Finding sites remains tough for independents
Independent coffee shop operators are facing an uphill challenge to open new sites, as tough competition on the high street shows no signs of abating, with the new and smaller businesses most likely to lose out, reports Michelle Perrett for Coffee Business World.
Growth in the food-to-go market, increased competition from other retailers including larger restaurant and coffee chains as well the ability to pay rents and get landlord approval are all proving major stumbling blocks for smaller operators.
Christie & Co head of restaurants Simon Chaplin says one major issue is the type of sites coffee shop operators are looking for. The ‘Use Classes Order’, which categorises premises, allows A1 to be used by sandwich bars, coffee shops as well as other operations such as hairdressers, internet cafes and shops while A3 is for the sale of food and drink on the premises, such as restaurants and cafes.
“Independents are finding increased competition from the A3 operators because a lot of restaurants are downsizing from 2,500sq ft sites and are trying to squeeze their units into 1,500sq ft,” says Chaplin.
He also issues a note of caution that some local authorities are being a “bit careful” about how many coffee shops they want opening in their high streets and developments. “Landlords are also conscious that they do not want to upset the Costa’s and Starbucks and will say ‘sorry this is restricted use’,” Chaplin says.
However, he adds that while A1 sites in key locations, such as central London, can be in short supply, if it is a pure coffee shop it can normally operate under A1 planning. “And we are not short of those shops.”
But Rob Meadows, director at specialist agent for the leisure property sector Davis Coffer Lyons, believes that site location is having a major impact on independent coffee operators and their ability to pay rents, especially in central London locations.
“You have to have something that works out of a small tiny space, which is very hard to find, or you have got to offer something more than the coffee such as cupcakes or superfast internet,” he explains, while dismissing claims by some operators that landlords are charging rents that are too high, arguing that the rates are driven by demand.
“Other retailers, that are not coffee shops, are willing to pay. It is typical for people to blame landlords for setting high rents but someone has to justify a business model in that location,” he adds.
As an independent operator which has experienced the problems associated with finding and successful securing sites, Artisan co-owner Edwin Harrison highlights another major challenge, which is that it’s hard to find landlords willing to take a chance on a new operator, particularly a start-up with no trading history.
“When you first start out it is incredibly hard and the main reason is because you have no track record for landlords to rely on and you have no credibility. It takes a lot of time to find a landlord that is essentially going to take a risk on you,” he explains.
Artisan lost out on at least five premises to other retailers such as hairdressers with multiple sites, even though it was willing to pay a higher rent. “I can see the landlord’s point of view, especially as we were starting out mid-recession in 2011,” he says. “You have to build up good relationships with chartered surveyors and you have to have a very strong business plan that compensates for the lack of three years of accounts.”
A further challenge is that many larger operators have chartered surveyors working on their behalf to find sites.
“London is fairly cut throat and a lot of it is done off the market,” he warns.
Now that Artisan is established and has five sites, the situation with finding properties is a little different.
“Those chartered surveyors that wouldn’t take my calls for six months now call me on a regular basis,” he says.
However, a further area that is causing problems for the smaller coffee shops is the upward-only rent review clauses in leases.
“A lot of coffee shops have got themselves into trouble by signing up to upward-only rent reviews as back in the day it was a standard thing that landlords demanded,” says Harrison.
This means that even if the property market is in decline the operator is unable to take the benefit of this change at rent renewal time.
While lease renewals are covered by the Landlord and Tenant Act 1954, which gives a right of renewal to the tenant, some landlords have insisted that any retailers sign away those rights to obtain the lease.
“When you are a new business it is your dream and it is your passion. That is when you make the mistake of over-committing,” Edwin warns.
- Magda Harrison, co-owner of Artisan Cafe Group, is a member of the European Coffee Expo Steering Panel.
- Davis Coffer Lyons completed a deal at 2-4 Noel Street in Soho to The Daisy Green Collection, the all-day restaurant, bar and coffee group. The deal is a leasehold assignment for the remainder of the ten-year lease from 2015. The eight-strong group plans to reopen the 4,000sq ft Soho site in the spring.
- Wickwar Coffee Shop in Wotton-under-Edge, Gloucestershire was sold through Christie & Co. Lisanne Rogers created and opened Wickwar Coffee in 2010, to new owners Adam and Louise Sydney who live locally.