Investing in Profit
by Tony Ozelis

Profit…is not a four-letter word” - Dave Thomas.

First off, what we would like is for folks both today and into the future to remember the economic times during which this was written …early November, 2008. These are (were) tough times. On the eve of a presidential election, at war on two fronts (Iraq and Afghanistan, in case you don’t remember) and in the worst economic times since… well... ever, for most people alive today.

It wasn’t but twelve months ago that things were just singing along in the development world. New projects were sprouting up like mushrooms after a spring rain and record prices were being set for properties in even the most unlikely of areas. It was not unusual for brokers and developers to quote rent numbers in excess of…well, excess...and obviously, it was during these times that very few people thought that music would ever stop. Well, it did and when it did it seems that there weren’t very many chairs left in the room.

What happened from there was, at first, predictable. The businesses that were in pretty bad shape to begin with started to disappear. Then it was the over- stretched chains that started to waiver and fail. But when the big boys started showing up to the party (Starbucks, Linens and Things, Circuit City, among others) it seemed as if the sky was truly falling. And, like any other type of devastating storm, the structures that remained standing after the sky had cleared all had one thing in common…it was the ones with the sturdiest of foundations. And in the development world, that foundation is; responsible and reasonable occupancy costs (Rent, Common Charges, taxes, etc).

High sales volumes make up for a myriad of concealed problems in business and nothing beats good old hard economic times to bring them out. My case in point; in the Times Square section of New York City there is a national quick-casual restaurant that does well over $8 million a year in sales volume…and loses money.

Why? Well…I’m sure that labor costs (the #1 expense in most businesses) are high in Manhattan, but with rental prices “by the ball” going for over $700 a square foot, you can bet occupancy costs are a co- conspirator. I know what got that company (and many like them) in trouble; I’ve seen it with almost every company that I’ve worked for. Although they may have had great products and/or services, they relied on the wrong technology, expanded way too fast and spent nothing on teaching the folks responsible for their development needs how to negotiate.

Imagine that? Spending thousands upon thousands of dollars and probably as many man-hours developing a program that says that "far-corner locations are good" and not one dime on how to get it cheaper!

I can only guess that because the process is not tangible and the results not quantifiable, it’s harder to sell to senior management…but make no mistake; every dime you save on occupancy costs, go right to your bottom line, even though you may not see it.

I was with the Pizza Hut division of Pepsico a bunch of years back (they’re owned by Yum Brands nowadays) and at a national convention held in Las Vegas, they surprised us by putting us through a negotiating course.

Initially, we were all insulted. After all, we KNEW how to negotiate …heck we did it every day. Or so we thought...

What we learned during the course that day, forever changed how we approached our jobs. To the credit of our VP of Development, even members of our construction department joined our group as well.

What happened after that was we became a profit machine. No longer did we brag about high initial sales volumes…it was how much profit we generated, and even our revised bonus program reflected that...make your numbers - make your bonus; EXCEED your numbers - you were sittin' in tall cotton.

So my advice to the fledgling entrepreneurs, struggling retailers and whatever companies found a seat when the music stopped?

Stop looking for a technological silver bullet and instead of investing in “The-Wonderful-Computer- Program-That-Picks-Sites-For-You”, spend a lot less of your companies hard-earned dough on the sexiest product of all…PROFIT. Make the investment in every person connected to your development plans (including the support staff) and have them professionally taught how to negotiate.

That way when the music stops again (and it will), you might just have a seat.

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About the Author: Tony Ozelis is a real estate development consultant and frequent contributor to LocationIsland.com.  Mr. Ozelis' 23 year career has primarily been focused on restaurant and retail development throughout the United States where he has served as a Director of Real Estate for companies such as Pizza Hut, Inc., Boston Chicken, 7-Eleven and Wendy's International.

With well over 700 successful projects completed to date; he has been at the forefront of incorporating new technologies into corporate real estate development and regularly teaches on subjects such as; Strategic Market Development Planning, Contract Negotiations and incorporating Green Technologies into site design.

Mr. Ozelis is a member of both the International Council of Shopping Centers (ICSC) and the United States Green Building Council (USGBC).

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