Cart operators wary they’re being ‘churned’
CITY HALL — The Promenade’s new vending cart program has hit a serious bump in the road, as elected officials have determined that allegations of abuse by its operator are worthy of an investigation.
Meanwhile, current vending cart operators have been granted a request to extend their business on the Promenade for the next few weeks until the new program operator, Provenzano Resources, Inc. (PRI), takes over management duties on Nov. 21.
For more than an hour, the Santa Monica City Council questioned PRI staff and listened to vending cart operators — represented by an attorney — who alleged the management company is overcharging for use of the Promenade and retaliating against those who’ve expressed their concern at City Hall.
As a result of the testimony, the five members of the City Council present after 1 a.m. on Tuesday requested staff to investigate PRI’s practices before PRI takes over next month.
“I’m supporting an extension for the current cart operators, as well as suggesting we launch an investigation into what’s going on,” said Councilman Kevin McKeown, whose motion was unanimously approved (5-0). “If what’s been going on is true, it reflects badly on us as the city of Santa Monica.”
In June, PRI was awarded a minimal 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 business leaders who help 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.
The agreement calls for PRI to provide 17 retail carts, five food carts, a cart for concierge services, and three carts for artists. The new operators are expected to begin hawking their new wares on Nov. 21, according to a Sept. 22 staff report. PRI, which owns the carts, has the discretion to choose which operators it will use, according to Miriam Mack, the city’s economic development manager. PRI has offered eight of 16 current cart operators a chance to sign on, two of whom have rejected the offer, the staff report said. All of the slots have been filled.
Daniel Ganon, who runs three carts on the Promenade, said on Tuesday he was allowed to continue in the new program and 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 said.
Prior to Tuesday’s meeting, current vending cart operators were expected to be finished by Oct. 15 so PRI can refurbish the cart storage facilities for its new program. As PRI does so, city officials decided on Tuesday it will find a temporary space where the carts, set to be sold, can be used so current operators may have a few more weeks of business.
Ross Provenzano, who co-owns PRI along with his wife Deborah S. Kravitz, said he is a former cart operator himself 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 Tuesday’s meeting.
The carts are intended to be a more attractive addition to the Promenade, Kravitz said. PRI also has hired a merchandising expert who will see to it the wares for sale at each cart are distinct from one another and nearby shops.
Such moves will likely increase revenue for the cart operators, Kravitz said.
In the past, cart operators were charged a total rent of between $2,000 and $2,300 per month. According to the staff report, PRI negotiates the cart operators’ rent based on their understanding of the product, the profit margin, plus 15 percent of revenue generated above the “break point.”
As a result, the staff report said negotiated base fees averaged $2,461 per month.
Some people at Tuesday’s meeting said PRI pays City Hall $600 to $700 for vending cart space it manages on the Promenade.
One of the requirements 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 staff report said none of the new cart operators claimed to need financial assistance, as suggested in recent news reports.
The total start-up fees for a new cart operator varies between $6,300 and $12,900, depending on product and cart placement, the staff report said.
The contract is good for six months. Another accusation that concerned councilmembers on Tuesday is that PRI might be preparing, based on its program’s conditions, to “churn” vending cart operators to maximize profits at their expense.
PRI insists the cart operators under its program will generate an average revenue of $16,000 per month and will be able to afford the thousands of dollars buy-in to secure a contract.
Councilmembers agreed part of the reason why it was difficult to gauge the reality of PRI’s revenue projections — and therefore determine its fairness — is because the prior program operator didn’t keep exact accounts of cart sales. Nonetheless, councilmembers wanted staff to gather as much financial information as possible as it also explores other alleged abuses during its investigation.
“I have heard a lot allegations tonight, a lot of which is really up in the air,” Bloom said. “Still, I have some concerns and think this will be a good exercise for PRI to have a good understanding what is expected of businesses in Santa Monica.”
Originally published in the Santa Monica Daily Press print edition on October 14, 2005. Read the original PDF.