TOWN OF WHITBY REPORT RECOMMENDATION REPORT

REPORT TO: Operations Committee

REPORT NO: CMS 47-12

DATE OF MEETING: 18 June 2012

FILE NO(S):

PREPARED BY: Community and Marketing Services

LOCATION: Centre Ward

REPORT TITLE/SUBJECT:

1.0

Food and Beverage Operations in Arena Facilities

RECOMMENDATION: 1. That Council authorize staff to develop a Request for Proposal to obtain submissions from interested and qualified food and beverage service providers for the operation of the restaurant and food court outlets at the Iroquois Park Sports Centre and McKinney Centre; 2. That Council authorize staff to engage the services of the hospitality industry consultant Pannell Kerr Forester for an upset limit of $20,000 to be funded from uncommitted reserves, to provide guidance and insight into the food service industry and local market, assist in the analysis of the current operating model and in the preparation of a Request for Proposal that allows for a variety of alternate operational models to optimize the revenue potential to the Municipality and the service to the community; and, 3. That Staff report back to Council with the draft Terms of Reference for approval prior to issuing the Request for Proposal for the food and beverage operations at the Towns arena complexes.

2.0

EXECUTIVE SUMMARY: The food and beverage operations at Iroquois Park Sports Centre and the McKinney Centre have been operated under a management services agreement with Compass Canada for many years. The services include the operation of the licensed restaurant and food court at Iroquois Park Sports Centre, concession at the McKinney Centre and the vending operations at both buildings. The management services agreement involves the day-to-day management, staffing and operation of the restaurant and concessions on a cost plus management fee basis wherein the net profits and/or net losses are paid to or reimbursed by the Town of Whitby. The net profits reported by

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the service provider continue to be disappointing. Staff are recommending that the current food and beverage operating model be re-evaluated and a Request for Proposal (RFP) be issued to solicit submissions offering alternative operating models as outlined further in the staff report. Staff believe that the licensed restaurant at Iroquois Park Sports Centre continues to have merit and provides a valuable amenity service to the regular patrons and special events hosted at the facility. Despite this added value, the restaurant operation does not produce a net positive revenue stream to the overall operations. Recent changes including the construction of municipal offices that effectively reduce the restaurant floor area by half, and the opening of the Abilities Centre also suggest a need to re-examine the operations. The Abilities Centre is expected to produce additional demand for restaurant and food court services. Staff has also received verbal expressions of interest from local fast food chain franchisees looking to introduce their services in the food court and have received an investment proposal from the current management services provider (Compass Canada) looking to secure a longer term, but different type of relationship with the Town of Whitby. 3.0

ORIGIN: Community and Marketing Services Department Report CMS 47-12 originates within the Facilities Section of the Department.

4.0

BACKGROUND: During the planning phase for the 1997 expansion of the Iroquois Park Sports Centre, the Town of Whitby entered into an agreement with a private sector partner to manage and operate the food and beverage outlets at the facility. In addition to the food and beverage operations, the private sector partner was expected to operate an extensive adult hockey league program, a pro shop and also share in the development and net proceeds of the advertising and sponsorship program. The agreement included a significant investment by the private sector partner to construct, at its cost, the complete build-out of the pro shop, concessions area and to finish, furnish and equip the interior of the restaurant space. The restaurant shell building was constructed by the Town of Whitby as part of the overall project. A long term lease agreement was signed that provided the Town of Whitby with a percentage of total sales revenues from the concessions and restaurant operations. The agreement was terminated in October 1999 when the private sector partner failed to fulfil its obligations.

