Toronto Island Food and Beverage Concession - Renegotiation
of the Centre Island Food Services Ltd. Licence Agreement
(Ward 24 - Downtown)
The Economic Development Committee recommends that the report (April 19, 1999) from the Commissioner,
Economic Development, Culture and Tourism be adopted, subject to amending Recommendation (1) by indicating
the reduction in the licence agreement be for 1999 only, so as to read:
"(1)the Economic Development Committee approve an addendum to the existing licence agreement to reduce the
percentage of gross sales payable over and above the basic annual rental fee from 22.25% to 14% in 1999, to waive
the basic annual rental fee for 1999, to adjust the percentage payable in subsequent years so as to make up the
shortfall in revenues experienced in 1999, and direct the Commissioner of Economic Development, Culture and
Tourism to bring this matter forward to the Economic Development at the appropriate time for consideration of
extending a reduction in the licence agreement for a further year;".
The Economic Development Committee submits the following report (April 19, 1999) from the Commissioner of
Economic Development, Culture and Tourism:
Purpose
To provide a report on the request from Centre Island Food Services Ltd. to amend the terms of the Licence Agreement
between the City of Toronto and CI Food Services Ltd. for the operation of food and beverage services on the Toronto
Island.
Financial Implications
Anticipated revenue reductions in 1999 and 2000 of $149,000 and $105,000 respectively. These revenues would be
recovered over the life of the agreement.
Recommendations
It is recommended that:
(1)the Economic Development Committee approve an addendum to the existing licence agreement to reduce the
percentage of gross sales payable over and above the basic annual rental fee from 22.25% to 14% in 1999, and from 22.5%
to 17% in 2000; to waive the basic annual rental fee for 1999 and 2000; and to adjust the percentage payable in subsequent
years so as to make up the shortfall in revenues experienced in 1999 and 2000;
(2)the City Solicitor be authorized to prepare and execute the necessary addendum as outlined above in point 1 to give
effect thereto;
(3)as a condition of this adjustment, CI Foods be required to submit to staff, prior to June 1, 1999, a Business Plan
outlining a "turnaround strategy" which would allow the terms of the amended licence agreement to be met;
(4)staff continue to monitor the performance of CI Foods, and that if the terms of the amended agreement are not met, the
agreement shall revert to its original terms; and
(5)the Commissioner of Economic Development, Culture and Tourism report back on the results of a comprehensive
concession review now being undertaken by the Parks and Recreation Division.
Background
By the adoption of Clause No. 9 of the Report No. 14 of the Parks, Recreation and Property committee on August 15, 1991,
Metropolitan Toronto Council authorized the Request for Proposal (RFP) for the operation of the food services (two
restaurants and six snack bars) on the Toronto Islands. The RFP required that the concessionaire undertake to refurbish the
concession areas as part of the lease arrangements and ensure that the areas met all applicable codes and regulations. It was
also indicated that major renovations would be required for the Island Paradise restaurant and the Iroquois Coffee Shop in
order to meet safety codes and to provide the standard of service Metro had for its park users. At the concessionaire's
option, complete or partial rebuilding of the two structures was to be considered.
Five responses to the proposal call were received, of which three complied with the stipulated requirements:
(1)The Whaler's Group Inc.;
(2)William Beasley Enterprises Ltd.; and
(3)H.S. Food Services Ltd.
Each of the proponents provided information on projected sales in the food and beverage operations, and on the proposed
rent to Metropolitan Toronto based on the a percentage of gross revenue and minimum guarantee. The proposed rents from
H.S. Food Services Ltd. were based on a projected increase in gross sales. All three companies were asked to present their
proposals to a review panel comprised of Metro staff and Marshall Macklin Monaghan, the external consultant.
By its adoption of Clause No.1 of Report No. 18 of the Management Committee of May 6, 1992, entitled "Food and
Beverage Concession on the Toronto Islands", authority was granted by the Metropolitan Toronto Council to enter into a
licence agreement with H.S. Food Service Ltd. For the operation of the food and beverage concession on the Toronto
Islands for the term of twenty years (1993 up to and including 2012). Pursuant to the Agreement, the licensee was required,
at its sole expense, to effect a capital program related to the renovation of the Iroquois Coffee Shop and the six concession
buildings in 1992/93 (Phase I), and to subsequently demolish and construct a replacement building for the Paradise
Restaurant in 1993/94 (Phase II). Phase I of the work was successfully completed, but prior to the completion of Phase II,
the Licensee came to an arrangement whereby it sold its assets to CI Food Services Ltd..
