Starbucks, the world’s largest coffee shop operator is currently pushing its U.S.landlords to reduce their shop lease rates by a much as 25 percent according to Bloomberg news reports. They are obviously taking advantage of the weak real estate market to save money on rent.
Starbucks’ rent-reduction efforts were first seen earlier this year in January, as part of a plan to trim overall expenses. The company also announced the closure of 300 of their coffee stores and a cut of as many as 6,700 jobs. This is a direct result was a of 69 percent first-quarter profit loss.
Starbucks Cutting Food and Labour Costs
The company is seeking to cut their costs of labour and food by about $500 million in September this year and is well on track to reach that figure according to their current estimations.
Tara Darrow, spokeswomen for Starbucks wasn’t able to confirm the size of reduction seeked by the company.
“We’re taking advantage of the opportunity in as many cases as we can. We feel like it’s a positive program for us. Most of the landlords we’ve worked with have felt it is a mutually beneficial situation,” Darrow said.
Darrow also stated that the rent-reduction program would only cover the U.S. stores operated by Starbucks, but not the more than 4,400 U.S. stores in airports, supermarkets and other licensed locations.
Landlords Forced to Comply Due to the State of the Current Market
Due to rising vacancy rates and falling property values landlords are forced to offer lower rents to shop tenants in exchange for longer lease terms, said Hudson Riehle, senior vice president of research at the Washington-based National Restaurant Association.
Riehle said: “In this recession, compared with the last one, we do see developers and owners being much more willing to work with the operators to make sure the restaurant remains where it is. It’s much more of a partnership than it used to be.”
Since the peak of commercial real estate in October 2007, values have dropped 22.8 percent through March this year. With vacancy rates climbing to 9.5 percent in the first quarter of 2009 landlords are hoping that tenants will stay open to negotiations.
Other well-known chain stores have already successfully managed to reduce rents; Quiznos Corp., a closely held toasted-sandwich chain, has been able to reduce rents by 15 percent to 20 percent, in exchange for signing longer leases. However, the market isn’t responsive in the U.S alone. The Dallas-based owner of Chili’s Grill & Bar, has seen lease rates fall as much as 30 percent in Beijing. John Reale, president of international operations, said in an interview.
Whether Starbucks will be ultimately successful in their venture to reduce leases will remain to be seen.
Photo credits: Miskan via Flickr