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In early 2000, Council authorized staff to engage the services of Pannell Kerr Forster (PKF), a professional food, beverage and hospitality consultant, to examine the operations, develop a variety of operating scenarios and propose the most viable solution for the continued operations of the restaurant and concessions in the food court. Through these examinations it was determined that the restaurant and concessions would be best operated by one single service provider under a management services agreement. This arrangement was recommended because it was felt that, if separated, the reduced performance of the restaurant would limit interest, whereas in combination with the concessions, the performance of the restaurant could be offset by the higher revenue potential of the concessions. The management services agreement identified that the operator would be paid a set annual fee of $80,000 based on 5% of the expected total combined annual sales of $1.6 million and the Town of Whitby would benefit from the net revenues of the operation. In July, 2000 Council approved Parks and Recreation Director’s Report Item 15-00 recommending that the Town of Whitby enter into a 5-year management services agreement with Beaver Foods, a division of the Cara Group of Companies, for the operation of the restaurant and concessions at Iroquois Park Sports Centre. In February 2001, Beaver Foods was sold by Cara to the Compass Group of Canada. In May 2001, Parks and Recreation Director’s Report Item 20-01 recommending the closure of the restaurant was presented to Council for consideration and direction. This report identified significant food and beverage revenue projection shortfalls and indicated that the poor financial performance of the restaurant was the primary cause. The report also identified other potential uses of the restaurant space. Council directed staff to continue working with the service provider to improve the performance of the restaurant. In September 2004, Compass Canada agreed to extend their management services agreement to include the operation of the food concession at the new McKinney Centre without an increase to the management fee. The original term of the management services agreement with Compass Canada has been extended on the same terms and conditions through the holdover clauses in the agreement and remains in place today. Throughout the entire term of the agreement, the management fees have remained the same although the net profit performance of the food and beverage operations has declined. The Town of Whitby owns the Pizza Pizza franchise and has a ten year agreement with Pepsi Co. for beverage vending.

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5.0

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DISCUSSION/OPTIONS: In the wake of the failure and bankruptcy of the original private sector partner, it was critical that the Town adopt an arrangement with a private operator that would ensure that quality food and beverage services continue uninterrupted. The management services agreement with a professional food and beverage provider like Compass Canada provided the Town with the greatest assurance that these services would continue. The management services agreement with Compass Canada involves the day-to-day management, staffing and operation of the restaurant and food court (including the McKinney Centre concession) on a cost plus management fee basis whereby net profits and/or losses are paid or reimbursed on the Town of Whitby’s accounts. One possible alternate arrangement considered at the time involved a company operating the combined food and beverage operations on a profit and loss basis to their own accounts and remitting a commission to the Town of Whitby as a fixed percentage of total gross sales. This operating model was not considered at the time as it did not appear to provide the same level of revenue experienced when the Town was directly managing the operations. While the management services agreement has certainly provided a stable level of uninterrupted service for a number of years, the net revenue flowing from the food and beverage operations at Iroquois Park Sports Centre has continued to be disappointing and has dropped to the level where the Town of Whitby is not receiving any net profits. The combined sales of the restaurant and food court sales at Iroquois Park Sports Centre (IPSC) have ranged between $1.35 million and $1.65 million over the past nine years. Net profit to the Municipality in 2003 was marginally over $182,000 and has dropped each year. In the 2005 to 2007 timeframe, the net profit of the food and beverage operations at IPSC levelled out in the $60,000 range. While a marginal net profit was made in 2008 and 2009, in the past two years (2010/11), the net return to the Town was negative. While the food court net profit has also slipped, the key problem area is the restaurant. It is not producing the positive results expected from the contract service provider. While there is no doubt the food and beverage service is an amenity to the customers and visitors to the arena complex, the food and beverage operations do need to drastically change to provide a positive and ongoing financial contribution to the Town. The management services agreement is structured to provide an incentive to the service provider wherein it could achieve bonuses in the form of a higher percentage of sales for net profits exceeding $250,000. This net profit threshold has proven to be too high to provide a realistic incentive.

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Staff is recommending that the current arrangement be examined and that an alternate food and beverage services option be evaluated. These could include, but would not be limited to the following scenarios: 1. A single service provider managing all outlets for their accounts and remitting a percentage of total gross sales to the Town of Whitby. 2. Multiple service providers managing each outlet independently for their accounts and remitting a percentage of total gross sales to the Town of Whitby. 3. A combination of scenarios 1 or 2 plus and established minimum guaranteed rental fee to the Town of Whitby. 4. Either of the above with no revenue sharing, just strictly a lease (rental fee) arrangement. 5. The Town’s direct operation of the food court concessions and a private operator of the restaurant. In order to fully identify and evaluate the merits of the various operating models available, staff would require the assistance of an industry consultant and would recommend that PKF be engaged to provide guidance and insight into the food service industry and local market, assist in the analysis of the current food and beverage operating performance and assist staff in the development of the Terms of Reference for a Request for Proposal (RFP) that would allow for a variety of alternate operational models to optimize the revenue potential to the Town of Whitby and enhanced service to the community. PKF has worked with the Town on a number of projects beyond their original involvement with Iroquois Park Sports Centre including the café at the Main Branch Library, the assessment of the Cullen Restaurant operations and the development of an approved caterer program for our community centres. Staff have received a preliminary scope of services proposal from PKF to assist in the evaluation and preparation of the Terms of Reference for the RFP in the estimated amount of $20,000. Staff consider that the licensed restaurant at Iroquois Park Sports Centre continues to have merit and is an essential component for many of the special events hosted throughout the year and a value added service to the regular programming. The registration success of the Whitby Men’s Hockey League and Iroquois Park Hockey League programs is linked to the easy access to an on-site licensed facility. Also the suppliers to the Town’s food and beverage operations have provided incremental revenue opportunities in the sponsorship area, such as the Maple Lodge Farms Arena.

