Sumo Salad's battle with landlords takes its toll, administrators in charge

Sumo Salad's battle with landlords takes its toll, administrators in charge

The battle with retail landlords has taken its toll on the Sumo Salad group which has been placed in the hands of voluntary administrators for the second time in a little over a year.

Morgan Kelly and Peter Gothard, of Ferrier Hodgson, have been given control over 85 stores in the healthy-alternative fast-food group.

The reasons for the move are understood to stem from legacy debts, but many analysts are also pointing to poor retail trading conditions and high rents impacting the viability of similar businesses.

The latest development comes on the heels of Sumo Salad co-founder and CEO Luke Baylis placing two Sumo Salad subsidiaries into voluntary administration in June last year in order to force the hand of Westfield's Scentre Group (ASX:SCG) to renegotiate leases on about 14 stores.

While that move proved successful in securing lower rents, it is now up to the voluntary administrators to determine the longer-term viability of the group ahead of the first creditors' meeting to be held on July 30.
Administrator Morgan Kelly tells Business News Australia that the group is profitable but has been struggling with legacy debts.

The turnaround plans may lead to a new partner introduced to the business or a complete sale of the enterprise.

"We will shortly be commencing a sale process, to identify a strategic partner or potential buyer to build on the growing demand for healthier fast-food options," says Kelly.

"This is a strong brand with a viable business model.  With the support of key stakeholders, we are confident that the business can be restructured successfully.

"The administration process gives the Sumo Salad Group some breathing space, helping to stabilise and restructure the business."
Kelly says he is confident of 'significant interest' from a potential buyer.
In a letter to creditors, the administrators are reported to have said they are currently assessing the group's financial position.

In recent years the group has been battling the brutal competitive environment of retailing within shopping malls.

However, Baylis says in a statement that the core business remains healthy with sales growing in 'high single digits' on a like-for-like basis.

"The business has some legacy issues that has made ongoing trading challenging, despite the strength of the brand and the business model," he says.

"We now need to restructure the balance sheet to address these issues and give the business the strongest possible footing moving forward.

"We will look to propose a deed of company arrangement to ensure we can provide our creditors with the best possible outcome and plan to continue positive relations with suppliers and partners into the future."

Baylis has hinted at rethinking the group's current retail strategy in order to reduce its positioning in shopping centre food halls.

He says the long-term strategy is to 'progressively extend the brand into grocery, convenience and transport hubs'.

Sumo Salad says the restructure process will not impact stores that are owned by Sumo Salad Holdings (WA) Pty Ltd.

Read more here about Sumo Salad, tossing up the fast-food industry.

 

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