New vendor program to bring in more money
THIRD STREET — A new management company set to take over the vending cart program this month is under scrutiny from City Hall due to allegations that it has engaged in retaliatory practices.
The City Council expects on Tuesday a report from staff on whether or not claims by current vending cart operators that the new management company, Provenzano Resources Inc. (PRI), is shutting them out after they publicly questioned their future on the Promenade are true.
Daniel Ganon, who runs three carts on the Promenade, said at a City Council meeting last month that he was allowed to continue in the new program but was later denied a place after he and others took their concerns to City Hall in September.
“I sent a FedEx (with my check) and (PRI) told me, ‘I’m tired of you going behind my back to the City Council,’” Ganon told councilmembers.
Ganon’s allegation is one that City Councilman Kevin McKeown has indicated he would like explained in the staff report on Tuesday.
“The council was concerned enough to ask for an investigation about allegations of retaliation by the new master lessee against cart vendors who had met with the city individually,” McKeown said. “Before the new operator takes over, and the existing operators are shut down, I want to make sure we have done our part to assure that everyone is being treated fairly.
“If the reported retaliation is proven, we may consider other options.”
At the council’s request, current vending cart operators on the Promenade have been allowed to extend their business until PRI takes over management duties on Nov. 13, according to Miriam Mack, City Hall’s economic development manager.
In June, PRI was awarded a 10-year contract to replace Promenade Services Inc., the group that had managed the Promenade’s mobile cart operations since 1989. City officials and the Bayside District Corp. — a nonprofit group of that helps manage downtown along with City Hall — felt it was time to explore new vendors who could present better concepts or approaches that would make it more profitable for the Promenade.
CITY HALL’S CUT With the new contract, City Hall is expected to double its profits from Promenade cart sales.
City Hall stands to receive a minimum of $187,200 in annual revenue with the vending cart program. However, Mack said $224,640 is more likely expected.
Both figures are substantially more than the $115,200 City Hall received annually from the former operator, Mack said.
In the past, cart operators were charged a total rent of between $2,000 and $2,300 per month, of which City Hall got $600 monthly.
PRI negotiates the cart operators’ rent based on their understanding of the product and the profit margin that’s to be expected, plus 15 percent of revenue generated above the “break point,” city staff said.
That break point, Mack explained, is the minimum monthly rent a cart operator pays PRI that both parties agree on. A staff report said negotiated base rents averaged $2,461 per month, slightly more than previously. In addition, PRI also collects 15 percent of any revenue operators generate above that base rent.
Likewise, City Hall’s new contract calls for a minimum $600 rent from each cart operator, or 30 percent of what PRI collects — whichever of the two is higher.
Mack said she expects City Hall to collect an average of $720 per month from each cart, based on the financial expectations of revenue each cart should generate.
One of the requirements for the new program is that PRI retain a visual merchandiser to be responsible for the overall image of the cart displays. The one-time costs of the merchandiser is passed on to the cart operator, the staff report said.
Four levels of improvements are offered to new cart operators, ranging in cost from $1,800 to $6,000. Of the 13 contracts signed by Sept. 20, nearly half are paying the middle upgrade of $3,750. Two are paying the full $6,000, and only one is paying the base $1,800.
The total start-up fees for a new cart operator varies between $6,300 and $12,900, depending on product and cart placement.
The agreement calls for PRI to provide 17 retail carts, five food carts, a cart for concierge services, and three carts for artists. PRI, which owns the carts, has the discretion to choose which operators it will use, according to Mack.
PRI has offered eight of 16 current cart operators a chance to sign on, two of whom have rejected the offer, city staff said. All of the slots have been filled, and the contracts last six months.
Ross Provenzano, who co-owns PRI along with his wife, Deborah S. Kravitz, said he is a former cart operator with 39 years of experience in the business. Provenzano told the council he embraces a philosophy that supports small business owners and feels his program is set to achieve those expectations City Hall had when it signed up his company to bolster the consumer experience on Third Street.
In the past, merchants complained because an operator could have multiple carts on the Promenade. Under the new system, operators will only be allowed to have one cart, so “everyone can have a piece of the pie,” said Kravitz, who didn’t attend the Oct. 11 meeting.
Another accusation that concerned councilmembers is that PRI might be preparing, based on its program’s conditions, to “churn” vending cart operators to maximize profits at their expense.
Mack said she disagrees with this suggestion, on the basis it didn’t further PRI’s long-term business interest.
PRI insists the cart operators under its management will generate an average revenue of $16,000 per month and will make up for the thousands of dollars buy-in to secure a contract.
Mack said she agrees with PRI’s assessment.
“The expectation here is that the conditions that are being established are economically feasible,” Mack said. “All parties want the cart operators to be successful.”
Originally published in the Santa Monica Daily Press print edition on November 7, 2005. Read the original PDF.