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Property and Retail - what is the key to a successful partnership?

Paul Keane
First McDonalds

The development of a new business is hard work. When RCG was originally formed, it took us a good 10 years to just get accepted in the market place, despite the wide appeal of the business to many clients as "Retail Experts".

"Since those days in the late 1980s, the company has grown and expanded its expertise and its reputation is nationwide and beyond."

A recent film called “The Founder" which is a story based on the founding of The McDonalds chain of restaurants, spurred me to uncover a book called "McDonalds Behind the Arches" from my private collection and written by John F Love. The book is an in depth analysis of McDonalds, so I was keen to compare the film detail and that of the contents of the book. Remarkably the film interpretation is close to that of the book, something that does not always transpire.

McDonalds was actually "founded' by the McDonald brothers Dick and Mac. Ray Kroc who is often considered the founder was in fact a Multimixer salesman who connected with the McDonald brothers when he came to sell them the Multimixer in 1954. From there the relationship developed with Kroc expanding the brand and eventually buying the rights from the McDonalds. The rest is history and the brand has since gone global with the first store opening in New Zealand in Porirua Wellington on the 7th June 1976.

The irony of the story is that the McDonalds were in fact never restaurateurs as such but rather inventors who were dedicated to the "Speedee Service System", this combined with a limited product proved to be the launching pad for an amazing and successful brand. Ray Kroc, having identified the success, expanded the service and capitalised on the name. Hence his "ownership".

A key part in the film was a "handshake" agreement between Kroc and the McDonalds that the latter would receive 1% of sales from all franchised restaurant sales into future. According to the film script that never happened and Kroc did not honour the agreement. The book detail however demonstrates the really first relationship between Property and Retail. McDonalds was not just a restaurant brand but rather a real estate company, from which huge profits were derived together with franchise profits as we know them today. This arrangement was a prelude to the combination of Property and Retail as demonstrated from the subsequent development of the Shopping Malls throughout the USA and beyond.

"The story is fascinating and a good example for people entering the property investment and development market to see how a combination of skills can prove to be very successful."

The international donut brand "Krispy Kreme" will open in February in Manukau Auckland as its first launch with a year’s supply of donuts to the first customer!! Time will tell if this brand can expand and grow in New Zealand which seems to have been the graveyard for some retailers, and fast food operators in the past, through an inability to expand to the depths of requirement that meet financial expectations.

Certainly, the story of McDonalds is an example of meeting the market needs and using the combined expertise of real estate and restaurant skills to make a killing. The RCG example is not dissimilar. The brand was grown out of a property base and has since developed and expanded its expertise into Architecture, design and research. The recent launch of RCG Realty is another addition to the company bow. The key fundamental however has been the property seeds that were planted from the outset and from which the rest of the company has strengthened and grown.

Sharewatch | Nick Scali

18 months ago, we profiled Nick Scali, a rapidly growing Australian furniture retailer. This company has now opened their first New Zealand store – although they’re running a bit behind. In 2016, they’d announced that they wanted to open 3-4 stores here within two years, but the first one opened in Mt Wellington just before Christmas 2017. Presumably there’s more to come, although Nick Scali hasn’t announced the locations or timing for any other New Zealand stores.

In Australia, Nick Scali is still on a growth streak. In 2017, sales grew by 14.7% to AUD $233 million. Same store sales were up 10.0%. Net profits were up 42.4% to $37.2 million, an excellent result.

In 2016, we said “there are very few retailers making the kinds of profits Nick Scali is at the moment – net profits after tax coming in at 12.9% of sales”. Since then, they’ve risen even higher, to 16.0% of sales.

The company is now one of the top 300 on the ASX exchange, valued at around $580 million. This suggests that investors are still factoring in future sales and profit growth – it will be interesting to see whether Nick Scali can continue to hit these targets, and how its store(s) are received in the New Zealand market.

Sharewatch

In the press

Local Media Highlights Monday 22 January to Tuesday 31 January 2018

 

Lawyers and realtors attack proposed foreign investment ban, predict collapse in property development projects

Banning foreign investors from buying New Zealand residential property will back-fire on the Government and instead of increasing new residential supply by stopping speculators, it will create a shortage of new homes, lawyers and realtors say. Auckland District Law Society and Real Estate Institute submissions on the Overseas Investment Amendment Act say the proposed new law will deter much-needed residential developers who are critical to creating new housing stock, particularly apartments.

(Source: NZ Herald)

Hawke's Bay builders struggle to keep pace with housing demand

Hawke's Bay builders are rushed off their feet trying to keep up with a rising demand for new houses - with 543 new houses getting council approval last year. Last year there was a total of $211.6 million-worth of new dwellings consented across Napier, Hastings and Central Hawke's Bay, and A1 Homes owner Rob Fargher said he and others had experienced a definite increase in new homes being built over the last year.

(Source: NZ Herald)

Business confidence to settle after announcement of 90-day trial rule

Business confidence among small firms is expected to bounce back after Government changes to employment law. Confidence plunged to its lowest level in nine years for the quarter ending December, according to ANZ's latest small business survey. BusinessNZ chief executive Kirk Hope put those figures down to uncertainty among business owners during the election.

(Source: Stuff)

Lower residential property sales dragged down agencies' commission revenue in the fourth quarter of last year

Real estate industry commissions from residential property sales likely fell by $34 million in the fourth quarter of last year compared to the same period of 2016, following a significant decline in the number of homes being sold. Interest.co.nz estimates the real estate industry earned around $357 million in gross residential sales commissions in the fourth quarter of 2017, compared to $391 million in the fourth quarter of 2016.

(Source: Interest)

 

 

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