Sunday, July 01, 2007

RTM Leases, Round Two

Another public brou-ha-ha between Reading Terminal Market management and merchants boiled over last week, as evidenced by a "Petition To Save Rick's Steaks" circulated at the market Saturday. The petition claims the market has refused to offer Rick's a new lease, thereby forcing the eviction of the vendor. Rick's employees were asking customers to sign it, and it could be found at other vendor stalls as well.

I was unable to reach either Market GM Paul Steinke or Rick's Steaks proprietor Rick Olivieri Saturday, though I am seeking comments from both. It's difficult to believe (but not impossible) that the market failed to offer Rick a new lease. What's easier to believe is that a lease was offered and Rick found the terms unacceptable.

In the most recent round of lease renewals, which began in late 2005, Steinke has been seeking to restructure lease terms and track vendor sales, which is anathema to many of the vendors, particularly the high-volume lunch stands. All market merchants pay what is referred to as CAM, for "common area maintenance". And for virtually all merchants that figure is much larger than the separate "rent" fee. Indeed, merchants who are "purveyors" (sellers of foodstuffs for cooking/preparing at home, i.e., produce, fish, meat, etc.) don't pay rent at all, just the CAM. It's one of the mechanisms the RTM's uses to fulfill its mission of being a public market rather than a food court. Likewise, knowing the sales revenue of the vendors would enable management to charge them rents more in line with their ability to pay.

Since first posting about this on I've received two separate messages reporting a rumor that Tony Luke's was going to replace Rick's. One of the correspondents thought Rick Olivieri was being singled out by market management because Rick opposes Sunday hours. The other said Olivieri refused to sign a new lease because the rent was being raised.

I have no way of knowing whether the Tony Luke rumor has any basis in fact. Although I am not privy to any lease negotiations between RTM and Rick's Steaks, I would be surprised if RTM failed to increase Rick's rent at lease renewal time.

Here are some thoughts on all of these rumors. Keep in mind they are worth no more than you paid for them.

Rick's purported opposition to Sunday hours has nothing to do with the lease stalemate. He's certainly not the only merchant who opposes Sunday hours (so do all the Amish vendors, as do Pizza By George/Mezza and others). And if Rick did oppose Sunday on principle, why is he open at Citizens Bank Park for Sabbath afternoon ballgames?

Let's face it, this is about money: who gets it, who pays and how that money is deployed.

Replacing Rick's with Tony Luke's is not beyond the realm of possibility, but so what?

One of the my correspondents thought this would be terribly harmful to Tommy DiNic's. I doubt it would undermine Tommy's business. The RTM supports more than one hoagie outlet. Last time I looked, Carmen's, Salumeria, and Spataro's all competed to stuff your face with cold cuts, salad, cheese and bread. What makes a Pork Italienne sammie any different? And although it's not a hoagie shop, The Original Turkey can easily be considered a competitor. So can Mezza and its sister shop, Pizza By George, which sell "Euro" sandwiches. A cold meat sandwich is a cold meat sandwich; they all compete with what is, in essence, an interchangeable product. My guess is there's plenty of business for both DiNic's and Tony Luke's. As it is DiNic's and Rick's compete today (both sell hot meat sandwiches) just like Carmen's, Salumeria and Spataro's compete. Heck, Rick's competes with Spataro's, too, since Spataro offers cheese steaks these days.

If they were any real concern that a TL operation would put DiNic's out of business, a lease agreement for Tony Luke's could be written to limit the operation to steaks (and DiNic's amended to prohibit Tommy from adding steaks). TL's would either accept or reject the lease on that basis.

Now let's talk capitalism. Assuming Rick's rejected paying higher rent, it stands to reason that the RTM would seek to replace him with a similar vendor willing to pay a higher price. If a Tony Luke's, or a John's or any other cheesesteak vendor is willing to pay that higher rent, and Rick is not, well, that's what makes markets.

Now let's talk socialism. Why would RTM management seek to increase rents from vendors like Rick's? The critical reason would be to assure affordable rents for the purveyors of fresh foods (fish, meat, produce, dairy). They, not the hoagie and cheese steak vendors, are the heart and soul of the Reading Terminal Market.

If RTM management could not generate additional revenue from those with the highest profitable volumes (predominantly the lunchtime sandwich and meal vendors), rents would have to be raised across the board. This would harm the OK Lee's and Dutch Country Meats of the market much more than the Olivieri's and DiNic's. If the rents were based solely on square footage -- rather than also considering profitability (which is the way we measure ability to pay) most of the fresh food purveyors would be priced out of business.

Who operates a cheese steak stand makes a big difference to the owner, but it is of only passing interest to me. What I fear much more would be the deterioration of the Reading Termnal Market into just another food court. That's the likely outcome if increased revenues from vendors who can afford to pay are not captured to support the fresh food purveyors.

Goodbye Boston mackeral at $2.49. Hello $8 cheese steaks.

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