What are your plans for making your businesses more profitable?
I think times like these there are a lot of empty sites so I actually think it is a tenant’s market. The main thing that kills hospitality venues is occupancy costs and those occupancy costs have, by default, halved. So I think having strong cashflows in this environment – if we can maintain our constitution and not submit to the fear mongering that is going on and ride this period when the cycle comes up – we will be sitting pretty with some very nice tenancies. I tend to have lax periods in my business which marry with lax periods in my life, three years ago I was partying substantially and was not managing anything and when I woke out of that slumber I decided to micro manage.
I think in times like this you need to batten down the hatches and be very mindful and thoughtful of decisions that you make as there is little fat left in the economy. I am managing our businesses as if we are in a depression not a recession. Paranoia is good.
What are your plans for growing your businesses?
I’m currently looking for 1,500 square metres of space to move our roasting business to. Our focus is the wholesale business and I think that is where you can get economies, but I am also keen on opening my second St Ali in Melbourne. In my mind, we should have five St Ali’s nationally, maybe one in Western Australia and two in Sydney.
What about international expansion?
Let’s talk about the white elephant in the room, St Ali London. [Malatesta opened a London St Ali last year, but is now in a legal dispute with his business partners who have changed the name of the London venue to Workshop Coffee]. I always open venues that I think I will enjoy in cities I want to hang out in. So St Ali London was motivated by the fact that I love London. For me the other natural choices are LA, Berlin, New York and Tokyo.
Our international experience will be very different to the London experience, because in London I’m currently in litigation and have been in litigation for 15 months. I own 30% of the London business and non-payment of royalties and a couple of other things result in where we are now.
It’s been a learning curve for me as our partners over there are particularly wealthy. The Dicksons are half a billion pounds wealthy and I am a very small fish in big negotiations. It’s been emotionally challenging but it has also been a big learning curve. Litigation is not fun, but I’ve learnt lots sitting in my legal team’s office in London overlooking the Gherkin [London skyscraper, 30 St Mary Axe] with two QCs.
London, for me on an emotional level, feels like the betrayal between Judas and Jesus. We appointed an Australian guy as head of operations and he was instrumental in the current situation we have and that is disappointing. It’s disappointing because every time something like that happens you lose more and more trust in human kind. Unfortunately, business attracts all sorts and my emotional reaction is, from now on, I trust no one. But I don’t like living like that.
It’s really sad on a professional level because London was a billboard for the world; and I know that St Ali and the months we did for the opening months were instrumental in making that place really busy; and I know that St Ali has a cult following because we opened a café in London and within three weeks it was packed. I mean St Ali is only a café in a laneway in South Melbourne, it’s not a luxury brand or an Olympian, but in the hearts of people I think it’s massive and that’s what I’m really proud of. Now that it has been rebranded it is really busy still but people are confused about the rebrand and they think the rebrand has come from me. As long as they don’t f–k it up by providing poor service or poor coffee, all the hard work has been done. I think if you open another St Ali in London that would be interesting to see how Workshop Coffee would go.
International expansion is definitely on the cards. But now that we have been burnt we are going to move very slowly and I will own the majority of shares of what we do. There won’t be a franchise model, it will be a 100% equity model and it will be done with what I refer to as family, so people like [Grant] Smillie.
How is your industry changing and how are you responding to it?
By some fluke the St Ali group is in the right place. I would not want to be running a high-end restaurant right now. People still like to go out and dine but they like to go out and dine and spend $25 to $30 not $300. I’m not sure coffee is discretionary spending, it’s almost compulsory spending. It’s a drug of addiction and I can’t imagine people giving up coffee. Breakfast is discretionary, but it’s going to take a lot longer before breakfast becomes discretionary as opposed to fancy dinners. We are positioned in a space which I think is almost recession-proof.
What’s next on the agenda?
Opening up St Ali North, which is 10 to 12 weeks away; that will be a massive drain on resources both human and financial. We’ve got the human infrastructure in place, which is Matt Perger – who is 22 years of age and probably the most talented coffee person in the world actually. He is currently about to compete in the Nordic cup. He is the Black Caviar of coffee and his current project is water, which I can’t tell you about because it is top secret, but he is working on how coffee tastes better by taking things in and out of water. He will be in charge of St Ali North.
Our aspirations are local still. We have a site in Sydney we’ve been talking about for a while. Then there is the roasting plant and our new roaster arrives in December. After that, if all is going well, we will look international again but this time with majority shareholders instead of partners.
Cara Waters is a former SmartCompany editor. Previously, Cara was a senior reporter for the Financial Times’ website and worked for The Sunday Times in London.
