Coconut’s follows the matrix into downtown L.A
After decades of being known as a cool city with a downtown that’s a dead zone after working hours, central Los Angeles is undergoing a redevelopment renaissance with scores of new residents, new shopping districts and several large skyscrapers adding to its famous skyline.
Photo by Hunter Kerhart
Coconut’s Fish Cafe founder and CEO Mike Phillips is the master of saying no to his franchisees. On a quest to triple the size of the family-run fish franchise from its current stable of eight restaurants, he’s become hyper-vigilant in requiring franchisees to secure the very best real estate available no matter how long it takes.
Because you can only charge so much for a fish taco, as he puts it, every new Coconut’s has to be well positioned to attract schools of both daytime and dinnertime customers, and also located in up-and-coming city centers where available retail space hasn’t yet become prohibitively expensive. It’s a delicate balance and a long game, but one this former police-officer-turned-restaurateur is willing to play, even if that means being the bad cop.
The newest Coconut’s is in downtown Los Angeles, four blocks south of the new Wilshire Grand Center that’s a 1,100-foot skyscraper that’s now the tallest in town. It’s literally a shining example of a city that’s gone from sleepy to booming since the Great Recession. Landlords and property owners who were patient are now cashing in as parking lots are torn up for new developments and historic buildings are renovated into upscale residential and commercial spaces. More restaurants and retail options are following this influx of people, workers and money in the country’s second largest city.
“When we started considering downtown, I told my team they’re absolutely out-of-their-minds crazy—that’s ridiculous to even think about,” Phillips said, reflecting on his time spent as a young cop in the city. “I hadn’t been downtown Los Angeles for 10 years and I could not believe what was happening on every street corner—not some street corners, but every street corner. They’re going to make this look like New York down there.”
Unfortunately, downtown L.A. wasn’t such a slam-dunk for the Coconut’s franchisee who presented 77 individual locations that Phillips and his team rejected. Tensions flared, but the company assured the franchisee it was doing what was best for his pocketbook.
“I just could not do it and would not do it, and he was not happy with me,” Phillips said of the two-year real estate search. “I said, ‘We sold you an area that we told you was going to be expensive, and we can’t have you work for the landlord.’”
A new, new wave
Its mountain-backed skyline is a fixture in advertisements and TV backdrops, but downtown L.A. was often a dead zone after the workday ended. For such a large city, and one with a reputation as the most glamorous place in the country, its central business district lacked the transit options, green space and street-level retail that gives the best cities their buzzy feel.
According to the Los Angeles Times, the city provided nearly $1 billion in taxpayer assistance for hotels and other developments since 2005—and it shows. The blocks around Staples Center and L.A. Live on the super-hot west side of downtown brought additional billions of private investment including a 54-story Ritz-Carlton and a JW Marriott hotel that added to the famous skyline. A new 3.8-mile streetcar loop is opening in 2021 and, even further down the line, a mega-expensive bullet train will connect L.A. to the also-booming Bay Area 400 miles to the north. That’s a lot of reasons for new people to live, play, shop and hang out in the city. It’s worth mentioning that California is now the world’s fifth largest economy with a GDP north of $2.7 trillion—larger than the entire United Kingdom.
Aside from the Wilshire Grand, there are several other mega-projects cruising through the approval process, including plans for an 88-story skyscraper in Bunker Hill, a 77-story condo, retail and hotel tower on Figueroa and a 70-story residential building on Olive and 11th Street just up from Coconut’s. Downtown L.A. hasn’t boomed like this since the 1920s.
For Phillips, the quantity and scale of these new skyscrapers were the biggest indicators suggesting the best days for L.A.’s downtown are coming soon—and that Coconut’s needed to be there. Its franchisee ended up signing a 10-year lease, which should prove to be a sweet deal once rental rates catch up with the number of new residents and workers in the area.
After an unusually long site selection search, the newest Coconut’s is located in the heart of the action at 8th Street and Olive. It’s near Whole Foods, the Orpheum Theater, Fashion District, scads of hot restaurants and experiential retail, as well as major employers like the L.A. branch of the Federal Reserve.
With a 40-year career in the restaurant business, his team’s real estate selection process combines data-driven matrices with old-school tactics like hitting the sidewalks and seeing the action with their own eyes. Market research provides the numbers of lunchtime and dinner customers in a given neighborhood, and on-the-ground intelligence gives the Coconut’s team a more nuanced view of who’s moving into the area.
“I tell my franchisees this all the time: if I’m not going to sign the lease I’m not going to approve the space, because if I would not personally put my name on it then it’s not good enough for you,” Phillips added.
Whether investigating Cupertino or Culver City, the company seeks out the best-possible brokers in an area for a leg up on what’s coming next, beyond what’s already been announced in the local newspapers. Being able to present impressive foot-traffic numbers has helped its case with brokers and landlords alike.
Further up the state, Phillips found similar conditions in Sacramento, which—unsurprisingly—is also blowing up. Located off 16th and O Street, the Sacramento Coconut’s is right between the Downtown and Midtown neighborhoods. While he was initially concerned about a dearth of parking, Phillips found more customers than expected are walking to the restaurant, rather than driving.
“We have a small parking lot in the back and we were very concerned we weren’t going to have enough parking,” he said. “Today, a Friday afternoon at lunch rush, I went to the back and six parking stalls are available and the restaurant is packed—so I was wrong about that.”
Because the Hawaiian concept works best in warmer climates, Coconut’s is skipping cold-weather states to focus on West Coast markets. Outside California, he sees opportunities in Seattle and Portland, as well as Las Vegas, where a high-profile businessperson is currently interested in the brand.
Acknowledging that some cities are better than others, Phillips stressed there’s no escaping the impact of square footage costs in the restaurant business—which is why he’s willing to wait for perfect locations that check every box.
“These big-box restaurants are going to have to downsize, because if they don’t they’re going to be out of business,” he said. “Are you going to go out and spend $50 a person on your family for dinner two nights a week? The answer is no, so these people that are looking for real estate have to come around to my thinking and say more isn’t better—the right opportunity is the possibility of success.”
Tom Kaiser is senior editor of Franchise Times and writes The Urbane Franchisor in each issue. Send story ideas about urban tales in franchising to email@example.com.