Restaurant & Hospitality

As New Yorkers enjoy their pumpkin spice lattes, the fact that a Grande (16oz) serving will cost them about 380 calories (including 2% milk and whipped cream, because why not?) is becoming common knowledge.  Calorie information has been conspicuously posted on menus at “covered establishments” in New York City for nearly a decade, but on August 28, 2017, New York City agreed to postpone enforcement of its rule requiring restaurants, convenience stores and other establishments to post calorie counts for prepared food in response to a law suit brought by the food industry and supported by the Federal government.

In 2008, New York City became the first jurisdiction in the United States to require chain restaurants to post calorie information on menus and menu boards.   Shortly thereafter in 2010, the Federal government adopted similar laws by way of the Affordable Care Act.  The Federal government’s implementation of such laws has continually been delayed over the years, but now the Food and Drug Administration (“FDA”) plans to provide additional guidance on menu labeling requirements in May 2018.  New York City did not want to wait for the Federal guidance to begin enforcement of its Rule 81.50, New York City’s nearly identical version of its federal counterpart.

New York City’s most recent version of Rule 81.50 tracks its federal counterpart and applies to “covered establishments”, which means “a food service establishment or similar retail food establishment that is part of a chain with 15 or more locations nationally doing business under the same name and offering for sale substantially the same menu items, or a food service establishment that is not party of such a chain that voluntarily registers with the United States Food and Drug Administration to be subject to the federal requirements for nutrition labeling of standard menu items pursuant to 21 CFR 101.11(d), or successor regulation”.   For any such covered establishment, “[m]enus and menu boards must provide the number of calories contained in each standard item.”

While the FDA plans to provide guidance in May 2018, New York City nonetheless wanted to move forward with its enforcement of Regulation 81.50 beginning on August 21, 2017, but on July 7, 2017, the Food Marketing Institute and the National Restaurant Association teamed with several other food-service industry groups to file suit against the City of New York for what it said was premature enforcement of nutritional disclosure guidelines for food-service establishments. The National Association of Convenience Stores and the New York Association of Convenience Stores also joined in the suit, which was filed in the U.S. District Court for the Southern District of New York.

Court documents claim that that the local New York City rules are not identical to the impending FDA rules because they are effective immediately which would clash with the Federal government’s plan to delay compliance for one more year.  The plaintiffs asked the court to stop New York City from enforcing the regulations on the local level prior to the nation-wide rollout in May 2018 and argued that New York City’s Rule 81.50 was preempted by Federal law. The FDA filed court papers in support of the lawsuit.

New York City has now agreed to honor May 2018 as the start date due to the preemption of Regulation 81.50 by the similar provisions contained in the Affordable Care Act. As such, “covered establishments” will have more time to comply and the FDA will be able to set forth guidance as it planned in May 2018.

As the nation awaits the FDA’s guidance, food establishments in New York City should begin to think about whether or not they are a “covered establishment” and the steps they will need to take in order to avoid eventual enforcement action.

Mobile food vending is now a billion dollar industry. The hospitality subset has experienced a major boom since the economic downturn of 2008. Food trucks nationwide are expected to bring in $2.7 billion in revenue this year alone according to Priceonomics. This meteoric growth is attributable to a confluence of changing consumer demands and a relatively easy start-up process.

In New York City, home to an estimated 12,000 mobile food vendors, legislators are struggling to find balance between regulation and sustained growth.  The issues are many and range from permitting to parking to health and safety concerns.  Here’s a closer look.

For that estimated 12,000 mobile food vendors, there are only 5,100 valid food vendor permits currently allotted by the city’s Department of Health.  That number has not increased since the 1980s. The lack of permits has created a black market whereby permit owners can attain as much as $20,000 per permit as reported in the New York Times.

In addition, more vendors equates to more competition for brick and mortar restaurants. Having a large number of vendors operating illegally has restaurant proponents fuming about unfair competition, lost profits, and inadequate regulation.

Further, unpermitted vendors may put consumers’ health at risk. City health inspectors cannot inspect nor regulate what they do not know exists.

Proposed Legislative Solutions

The New York City council has proposed the Street Vending Modernization Act (“SVMA”) to expand the number of available permits to 8,000 by the year 2023. Proponents of the SVMA see mobile food vending as a legitimate industry and want the city to cultivate an environment where these businesses can flourish. In addition to increasing the number of permits, the SVMA intends to improve mobile food vendor compliance with local regulations and create an independent office of street vendor enforcement.

