ET reported last week that several restaurant chains including McDonald’s, Jubilant FoodWorks-operated Domino’s Pizza and Speciality Restaurants have sought similar waiver from landlords and mall owners.
“In light of the current situation, we will be unable to bear rental and maintenance charges …,” Tata-Starbucks India said in a letter to its landlords. It has asked for a waiver for a three-month period starting March 1, and has said the situation can be reassessed after three months. Depending on any improvement, future terms can be mutually decided. As the company has already paid rentals and maintenance charges for March, it has said this amount be adjusted against future obligations.
Coffee Chain May Invoke Force Majeure: Experts
ET has reviewed a copy of this letter. Tata Starbucks did not respond to ET’s email query. The Starbucks letter said the lockdown due to coronavirus and its impact on consumer sentiment and businesses had led to the company implementing efficiencies in its manpower planning and other processes to bring down its operational overheads. “However, the only way to survive this crisis is by drastically reducing our fixed operating expenses in the immediate term till the consumption in the sector improves,” the letter added.
The coffee chain had posted its first net profit last fiscal, on the back of a deferred tax provision, six years after entering the country. At an operational level, the company’s loss before tax widened to Rs 46 crore even as it clocked Rs 447 crore in sales. It earns about Rs 3 crore annually from every store on an average, higher than other coffee chains including rival Cafe Coffee Day.
High real estate costs in India make it important for retailers to generate higher average price realisation per square foot of space to maintain profitability. “The cafe business will be slow to build up even after opening. Both traffic and spending will be affected since consumers would not like to expose themselves outside for long hours,” said Devangshu Dutta, founder of Third Eyesight.
Industry experts are of view that the coffee chain is trying to nudge the landlords, and if this doesn’t work, it will seek relief under ‘force majeure’ clauses as some other restaurant chains, retailers, and multiplexes have done. However, according to some landlords, the lease agreement with Starbucks does not provide for any waiver. Force majeure refers to rare and unanticipated events, beyond the control of the concerned party, which prevents it from fulfilling a contract.