Starbucks Corp. has asked the landlords for many of its corporate-owned units for a year’s worth of rent breaks as part of its strategy to improve its finances coming out of the coronavirus shutdown.
The letter, sent the day after the Seattle-based coffee giant started reopening its U.S. locations last week, was written by the company’s chief operating officer, Roz Brewer.
It requests 12 months of concessions, starting June 1, “to support modified operations and adjustments to lease terms and base rent structures, so we can withstand this uncertainty together.”
Restaurant Business has obtained a copy of the letter, and several sources have said the letter was sent to many of the company's landlords.
A Starbucks spokesperson did not comment on the letter but did refer to the company’s recent earnings call with Wall Street analysts in which the company said it was having “ongoing conversations” with landlords.
“We are having ongoing conversations with our landlords in various markets regarding what may be commercially reasonable lease concessions in the current environment,” CFO Patrick Grismer said. “We’ve not yet confirmed those arrangements, and it’s really premature to indicate what that relief may look like. But it is something we’re pursuing.”
The request was “not well received,” according to one real estate source, while another called it “ridiculous.” Landlords and other real estate professionals were taken aback at the length of time the company wants lower rent.
The letter nevertheless indicates the challenges facing even a large-scale company such as Starbucks, which has more locations in the U.S. than any chain except Subway but is facing an unprecedented hit on its business.
Starbucks has 8,800 company-operated units, while licensees operate another 6,250.
Starbucks closed more than half of its company-owned locations in late March and early April. Same-store sales were down by 25% in the stores that were open last month, suggesting total same-store sales were down by as much as 75% last month.
The company expects to reopen more than 90% of its locations early next month with modified operations, notably contactless pickup, delivery, curbside and grab-and-go.
“On the other side of COVID-19 is a very different world, and success requires transforming the Starbucks experience to better match our customers’ new reality,” Brewer wrote.
Most restaurant companies still open, though doing less business, have been working with landlords on rent relief of some sort to get them through the pandemic and its shutdown. And many franchisors that control real estate themselves have delayed rent.
Somewhat famously, casual-dining chain The Cheesecake Factory said it wouldn’t pay rent in April at all.
Yet this is a rare instance of a major, national brand—one of the country’s most well-known and popular restaurant chains at that—requesting 12 months’ worth of rent breaks. The request came as a shock to many landlords, some of whom are investors or small companies that have their own bankers to pay.
Starbucks in its letter seems to acknowledge the size of its request. “None of us know the full extent of the challenges ahead, but it’s clear the value of commercial real estate has changed,” Brewer wrote. “We understand what we ask of you may not be easy, and our commitment is to be fair in our discussions.”