Despite the apparent benefits, the SVMA has been met with opposition from brick and mortar restaurant proponents. Restaurateurs are concerned with the effect an increased number of permits will have on their businesses, and concerned consumers detest the idea of further congesting already overcrowded New York City streets and sidewalks with more food trucks and carts. The SVMA has yet to pass.

On another front, mobile food vendors may face increased regulations regarding where they can conduct business. Today, New York City has fairly lax regulations addressing where a mobile food vendor may park. Vendors are only banned from occupying areas in and around crosswalks, fire hydrants, bus stops, building entrances, and the like. The New York City council has received pressure from local restaurant owners to further restrict the location of food trucks to address what they see as unfair competition. As an example of the conflict, some point to the area around the Second Avenue subway station.  When the station was under construction, several restaurants in the vicinity suffered a decline in sales. Now that the subway has opened, mobile food vendors are setting up directly outside the subway entrance and in front of brick and mortar restaurants. Currently there is no pending legislation that restricts the proximity to which a mobile food vendor may park from a brick and mortar restaurant.

New York legislators have also struggled with the regulation of health and safety for mobile food vendors. Until just recently, there was no requirement for displaying food inspection grades for mobile food vendors. In May 2017, Mayor de Blasio signed into law a bill that requires mobile food vendors to display health inspection grades. A similar bill is currently active in the New York State Senate which would require inspection grades to be displayed and also require vendors to submit their routes to the health commission for tracking purposes.  This bill is viewed as a win-win for both brick and mortar restaurants and mobile food vendors. The bill holds mobile food vendors to the same health and sanitation standards as brick and mortar restaurants, while those vendors displaying satisfactory food grades can attract more business by assuring consumers of a sanitary product.

Given that the mobile food vending industry now accounts for close to 18,000 jobs in New York City and it has become a part of the city’s fabric, we do not expect to see city or state legislators significantly curtail such business. However, with increased pressure from consumers, food vendors and brick and mortar restaurants, we do believe that legislators will act on the issues discussed above.

On May 30, 2017, Mayor de Blasio signed into law Int. No. 1456, requiring mobile food vendors (food trucks, hotdog carts, etc.) to display letter grades received after sanitary inspections akin to those displayed in windows of city restaurants. The new law will be a win-win for both consumers and vendors as seeing satisfactory grades will assure customers of a sanitary product, further legitimizing the ever-expanding food truck industry in NYC.  A similar bill is active in the NY State Senate. The state law would require the inspection grades to be displayed and require tracking of the mobile food vendors in order to efficiently find their protean locations for inspection purposes. Currently, the NY State bill has passed the State Senate and has been delivered to the State Assembly.  At the very least, expect to see health inspection grades displayed on mobile food vendors in the near future.

The International Council of Shopping Centers (ICSC) recently released an interesting report prepared in collaboration with Jones Lange LaSalle (JLL) entitled The Successful Integration of Food & Beverage Within Retail Real Estate.  The study explores how foodservice growth is increasingly impacting retail real estate models, and includes case studies and practical analyses highlighting the successful integration of food with traditional retailers at malls and shopping centers around the United States and the world.

The study identifies three macro demographic trends that are driving structural changes in the global retail and leisure landscape, where consumer spending is shifting from “transactional to experiential food offers.”

Urbanization and Population Growth

Ever-increasing numbers of people and customers are moving into key market areas.  This is particularly true for the expanding middle-class who comprise a larger percentage of the global population, and who are “also becoming richer, better educated and more technologically connected.”

The Rise and Role of Technology in the Digital Age

JLL notes that today’s millennials and Gen-Z-ers are increasingly shopping online and are generally characterized as having shorter attention spans with a lack of brand loyalty compared with their predecessors.  More than ever before, they are demanding a seamless transactional experience where they can order online with smartphones and on social media sites, and then have their items ready for immediate pick-up at the store, or vice-versa.

Experience Economy

As time becomes an ever-more precious commodity than “stuff,” consumers are becoming more interested in enjoying memorable experiences that they can share (often contemporaneously through social media outlets) rather than tangible, material items.  The hot trend of food halls – particularly in the United States – is an example of this, where those destinations are increasingly becoming the anchor and key draw at shopping centers given the “experience” they provide for shoppers.

