SR-308-002-02 (13)~ir
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City Council Report
City Council Meeting: June 13, 2006
Agenda Item: ` v
TO: Mayor and City Council
FROM: Barbara Stinchfield, Director
SUBJECT: Lease and Beach Concession Agreement with Chaos Enterprises, Inc.
(dba Perry's Cafe and Rentals)
Recommended Action
It is recommended that City Council authorize the City Manager to negotiate and
execute a Lease and Concession Agreement with Chaos Enterprises, Inc. (dba Perry's
Cafe and Rentals) for operation of four beach concessions at Santa Monica State
Beach.
Executive Summary
The Santa Monica State Beach includes four concession venues that provide food,
rental and other services to visitors. In September 2005, the City issued a Request for
Proposals to parties interested in providing these services. Staff received one proposal
from the current operator, Chaos Enterprises, Inc. (dba Perry's Cafe and Rentals).
Based on its proposal and rental offer, staff is recommending the selection of Chaos
Enterprises, Inc. to operate the four beach concessions for an initial term of five years.
The City's Beach Fund is expected to receive $150,000 in minimum annual rent or 15
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percent of gross sales, whichever is greater, to provide essential financial support for
ongoing beach maintenance and operations.
Discussion
Backqround
The City of Santa Monica leases a number of concessions on Santa Monica State
Beach under the City's Operating Agreement with the State of California. These
concessions provide important amenities to the beach-going public including food,
beverages and bike/skate rentals. The City's Lease and Concession Agreement with
the current operator, Perry's Cafe and Rentals, expired on June 30, 2005, and operation
has continued on a month-to-month basis. In order to offer a more financially viable
opportunity for the City, the City proposed, and the State approved, a reduction in the
minimum annual rent requirements to minimum annual fixed rent of $100,000 or 14% of
gross sales, whichever is greater. The previous contract required a minimum annual
fixed rent of $200,000 or 20% of gross sales, whichever was greater.
The City also required a substantial initial minimum capital investment for each of the
concession opportunities. The goal of this investment was to refresh the physical
appearance of the concessions buildings to enhance the visitor beach experience and
increase patronage resulting in additional revenues.
Previous Council Action
On July 22, 2003, Council approved the following minimum rental structure and lease
term for beach concession stands and cafe:
• four beach concessions with a term of 5 years (with an option to renew for
an additional 5 years) and a minimum annual rental requirement of
$100,000 or 14% of gross annual sales, whichever is greater; and
• one beach cafe with a term of 5 years (with an option to renew for up to
two additional 5-year terms) and a minimum annual rental requirement of
$60,000 or 8% of gross annual sales, whichever is greater.
These rental structures were submitted to the State Legislature and were approved by
the State in August 2004.
Consultant/Contractor Selection
Letters about the RFP opportunity were sent to 270 potential bidders and notices were
published in the Santa Monica Daily Press, the Daily Breeze, and the City's website. A
total of 24 interested parties requested and received the Request for Proposal (RFP)
and 31 individuals, representing 19 companies, attended the Pre-Proposal Conference
on August 22, 2005. Proposals were due on September 28, 2005.
In response to the RFP, the City received one proposal, from the current operator,
Perry's Cafe and Rentals, for the four beach concessions. No proposals were received
for the beach cafe. Historically, the beach cafe was a fifth concession stand. It is
located very close to another concession stand which has always made the site
problematic for potential operators. Its location also precludes outdoor seating on the
west side because the cafe premises are bisected by a fire lane. The building itself is in
need of substantial improvements. Given all of these factors, staff is considering
demolishing the building. Perry's proposal for the four concession stands met the
minimum level of qualifications specified in the RFP. As the incumbent, Perry's
understands the beach dynamic and the intricacies of a seasonal operation. Perry's
has committed to making both physical and operational improvements and upgrades to
the concessions. Staff is continuing its discussions with Perry's Cafe to clarify their
proposed rental offer to ensure that that it exceeds the minimum rental structure.
Terms and Conditions
In addition to the terms noted above, there are several other noteworthy terms and
conditions proposed in this concession agreement aimed at enhancing the visitor
experience at the beach:
1. Perry's will make an initial investment of $250,000 in exterior and interior
upgrades to all four existing concession stands. Perry's will receive a credit for
previous interior and exterior improvements that will offset this investment.
2. Perry's will expend a minimum of $75,000 on new bike and skate rental
equipment. Perry's purchased new bike and skate rental equipment this month
and will receive a credit against the required minimum investment.
3. Perry's will exercise its best efforts to promote healthy and sustainable food
practices including offering a selection of beverages with no sugar added,
purchasing products from local farmers dedicated to sustainable agriculture, and
providing California food products that are as pure and natural as possible.
4. Perry's will provide healthy food and beverage items on its kids menu.
5. Perry's will provide a 10 percent senior discount on all equipment rentals.
6. Perry's will allocate and expend 1% of gross sales on replacing worn furniture,
fixtures and equipment annually.
Provided that Perry's is in full compliance with the concession agreement and that the
City is satisfied with its performance, the City will offer to extend the term of the
agreement for a period of five years.
Budget/Financial Impacts
The proposed FY2006-07 City Budget includes projected revenue of $223,914.
Revenue projections are made using an average of the last three years. The budget
estimate was based on six months of operation under the current agreement at 20
percent of annual gross sales of $1;112,500 ($111,243) and six months under the
proposed agreement at 15 percent of projected gross sales of $1,502,266 ($112,670)
for a total of $223,914.
Prepared by:
Elaine Polachek, Open Space Manager
Approved:
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Barbara Stinchfield
Director, Community & Cultural Services
Department
anager
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