negotiate with landlords on conditions. But if they don’t find a franchisee for those sites, there’s no legal obligation to move forward.
What we do instead is just focus on five to 10 sites, agree on general terms for those. However, we’ll have actively sought out franchisees and then we’ll come back and negotiate on that point. So we actually have a person involved in the business.
There has been a tightening of credit, too. We’re finding we’re able to tailor deals for the circumstances of our individual franchisees.
So can you give an example?
There was one particular site we were able to get a $50,000 contribution amortised into the lease, and we’re only paying back $28,000 over seven years. By focusing on a small amount of deals, we’re able to get well-tailored deals.
Why is it exactly you’re able to get these types of deals?
Because we’re able to go to the landlord and say we have a particular person, we have a particular site, and given them the person’s business experience, we can show that they are qualified to go forward. So we can say we’re not willing to give a certain amount of money for some things.
So you’re finding the franchisee, then the site.
We are. But it is because we are only focusing on a handful of sites, we won’t have 20 sites on our radar in the hope we’ll get a franchisee loaded in. We’ll aim for five. We’ll put some advertising out there but we won’t fully commit until we have someone.
Talk about your approach in these types of meetings. Are you forceful, polite or aggressive?
I think you have to be relatively transparent, because a good lease is a good lease, and any lease has value. We’ve just made it personal by showing that we have a person ready to go into these locations, and that will make the landlord more motivated to put us in there.
At the end of the day, they have just as much invested in the place as we do.
It’s obviously getting you results.
We’ve been getting at or below-market rent, but reasonable contributions, and we’re relaying that back to the franchisee; that’s allowing us to get these types of deals.
So for other retailers worrying about rents, what advice would you give them?
In this current environment, you need to be patient: Wait your time for the right deal.
This article originally appeared on SmartCompany.