Property could influence price of coffee

5:00 AM Saturday May 27, 2017 Bayleys media team

Ozone Coffee Roasters in New Plymouth. Photo / Supplied

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.

Our coffee consumption is among the world’s highest, with Kiwis drinking 0.94 cups of coffee a day — more than Australia and the United States.

Bayleys national director commercial John Church says 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 cafes have even usurped the company meeting room, with one sixth of Kiwis now regularly holding business meetings in a local cafe,” Church says.

“Our coffee habits have given birth to new retail trends and property solutions, from cafes based in the foyers of office buildings and ‘hole in the wall’-styled 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 about 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, 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.

Gichard’s own business, 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, others complement the wholesale business with a retail cafe component or roast purely for their own business. Most of the large roasters use a combination of offsite and onsite storage.”

Although New Zealand “is highly saturated with roasters”, there is still room for growth and new roasters will still enter the market. Gichard predicts consolidation 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 increasing importance of coffee sales.

It started redirecting focus 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 a big factor

Property could also be deciding factor in how much Kiwis pay for a cup of coffee with the low-cost approach by coffee roaster Raglan Roast putting the rest of the coffee industry on the back foot on pricing.

Raglan Roast serves up to 8000 cups a day from nine locations and has plans to open four more stores soon. It charges as little as $2.50 to $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 keep costs down.

Company founder Tony Bruce: “Years ago, all the old-school business guys would have said something like, ‘Stick to your roasting and don’t 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."

Raglan Roast has been running its logistics operation out of Raglan, but is moving this to an industrial space in Hamilton’s commercial hub of Te Rapa.

The property, which it bought for $2,175,000, has 400sq m of floor space over three buildings on 4500sq m  of land.

Being within the “Golden Triangle” gives Raglan Roast easy access to Auckland and the Bay of Plenty and the major ports.

“Initially, shipping coffee beans into Raglan wasn't a problem. We weren't dealing with huge numbers of pallets — it was all very low key. Now we are feeding nine stores — with more to come — and it's all got very complicated,” Bruce says.

“The Te Rapa Road site will be multifaceted. We plan to use the 300sq m warehouse and workshop building there for logistics and roasting.

“The office building is ripe for turning into a cafe and we plan to put a caravan out front for takeaway coffees and set up a spot at the back for tradies to come and buy coffee. There’s also plenty of space for parking.

“It’s a pretty big play for us in terms of real estate but we believe in the site and the area. All our future growth is covered by that one site.”

True Commercial - John Church%2c Bayleys.jpg (2)

John Church, Bayleys.