Monday, April 28, 2008

Erie Street Market business plan offers nothing new

Those who cannot learn from history are doomed to repeat it.

I've had a chance to read the new business plan for the Erie Street Market (ESM) and the above quote is so relevant I could just stop right there. (Fox Toledo has a copy of the business plan available on their website.)

To say that this new business plan is a copy of the original business plan isn't technically correct, but the approach and concept is certainly the same. It calls for almost the exact same offerings in terms of food and amenities, moves the antique vendors (again) starting no later than the end of June, continues the taxpayer support of costs for utilities for three years, and expands taxpayer support through a new marketing/internet plan.

It even suggests reinstituting the cooking classes and 'Jazz Brunch' which were part of the features when ESM first opened.

Aside from all that ...

Jeffrey I. Green, MBA, is the author of the business plan, but his background or qualifications for preparing such a plan is not included as part of the plan itself. I've emailed him (as his email was included) to ask for his resume and/or qualifications and will add that information upon receipt.

As part of the description of the ESM, Green writes:

"Another problem has been the management of the Erie Street Market. Successful public markets typically have strong and consistent management that has the vision, the skills, and the resources to guide the institution. Since the re-inception of the Erie Street Market in 1997, it has had ten managers in ten years. This reflects the Market's struggle with leadership and the political turmoil that continually surrounds the project."

However, the structure Green suggests for the new management is exactly the same as what it's had: a manager directed by a board. And who would name the board? The plan says, "These (board) members will be approved by the Mayor..." And that makes them political appointees, continuing the problem of political turmoil in the operations of this facility.

The market assessment portion of the plan lacks a market feasibility study. It includes an old LISC neighborhood market snapshot, but doesn't provide evidence for the optimistic projection of success. The plan states that since other cities in Ohio have successful markets, Toledo can too, if it can only develop a better way of appealing to customers.

It says that public market vendors cannot compete with supermarkets in terms of prices, so they must sell what supermarkets do not and should offer what supermarkets cannot - products made "on-premises in view of the customer." It also says that offering local products is not enough, as many grocery stores trend toward offering locally-grown/made items.

But then the plan contradicts itself when it says, in the Products and Services section, that the emphasis will be on food that come from local farmers and food producers.

"If implemented properly, the Market will be able to compete successfully with supermarkets and specialty food stores because of the unique product offerings, the customer service provided by the business owners, and the special shopping experience offered within the market hall and the adjacent farmers' market."

Again, this was what ESM originally offered and, as we've seen, it didn't work as the 'special shopping experience' wasn't enough to overcome price and convenience of shopping in other area venues.

Then there is the contradiction of the city subsidizing new businesses that are in direct competition with existing ones. The business plan calls these existing companies in the area 'indirect competitors,' but they are direct competitors who do not have the benefit of subsidized rent, utilities and marketing. This aspect is not addressed in the business plan as it should be.

The impact of city-subsidized businesses going into direct competition with existing businesses will have an impact on those existing businesses - which will be reflected in taxes paid by those existing businesses and in the number of individuals they employ. Even if such analysis is not part of the business plan, per se, those potential losses should be balanced with the public costs associated with the subsidies and should be included in Toledo City Council's review of the Market.

Another tidbit found in the "Products and Services" portion is the idea to recruit a large unique food retailer to the location. Whole Foods has often been mentioned, even though they declined to be a part of the revitalized Westgate Shopping Center because of market considerations. However, the plan states, "management believes the success of the Market is in keeping with the original plan." "Management" is not identified. Further, if the thought is to stay with the original plan, why did we need a new business plan? Why not just bring out the old one and call it a day?

There are some other contradictions in the plan. It says the city should reconstitute the ESM Development Corporation, but then states (page 7) that the ESMDC is 'working with Neighborhoods and Fleet and Facilities' to finish some projects relating to signage, facades and the demo kitchen. Completion of these projects is even included in the 2008 timeline. So which is it? Do we need to recreate the ESMDC or is it already currently running the market?

The plan calls for an increased marketing budget, but doesn't say where the additional funds will come from. It says the facility is inefficient to heat and cool, but includes nothing about how to improve or solve this problem, as the city continues to pay utilities. It says the facility should be profitable and such profits should go back into the operation. But if it's not, after three years, it would be sold or, if no buyer is found, closed down with all assets auctioned off.

The plan includes a 2008 projected income statement, but it is missing several significant expenses including bank charges, credit card fees, delivery expenses, depreciation, interest charges, maintenance, wages, payroll taxes and repairs. Without these expenses in the budget, it shows a net operating income of $144,257. If these expenses are included, I doubt there will be any operating profit.

If you're going to return to the original plan for the Market, you certainly need to review why that original plan wasn't successful. I was disappointed that the failures of the original plan are not addressed as part of this new one. Improvements in the spacing and infrastructure for the food bay might address some of the problems that arose, but there is no analysis of why the original vendors failed and what would be different today to allow similar types of businesses to be successful. There is also no analysis of the current economic conditions in the city of Toledo and surrounding area or how this might impact the operations of the market.

My review of this new business plan offers nothing new in terms of what has already been done and failed. There is nothing in this business plan to give anyone any confidence that things will be different going forward. If this is all the city has to offer, taxpayers would be better served by just selling the facility NOW, rather than spending another million dollars or so to postpone the inevitable.

And considering the pending purchase agreement Toledo has with Tetra Tech for a complete Swan Creek River Walk (which would include the ESM), now would be the time to insist that any agreement with Tetra Tech include the purchase - today - of the ESM.

Toledo has proven it cannot management the ESM profitably, not to mention that it has no authority in its charter to even embark upon such a venture. There is absolutely nothing to suggest that this business plan will make any difference.

Those who cannot learn from history are doomed to repeat it.

3 comments:

Tim Higgins said...

Maggie,

My biggest question here concerns the food vendors that this plan wants to incorporate as part of the first phase of its business plan.

So let's look at this from the perspective of one of these food vendors:
- The economy is in a much more fragile position than when the market first opened in 1997.
- The city plans to reconsitute a management plan which has already proved itself unsuccessful.
- Food businesses outside of the ESM are failing downtown at an alarming rate.
- Housing projects downtown for renters, who often make up the clientele of such eating establishments, are likewise in serious financial difficulties with serious occupancy rate issues.
- Ownership and management will change at the ESM within 3 years regardless of whether it is successful or not. Therefore any investment that I make is at serious risk within this 3 year period.

Oh baby, sign me up! I haven't seen anything so promising since I read up on the press gangs of the British navy during the 17th and 18th Century.

-Sepp said...

My biggest question is why Toledo still owns that money pit? Unload it and start collecting taxes on the property instead of paying them! The electricity bill the city gets is in the neighborhood of 250 grand per year for the place!
The ESM is a hot potato that needs to be tossed!

Hooda Thunkit said...

Well, I read as far into "the new plan" as I could, but the outright lies are too thick for me to cut through, so I gave up... I didn't get that far either.

Say, isn't this the same old pig, but with a fresh coat of lipstick and a freshly laundered dress on?

Looks/smells like it to everyone that has been paying attention for the last little while...

And, isn't Mad Dog (czarty finkelberry) and his lockjaw grip on this failed "plan" getting just a little tiring to anyone else?

I thought that we killed pit bulls in Toledo, not elect them mayor. . .

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