SumoSalad puts two companies into voluntary administration

SumoSaladHealth food chain, SumoSalad, has put two of its companies into administration in order to protect the financial interests of some of its franchisees and force its retail landlord to negotiate over lease payments.

Luke Baylis, chief executive and co-founder of SumoSalad, said putting two of its companies Sumo Westfield Leasing Pty Ltd and Sumo Leasing Pty Ltd, which hold leases of about 12 to 14 SumoSalad outlets in Westfield shopping centres, would not have an impact on the rest of the Sumo group, with the company’s network of 104 stores still continuing with business as usual.

Baylis said the decision was in line with SumoSalad’s strategic plans to have stores out of shopping centre food courts and into more profitable sites like hospitals, airports, service stations and universities where, he said, the company already has a strong and growing presence.

Baylis added the stores would continue to trade while the administrators renegotiated their rental agreements.

“Sumo has been working with landlords over the past few months to negotiate more realistic food court leases for our stores, with no success,” he said.

“Regrettably, landlords have opened the door to more and more food businesses in recent tiimes, as well as opening whole new eating areas within the same precinct, which has essentially cannibalised existing tenants.”

Baylis said one shopping centre went from 34 food outlets to 93 in a three-year period with flat foot traffic growth.

“Our negotiations with landlords have failed to reach an outcome that adequately compensates our franchisees, with landlords now demanding that Sumo and our franchisees collectively pay millions of dollars to surrender the existing shopping centre leases,” he said. “This is an untenable and unfair demand on small business owners, which would send our franchisees in those shopping centres broke.”

Baylis said placing the leasing entities into voluntary administration is the only way to protect their franchisees.

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Comments

3 comments

  1. Jack posted on June 14, 2017

    Let me understand this masterstroke of a strategy... A supposedly national franchise brand with all the resources that comes with that enters into contracts that clearly outline there is no exclusivity, that the rent increases are annual, that there are no guarantees of traffic etc etc that has done nothing to reinvent itself or improve it's offer, decides to appoint administrators to get out of it's obligations and change the rules they signed up to because it's all too hard.. !!! How is this any different to doing the same thing to avoid your tax obligations or employee entitlements?? This is the pinnacle of arrogance from an irrelevant brand.... ... reply

    • Mike Leask posted on June 15, 2017

      The issue really comes down to the market value of the lease. If the Landlord increases competition in the centre to the point where stores are not financially viable, then the tenant does not have any choice but to exit, because they cannot trade whilst insolvent. If the Landlord is justified in their actions, then they will easily get another tenant. if they are not justified, then they will re-negotiate or have an empty shop. It is that simple. The real problem happens when small family businesses are faced with the same situation and exiting the premises activates personal guarantees and the family loses their house and personal assets. That is when it becomes morally unconscionable and possibly deceptive or uncommercial. Lack of exclusivity does not give a right to triple the number of stores in the same category unless that was disclosed prior to entering the lease. Good on Sumo for taking on the big shopping centres at their own game! Corporate greed! reply

  2. Aaron posted on June 14, 2017

    Jack seems like you have never been a retailer or a franchisee. The company is doing this to protect its franchisees from Greedy Landlords and a blatant disregard by Landlords for its current tenants. The Landlord does have a duty of care to its tenants, and to double the amount of competing retailers with no increase in foot traffic is unconscionable conduct. reply

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