Hot shots

Hot shots

Total Property - Issue 3 2017

New Zealand has one of the most competitive coffee markets in the world and, with more than 200 roasters grinding daily, their commercial property estate needs are an opportunity for savvy investors, landlords and sellers.

Per capita, New Zealand has one of the highest rates of coffee consumption in the world, with Kiwis drinking 0.94 cups of coffee a day - more than Australia and the United States.

Kiwis spend, on average, $13.67 a week on coffee from coffee shops, and, according recent research, most will go out of their way to get the best cup possible.

Coffee and cafés have even usurped the company meeting room, with one sixth of Kiwis now regularly holding business meetings in a local café.

Our coffee habits have given birth to new retail trends and property solutions, from cafés based in the foyers of office buildings and ‘hole in the wall’-style outlets in high foot traffic areas to mobile vans and street-side caravans. Many micro-roasters have seen the value of setting up shop in the suburbs, where property costs can be lower than in city centres.

And the success of premium price coffee capsules and the uptake of espresso machines has seen coffee giant Nespresso occupy space on the high street alongside high-end retailers. In Auckland’s Queen Street, Nespresso rubs shoulders with Louis Vuitton, Christian Dior and Prada.

Karla Gichard, president of the NZ Specialty Coffee Association and chief executive of Ozone Coffee Roasters, in New Plymouth, says there are approximately 260 coffee roasters in New Zealand and their property needs depend on their size and business model.

“The majority of roasters in New Zealand are micro- or small roasters, and are unlikely to have the capital to buy a property, so will typically seek out spaces in good locations for lease. The larger, more established roasters may have more available capital to fund property purchases,” she says.

Ms Gichard’s own business, which is one of New Zealand’s largest provincial coffee roasters, leases its roasting space. “Most roasters generally only need one wholesale roasting site, depending on roaster capacity. Ozone Coffee Roasters has roasting operations in New Plymouth and London. From these premises, we can supply customers in New Zealand and Europe,” she says.

“Some operators are purely wholesale roasters, while others compliment the wholesale business with a retail café component or roast purely for their own business. Most of the large roasters use a combination of offsite and onsite storage.”

Ms Gichard says although New Zealand “is highly saturated with roasters”, there is still room for growth and new roasters will still enter the market. However, she predicts there will be consolidation in the industry as businesses mature and seek to grow through acquisition or mergers.

Food giant Cerebos Gregg’s Ltd owns both the Robert Harris coffee brand and Atomic Coffee Roasters while Bell Tea rebranded as BrewGroup last year to reflect the increasing importance of its coffee sales. It started redirecting the focus of its business in 2006 after buying Burton Hollis, New Zealand's largest locally-owned coffee roaster, and now owns Gravity, Hummingbird and Jed's coffee brands, as well as several others.

Property could also be deciding factor in how much Kiwis pay for a cup of coffee.

The low-cost approach by coffee roaster Raglan Roast has put the rest of coffee industry on the back foot on pricing.

Raglan Roast, which serves up to 8,000 cups of coffee a day from nine locations across the country and has plans to open four more stores by the end of the year, charges as little as $2.50-$3 for a takeaway coffee - well below the $4 mark charged by most other outlets.

And its owners’ decision to buy the properties it works out of rather than lease them has helped it keep costs down.

Company founder Tony Bruce says: “Years ago, all the old-school business guys would have said something like, ‘Stick to your roasting and worry about the property side of your business’. But I think tenure is important, and that committing to a site is better than leasing it. And by owning the property, you also have the option to lease it out if your own business turns to custard.

“My strategy has been to pick vacant street-front properties and make them popular, which ultimately increases their value. The way I see it, there’s just a couple of percentage points difference between buying a property and leasing it. I feel more comfortable calling the shots.

“And funnily enough, a lot of those same old school business guys are all now advocating owner-occupy.”

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