McD's beach party is bullied by slow sales, budget overruns

Nation's Restaurant News, June 15, 1987 by Richard Martin

McD's beach party is bullied by slow sales, budget overruns

Nobody kicked sand in McDonald's face at the chain's five concession stands on the beach here.

Instead, the usually brawny burger outfit was bullied into submission by its own overly optimistic sales forecasts and remodeling budget overruns.

Last month a merciful Santa Monica City Council released McDonald's from the final year of its five-year agreement to operate the concessions for a minimum $200,000-a-year rent.

A lawyer for the chain told the council McDonald's would rather pay off the "hemorrhaging' contract than continue doing only 20 percent of its initial sales projections. He blamed the city's restrictive signage codes for slow sales at the inconspicuous, flat-roofed stands, which bear only a small golden arches logo on their sides.

Councilman Dennis Zane, who opposed granting McDonald's the beach concession three years ago, sided with it on its bid for contractual freedom. Zane said he "welcomed the opportunity to liberate the beaches from the golden arches.'

Based in part on the 15 million to 20 million visitors who each year flock to Santa Monica, McDonald's had projected annual sales of $3.5 million for the five seaside stands. However, they generated only about $605,000 in revenue during a May-to-September summer season.

A further impediment to the chain's 1984 deal with the city was McDonald's overrun of its $500,000 budget to rehabilitate the concrete-block outlets, which dot the beach from Ocean Park Boulevard to Santa Monica Pier. The chain wound up spending $1.2 million to fix up the dilapidated stands, which range in size from 850 square feet to 1,750 square feet.

"They made miscalculations not only on volume but on capital improvements,' assistant city manager Lynne Barrette said. Still, the stands generated only $87,000 per year for the city before McDonald's took them over, city manager John Jalili noted.

Although McDonald's sought to quit its contract two years early, the company agreed to continue running the stands through the end of the 1987 season. In fact, the chain hopes to be back next year under the terms of a revised concession pact.

McDonald's said it submitted a bid on the new contract June 2 because minimum rent was lowered to $125,000 or 16 percent of gross sales. A five-year renewal option was a further enticement.

Barrette said other national chains and local operators bid on the revised contract. The other bidders were not immediately identified.

The prospective concessionaire recommended by the city will be subject to a state approval process which takes about six to eight weeks, Barrette explained.