Thursday, February 09, 2012

RTM's Leasing Strategy Works Against Rick's Return

With the market's renovation program centered along Avenue D opening up space for four new merchants, General Manager Paul Steinke's emphasis has been to fill those slots with "purveyors" who primarily sell foods for cooking or eating at home. That's why the chances of any new pure lunch vendor of getting one of the two remaining stalls is slim at best and why Rick Olivieri's attempt to reenter the market with his Rick's Steaks business will fail.

It's certainly possible, though, that a vendor selling for both on- and off-premises consumption could get that nod. I think the only chance for a new vendor to primarily sell for on-premises consumption would be to offer something not now available from other lunch counters. Hot donuts, anyone?

Only one of the three new vendors announced so far will sell food for eating within the market, but it will also offer groceries and other food products to take home: Wursthaus Schmitz would carry German groceries and cold cuts as well as hot foods for eating either within the market or at home.

The second new vendor would be artisinal cheese maker Valley Shepherd Creamery, which is expected to sign a letter of intent within a few weeks. The latter's product would be overwhelmingly for off-premises consumption, though there's no reason why someone couldn't have a sheep milk yogurt for lunch in center court. A third new vendor, The Head Nut will essentially replicate the offerings of The Spice Terminal, which declined to renew its lease.

That leaves two remaining spaces for new vendors: one along the Avenue D wall, another in a small space on center court adjacent to where Wursthaus Schmitz will be located.

The market's operating policy guidelines require that no more than the greater of one-third of the number of vendors or one-third of the floor space go to businesses "which offer food intended primarily or exclusively for consumption within the Market."

While Steinke is comfortable that the current breakdown of merchants is well within that restriction, by my subjective count 36 of the 77 existing merchants exclusively or primarily fall into the "on-premises consumption" category.

Let me emphasize the subjective nature of determining whose "primary" business is for off-premises consumption or not. As an example, take 12th Street Cantina, which I consider among those who "primarily" sell for on-premises conception but Steinke does not. Steinke says this business a "two-sided" purveyor that doesn't count against the operating policy ratios because of the many take-home Mexican groceries and prepared foods they sell. My opinion is influenced by the fact that 12th Street Cantina has a seating area for diners. (I've got to admit, though, nearly all of my purchases there have been for ingredients to use at home.)

The same debate could be held about any number of other vendors, from Kamal's Middle Eastern Specialties to By George! Pizza, Pasta and Cheeseteaks, both of which also sell plenty of items for consumption and/or cooking at home, but also earn money as lunch vendors. (Indeed, the line for cheese steaks at By George! at lunchtime frequently blocks the aisle.) The key metric in making any such determination as to whether a business is "primarily" engaged in sales for off-premises consumption would be to know the revenue breakdowns, but neither Steinke nor I have access to that proprietary information.

Getting back to Olivieri, another factor why he has little chance of reestablishing his cheese-steakerie in the market are the three existing vendors who depend upon cheese steak sales, and two others who find it a highly profitable sideline. Although Steinke said he couldn't give a "blanket answer" to a hypothetical question about allowing a new merchant to compete with the same product of five existing merchants, it's hard to imagine him adding another tourist-centric cheese steak stall. He acknowledged to Dan Gross of the Daily News, who broke the Olivieri story Wednesday, that cheese steaks were not the market's "highest priority".

When Olivieri's lease was not renewed in 2008, the market allowed two additional vendors to sell cheese steaks: Carmen's Famous and By George! (Spataro's earlier had been permitted to add cheese steaks when they moved to a new center court location.) Today all three businesses incorporate "cheese steaks" into their formal names. In addition, the Down Home Diner sells cheese steaks, as does the new Molly Molloy's.

Rick's Steaks loss of its lease in 2008 followed Olivieri's vociferious leadership of the Reading Terminal Market Merchants Association when the market was restructuring lease agreements and fee structure. You can find earlier stories about the Olivieri-RTM clash here and here.

1 comment: said...

Quick comment about 12th street cantina. Have they changed owners in the past few years? They used to be quite better and it seems like they have gone downhill.

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