Following completion of the sale, and by its adoption of Clause 9 of Report No. 13 of the Management Committee on April
6, 1994 entitled "Assignment of Licence Agreement - Refreshment Concessions, Toronto Islands", Metropolitan Toronto
Council granted authority for the assignment of the Licence Agreement from H.S. Food Services Ltd. to C.I. Food Services
Ltd. which authority was embodied in a Consent and Assumption Agreement dated the 8th day of April 1994 among all
three affected parties. C.I. Food Services Ltd. assumed all of the obligations of the Licensee under the Licence Agreement,
both operating and capital.
On October 8, 1998, a formal request to re-negotiate the terms of the License Agreement between the City of Toronto and
C.I. Food Services Ltd. was received from Morrison Brown Sosovitch, Barristers and Solicitors, accompanied by a
"Proposal to Amend the Rental Amount" (Appendix #1). This proposal suggested a rental structure commencing in 1999 of
12% of gross sales.
The current terms of the lease are:
(1)for each of the years 1998 to 2012, a basic annual rental fee of $375,000; and
(2)for 1998 to 2012, a percentage fee of 22% to 25.5% (on increments of 0.25% annually) of the licensee's gross sales,
which exceed the basic rental fee amount.
The Parks and Recreation Division is in the process of a comprehensive food service and concessions review, conducted by
an external consultant, FHG International Inc. After receiving the "Proposal to Amend the Rental Amount", the Parks and
Recreation Division included the assessment the current C.I. Foods operation and the proposal in the terms of reference of
the concessions study.
Comments
The report from FHG International confirmed the contention of C.I. Foods that it will be unlikely to recover the cost of its
investment over the life of the Licence Agreement. In the opinion of the consultant however, this is because of lower than
industry accepted sales levels, a lack of reinvestment in the facilities being operated, and the fact that C.I. Foods, in the
estimation of the consultant, paid a very high price for the business resulting in a high level of debt. In addition, FHG
indicated that the concessionaire, in meeting the capital development obligations of the lease, overbuilt the Paradise
Restaurant while investing too little in the smaller concession facilities. Finally, FHG reported that the rents being charged
by the City to C.I. Foods are well within industry norms, and are not the root cause of C.I.'s difficulties.
Notwithstanding the above, both the consultant, FHG International Inc., and staff believe that, if the current terms of the
License Agreement are left to stand, the operation will not be viable over the life of the agreement. It is the opinion of staff
that failure of the business will be likely to create significant operational problems for the City and may leave the City with
significant losses. Given the substantial investment made in the business by C.I. Foods, it is suggested that the operator be
given the opportunity to turn the business around and get on a firmer financial footing.
Consequently, it is proposed that C.I. Foods be provided with some relief from rent over the next two years, in order to
remedy their operating deficiencies and to implement a turnaround strategy. Once the operation is back on track, it is
suggested that rental rates be adjusted so that the financial shortfall over the next two years would be recovered over the
balance of the Licence Agreement.
The former municipalities which now form the City of Toronto provided food services within their parks and recreation
facilities using a variety of arrangements and agreements. The Parks and Recreation Division is undertaking a
comprehensive review of its food service operations and will be bringing a report forward to the Committee, with
recommendations this summer.
Conclusion
The operation of food and beverage services on the Toronto Islands and at other City Parks and Recreation venues is an
integral service that complements the delivery of programs and services to the Division's customers. It is also a potential
source for significant net revenues, if managed properly. It is critical that the City take appropriate actions to maintain high
quality, profitable food operations at its Parks and Recreation operations.
Contact Name
John MacintyreAndy Wickens
Director Central Service and Waterfront DistrictManager of Business Services
397-4451392-8231
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(A copy of Appendix 1 attached to the foregoing report was forwarded to all Members of Council with the April 23, 1999
agenda of the Economic Development Committee and a copy thereof is on file in the office of the City Clerk.)
