What are the three biggest hurdles for QSR retailers?
Shopping Centre outlet owners need to overcome tougher financing, rising wages and the online retail competition.
These three concerns rank high among QSR retailers at the moment, according to industry insiders we interviewed, with the current economic drag making it difficult to find easy solutions.
Roadblock 1: Increased Bank Financing Burdens
With news of mall traffic dipping to alarming lows as well as tenants closing down left and right, banks are naturally becoming more conservative to whom they lend money.
“It is harder for operators to secure finance now. There are lots of cool new concepts out there, however, there is a reluctance from financial institutions to back them,” said Hilton Hedley, Director of Retail Leasing, Colliers International.
Without bank support, QSR’s will be hard-pressed to even secure a spot in their target malls and shopping centres. And it is not just new QSR’s who are succumbing to the financing pressure. Even established brands are feeling the pinch.
Landlords are demanding larger sums as bank guarantees when offering or renewing a lease, according to Sam Nash, Managing Director, Nashi Corporation, which runs several outlets in Melbourne shopping centres. Nash described having to negotiate larger bank guarantees, some even ballooning to six-digit figures – funds that are now parked but could have instead been used for expansion.
Roadblock 2: Spiking Cost of Wages and Insurance
QSR retailers are also buffeted by rising wages and insurance expenses.
“The high cost of staff wages and insurance which basically results in operators having to charge higher prices or sell a higher volume of product to generate the required profit to be successful,” said Hedley of Colliers.
Just last month, Fair Work Australia ruled on a 2.9% weekly wage increase to A$15.96 per hour or A$606.40 per week, according to a Wall Street Journal Market Watch report.
In a separate news report, the online newspaper The Australian said economists worry that the retail sector might be forced to lay off employees due to this latest round of wage increases.
“Macquarie's chief economist Richard Gibbs said the retail sector, already struggling with subdued sales and compressed profit margins, would be the hardest hit section of the economy. The sector, he said, was already experiencing an oversupply of labour and the wage increase would force some businesses to slash staff,” The Australian news report said.
Clearly, QSR’s will have to pass on these rising costs to their customers, but with patronage already quibbling, there are serious concerns that many will have to shave part of their profit margins instead.
Roadblock 3: Staffing Overload to Compete with Online Retail
Finally, QSR retailers are seeing indirect competition with online retail sites – such as Westfield’s www.westfield.com.au which now carries almost 3,000 brands – whose stay-at-home clientele translates to less patrons visiting malls and eating out.
“As the whole retail sector combats online retail by trying to extend trading hours, but this will put more pressure on wages. Some states already have the extended hours,” said Ian Carrigan, Senior Leasing Executive, Stockwells. “It may be beneficial to QSR’s as it will keep people out shopping longer.”
QSR’s will need to figure out whether the extra revenues from longer operating hours will be worth the additional staffing costs.