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Recent changes at the Iroquois Park Sports Centre, including the development of the Abilities Centre and the construction of the Community and Marketing Services Department offices will also have an impact on future restaurant services. The office construction project will effectively reduce the dining room capacity and create a much smaller overall appearance. While this floor area reduction may limit the restaurant’s capacity to host larger events, it is generally felt the smaller size will be better suited to the majority of the regular activity and actually increase the appeal of the space by the public and potentially by other service providers. The Abilities Centre is just now developing its full program schedule and it may be a number of months before the Centre operates at full capacity, but is expected to be a demand generator for food and beverage services. Employees and patrons of the Abilities Centre will be able to access the food and beverage services within the Iroquois Park Sports Centre through the physical link connecting the two buildings. The Abilities Centre does have a small concession located within its lobby area that will offer a limited menu. There have also been inquiries made by the current service provider, Compass Canada, to re-examine the current management services agreement. Compass has proposed a long term (10 years) investment proposal wherein it would invest $500,000 in renewal and re-branding of the restaurant and concessions and provide the Town of Whitby with a fixed percentage of total sales. It is anticipated that the Compass Canada arrangement would significantly improve the Town’s financial position. Staff have also been approached and had preliminary discussions with the local Tim Horton’s and NY Fries franchisees interested in exploring options for a presence within the Iroquois Park Sports Centre food court. 6.0

PUBLIC COMMUNICATIONS/PLAN: N/A

7.0

CONSIDERATIONS: A.

PUBLIC Any contemplated changes in the operations of the food and beverage services at the arena facilities would recognize the importance of maintaining uninterrupted services to the public.

B.

FINANCIAL Staff have received a preliminary scope of services proposal from Pannell Kerr Forester to assist in the evaluation of the food and beverage operations and the

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preparation of the Terms of Reference for the RFP in the estimated amount of $20,000. It is recommended that $20,000 be funded from uncommitted reserves. C.

IMPACT ON & INPUT FROM OTHER DEPARTMENTS/SOURCES The preparation, issuance and evaluation of the proposed Request for Proposal would require the assistance of the Purchasing and Financial services section of the Corporate Services Department.

D.

CORPORATE AND/OR DEPARTMENT STRATEGIC PRIORITIES The examination of the food and beverage operations at Iroquois Park Sports Centre and the McKinney Centre would support the following strategic actions of the Whitby Community Strategic Plan: Pursue excellence in local government. 4.7

Develop partnerships with public and private sector organizations for innovative service delivery arrangements.

Improve municipal and community infrastructure.

8.0

5.3

Partner with all levels of government, community organizations and the private sector to plan and finance infrastructure expansion and improvements.

5.5

Enhance operational, recreational and cultural facilities, consistent with the long-term growth and development of the community.

SUMMARY AND CONCLUSION Staff are recommending that the current food and beverage operating model be reevaluated and a Request for Proposal (RFP) be issued to solicit submissions from interested and qualified parties offering alternative operating models. In order to fully identify and evaluate the merits of the various operating models available, staff require the assistance of an industry consultant. Staff recommend that Pannell Kerr Forster be engaged to provide guidance and insight into the food service industry and local market, assist in the analysis of the current food and beverage

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operating performance and assist staff in the development of Terms of Reference for a Request for Proposal (RFP). The purpose of the RFP is to examine a variety of alternate operational models to optimize the revenue potential to the Municipality and enhance the service to the community Staff believe the licensed restaurant at the Iroquois Park Sports Centre continues to have merit and provides a valuable amenity to the regular patrons and special events hosted at the facility. Despite this added value, the restaurant operation does not produce a net positive revenue stream to the overall operations. 9.0

ATTACHMENTS N/A For further information contact: Greg G. Scott, Manager of Facilities, Ext. 4321

___________________________________________ Peter LeBel, Commissioner of Community and Marketing Services, Ext. 4319

___________________________________________ Robert Petrie, Chief Administrative Officer, Ext. 2211