The “Naivety” of NYC’s RFP for 5 Publicly Funded, Private Operated Grocery Stores

RFP: 

Executive Summary

N.Y.C. Groceries will make food more affordable in New York City and prove that government, in productive partnership with mission-aligned partners, can take bold steps to improve the everyday lives of residents and workers alike. By 2029, New York City Economic Development Corporation ("NYCEDC") and the City of New York (the "City") will open five (5) publicly funded, privately operated grocery stores – one (1) per borough – giving all New Yorkers an excellent, meaningfully discounted option for putting food on the table.

New Yorkers are struggling to pay for groceries. Costs have risen roughly 30% since the early pandemic, and 80% of residents are concerned about continued increases.The cost-of-living crisis will persist until and unless families are able to consistently afford healthy meals at home.

To that point, the vision for N.Y.C Groceries is simple:

• Excellently designed and operated grocery stores, open to all New Yorkers regardless of income level, offering a comprehensive selection of foods.

• A selection of nutritious foods (the "Core Basket") – including produce, meat, seafood, and essential groceries – sold at prices on average 30% below retail prices.

• Quality jobs that provide best-in-class, family-sustaining wages and benefit packages and a safe and dignified workplace.

NYCEDC will partner with grocery store operators to bring this vision to life. The selected operator(s) will have the opportunity to expand their existing business through the operation of one or more of the N.Y.C. Groceries locations. The selected grocery store operator(s) will be expected to leverage existing supply chains to stock their N.Y.C. Groceries store(s), hire store labor directly (while adhering to standards set by NYCEDC), and utilize other existing operational and administrative capabilities as needed to deliver a great shopping experience and run efficient operations.

NYCEDC, in collaboration with the City, will deploy various resources to make the partnership successful and financially sustainable for store operators. NYCEDC and the City will:

• Fund and execute capital fit out to construct five (5) turnkey grocery stores.

• Pay all rent and property taxes (as applicable) at the five (5) N.Y.C. Groceries sites.

• Pay for and execute N.Y.C. Groceries' store brand design.

• Make additional ongoing operating funding available as necessary, after accounting for payment of rent and property taxes, to ensure that NYCEDC's desired Core Basket discount price program is achievable.

• Provide additional payments for operators meeting benchmarks for exceptional performance.

NYCEDC's Role

To activate N.Y.C. Groceries, NYCEDC anticipates entering into an agreement or series of agreements with the Operator(s) and other Project related parties, as applicable, to define terms such as:

• Term: A term of at least ten (10) years from store delivery, with options to extend.

• Rent: Operator(s) will not pay rent at N.Y.C. Groceries site(s).

• Property taxes: Operator(s) will not pay property taxes associated with N.Y.C. Groceries sites.

• Fit out: NYCEDC will pay for and deliver the fit out of each individual N.Y.C. Groceries site to ensure the spaces are usable for grocery store operations.

• Ongoing management: Operator(s) will be responsible for the management of building operations upon taking possession of the site, including utility costs, cleaning costs, security costs, and other day-to-day operational costs.

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• Scope of Services: Operator(s) will be responsible for all activities under the Scope  of Services, including ongoing store operations, merchandising the store including  all goods supply and wholesale purchasing, selling the Core Basket of goods at  affordable prices with periodic resets, providing quality jobs, and adhering to  monitoring and compliance standards set forth by NYCEDC. NYCEDC will provide  input pertaining to the operation of N.Y.C. Groceries.

• Branding: NYCEDC will develop a unified and consistent brand for all five (5) grocery stores in partnership with a third party consultant, and will own all intellectual property associated with that brand; the Operator(s) will operate under the brand and adhere to all branding standards established by NYCEDC.

• Operating financial support: NYCEDC will provide operating financial support to the Operator(s) in the form of an Affordability Payment (defined herein), subject to the Operator(s)'s compliance with the terms of any executed agreement(s), in an amount subject to negotiation.

• Additional operational support: If the five (5) N.Y.C. Groceries sites are  collectively managed by more than one (1) Operator, NYCEDC may additionally  facilitate efforts to implement unified branding and marketing, maintain consistent  product mix, offer N.Y.C. Groceries-branded merchandise, keep consistent prices  across all N.Y.C. Groceries stores, and gather operational data.

Restaurant insider Nick Kokonas’ online analysis of NYCEDC’s RFP follows.

NYC strongly prefers bidders who commit to all 5 stores. But 3 of the 5 sites have yet to be identified. 

NYCEDC states a strong preference for bidders willing to commit to all five locations. Yet three of the five sites have not been identified. Bidders are instructed to price stores in unnamed neighborhoods on the assumption that each will run "about 15,000 square feet." The premise is absurd.

Bidders get preference for operating all 5 stores; but NYC awards each store separately, so an all-5 bidder may win only 1. 

The scale preference is presumably grounded in the cost advantages of operating a five-store network. But NYCEDC intends to award each location separately, meaning a bidder that prices all five may be awarded only one. The structure asks people to price at scale while declining to guarantee scale.

The stores must use a “limited SKU”* (Stock Keeping Unit) model. They must also carry full grocery departments, household goods, culturally specific products, plus kosher, halal, vegan, gluten-free, dairy-free and diabetic options. 

The RFP says stores won’t have deli counters or on-site food prep. 

The RFP further says that stores will operate without deli counters or on-site food preparation. The Core Basket nonetheless includes chicken salad, egg salad, potato salad, fruit salad, and comparable prepared items —so,  a deli program without a deli? Shipped in prepared, every day?

NYC chooses and pays for the design, equipment, refrigeration and fitout. The operator pays utilities, maintenance, cleaning and security.

The capital and operating structure is similarly misaligned. NYC selects and funds the design, equipment, refrigeration, and fit-out. The operator absorbs utilities, maintenance, cleaning, and security. One party makes the capital decisions; another party lives with the recurring cost consequences of those decisions. So NYC makes the capital decisions while someone else pays for the consequences.That's how they control the goalposts.

The “best” bid promises 30% discounts, best-in-class wages/benefits, local sourcing, sustainability, community programs and full-time jobs. Then 20% of the score goes to whoever claims they need the least subsidy. 

Then the operator must create a membership card to “implement the discount program.” 

The discount mechanism is unresolved. The RFP directs the operator to establish a membership card to administer the discount program, while elsewhere describing universal availability and open access regardless of income. A universal shelf price and an ID-gated discount are different programs. More consequentially, neither is targeted: there is no means test, and any shopper may participate. The result is a public subsidy flowing to affluent households that happen to live near a site, while lower-income families in other neighborhoods receive nothing.

The reviewing analyst believes this idea was terrible/ ridiculous  from the beginning.  Direct cash assistance would deliver, in his opinion, more relief per dollar, and notes that the City already administers programs it could expand to the same end. He also adds,, the existing delivery system is efficient; what requires adjustment is the level of benefit, not the retail infrastructure.

So the question: Why would the City want to build bad grocery stores with conflicting goals that will be mismanaged? Either that is the intent, or no one involved knows how to write an RFP or run a business. Not one of them, it appears,  has read a P&L, much less a cash flow statement. Utterly laughable!  Is my conclusion. 

*An SKU (Stock Keeping Unit) is a unique alphanumeric identifier assigned to each specific variant of a product within an inventory management system. Its main function is to facilitate the tracking, control and replenishment of stock in warehouses and points of sale.