What Does This Mean for Landlords and Tenants?

JLL notes that the amount of space dedicated to foodservice at existing retail properties has grown from approximately 5% to 8%-15% over the last 10 years, and is forecasted to reach 20%-25% in some markets by the year 2025.

Accordingly, there will be a significant transformation in the way landlords approach leasing strategies at their retail centers.  Their efforts will need to focus on seamlessly integrating food and traditional retail operators to create a unique and experiential tenant mix.

In addition, landlords will face new challenges in understanding how their support for foodservice and restaurant operators both differs from, and is also interrelated with, their responsibilities to traditional retailers.  Among other considerations, these include:

  • Greater risks from food-based fit-outs and capital expenditures;
  • The increased likelihood of dealing with smaller-scale food operators instead of larger “corporate” entities;
  • Optimizing the ratio of base and percentage rent deals that are more common among foodservice operators;
  • Understanding the differences in desired lease terms (foodservice locations will typically demand longer lease terms in order to amortize and realize the benefits of larger capital/fit-out expenditures); and
  • Strategically placing food and retail locations within the larger mall space, including considerations for interior/exterior access points and parking needs.

The report provides many examples of how foodservice can be successfully integrated within shopping centers of different shapes, sizes and formats; however, there is no “one-size fits all” solution.  What is clear is that savvy retail landlords and their tenants are those who will embrace the idea of incorporating experiential foodservice options into their business plans.

 

If you have plans to open a restaurant in New Jersey and would like to serve alcohol, you should be aware of the longstanding rules related to liquor licenses.  Most New Jersey municipalities are not able to issue new liquor licenses meaning that a business owner seeking a license will likely have to purchase an existing license.

What’s the first step in acquiring a liquor license? 

First, you should understand that there are several different types of liquor licenses but for your use as a restauranteur, you will want to acquire what is known as a Plenary Retail Consumption Liquor License.  You can determine if there is such a license available for acquisition by calling the municipal clerk or secretary of the Alcoholic Beverage Control Board of the municipality in which you plan to locate your restaurant.

I’ve located an available license in a different municipality.  Can it be transferred to the municipality in which I plan to operate?

No.  Liquor licenses are not transferable from one municipality to another.  The municipal clerk can provide you with a list of the names and addresses of the holders of all liquor licenses and can advise you which licenses are currently not in use (i.e., “pocketed”).  You can then contact the license holder to determine if he or she wants to sell the license.

Once I identify an available license, what are the next steps?

If you reach an agreement with a license holder, you will then need to:

  • Enter into a written purchase and sale agreement,
  • Obtain written consent from the seller to transfer the license,
  • File a 12-page application, accompanied by required fees, with the municipality for a “person-to-person” (from the seller to buyer) and “place-to-place” (from seller’s establishment to your new establishment) transfer of the liquor license,
  • Publish legal notices of the proposed transfer, and
  • File for the issuance of a tax clearance with the New Jersey Division of Taxation. The municipality cannot approve the license transfer until a tax clearance certificate is issued.

The municipality through the police department will then conduct a background investigation of you, the buyer and your principals, including fingerprinting, to ensure that you are not legally disqualified to hold a license, are reputable, and will operate the licensed premises in a reputable manner.  The background investigation also ensures that the proposed transfer and restaurant liquor license operation will not violate any state or local laws, regulations, and ordinances (including distance requirements between licensed establishments, as well as distance between schools and religious facilities), and that you have disclosed the source of all funds to purchase the license and you do not have any undisclosed, or hidden or non-qualified investors.  If you are determined to be qualified, and no objections to the license transfer are received by the municipality, then the municipality must authorize the transfer of the license to you and the new premises by resolution at a public meeting.  You are not entitled to utilize the license until such official action is taken.

How long can I expect the process to take?

The entire license transfer process should take between 90-120 days so the purchase and sale agreement should adequately provide time to complete this process.

What options do I have if my application for a liquor license is denied?

In the event that you cannot acquire a license, then, unless prohibited by the municipality, your customers may bring their own alcoholic beverages (beer and wine only) into your establishment.  You can supply glasses, ice, etc. but you cannot charge a corkage fee.