The Santa Monica City Council has released McDonald's Corp. from a contract to operate five concession stands on the beach after sales during the last three summers were less than one-fifth of projections.
McDonald's signed a five-year contract in 1984 to rent the stands from the city for a minimum of $200,000 per year or a sliding percentage of gross sales, based on projected annual gross sales of $3.5 million. Actual gross sales for the seasonal beach restaurants have been only $605,000 per summer.
"It's cheaper for us to write a $400,000 check (for the next two summers) and walk away from this hemorrhaging contract than to keep operating the stands," said Doug Ring, an attorney for the company.
However, the company will not have to write that check because the council voted Tuesday night to cancel the contract on the condition that McDonald's operate the stands until new concessionaires could be found. Bids are due on June 2.
Ring said the fast-food chain intends to bid on the new contract because it offers more attractive terms, such as a minimum rent of $125,000 or 16% of gross sales and a five-year option to renew.
The city was willing to renegotiate the contract because it wants food services on the beach for the 15 million to 20 million people who visit Santa Monica annually, City Manager John Jalili said.
The five one-story, concrete stands, located on the beach between Ocean Park Boulevard and the Santa Monica Pier, also provide an important source of revenue for the city's beach fund, which pays for beach maintenance and police patrols.
The stands were in poor condition and generated only about $87,000 per year for the city before McDonald's was awarded the concession, Jalili said. The council's decision in 1984 to award the contract to the fast-food company was controversial because of a boycott of McDonald's franchises by the Los Angeles chapter of the NAACP.
Spent More Than Estimated
Ring said McDonald's has spent $1.2 million to bring the stands up to health code standards, $700,000 more than its original estimate for cost of the repairs. He attributed the low gross sales in part to the city's restrictions on signs on the beach.
None of the concession stands carry McDonald's familiar golden arches. It is difficult to distinguish the concession stand at the foot of Ocean Park Boulevard from nearby restrooms. Both structures are concrete with flat roofs. The restaurant, which has six food service windows, has a blue tile border under the roof and a small emblem picturing the golden arches on the side of the building.
"If people don't know you're there, no one will come," Ring said.
City Councilman Dennis Zane, who voted against awarding McDonald's the concession stand contract three years ago, said he voted Tuesday to release the company from the contract because he "welcomed the opportunity to liberate the beaches from the golden arches."
The council also voted to encourage the new operators of the stands to use biodegradable containers instead of plastic and Styrofoam.