Thursday, May 30, 2013

The food truck business:
Portland vs. NYC

Adam Davidson writes in the New York Times Magazine how aspiring entrepreneurs ought to think twice before going into the food-truck business in New York City. Despite what Brooklyn’s hipsters may believe, the business of food-trucks is far from flourishing, needlessly constrained due to several critical barriers-of-entry. Meanwhile, in Portland, OR business is booming. What gives?

Stymied by stale laws

If planning to operate your own food-truck in Gotham, first you’ll need to get your hands on the following: (1.) food vending operator’s license and (2.) mobile food unit permit. In the event that an inspector shows up, evidently this happens quite frequently, the operator of a truck must have BOTH items handy. While obtaining a operator’s license (think of it as a driver’s license) is relatively seamless, securing a permit is less so. NYC’s Department of Health and Mental Hygiene is limited by law in the total number of street vending permits it may issue.

Due to this arbitrary quota, vendors are forced to compete for a limited supply of transferable permits. As Davidson writes, there exists anecdotal evidence of vendors paying upwards of $15,000 to $20,000 for the leasing of an existing permit typically lasting two years. Much like taxi-cab medallions in NYC, the legal cap on the total number of vendors creates a large upfront cost to owners wishing to get their hands on one of these prized permits. As a result, there are several waiting lists each with their own eligibility criteria: lists for veterans and non-veterans, ones for those operating city-wide or in a specific borough, while others exist for those operating either year-round or on a seasonal basis.

Additionally, there are five separate classes of permits for which a food-truck operator may qualify:
  • Class A: Examples include fried and grilled sausages, poultry, shish kebab, hamburgers, eggs and gyros
  • Class B: Sandwiches, raw fruits, vegetables and salads, breads, bagels and rolls buttered or topped with cream cheese on unit, smoothies, and soft-serve ice cream
  • Class C: Pre-packaged frozen deserts, pre-packaged sandwiches, and pre-packaged/pre-sliced fruits and vegetables
  • Class D: Boiled frankfurters and sausages, brewed coffee and tea, doughnuts, pastries, rolls and bagels buttered or topped with cream cheese at a commissary, popcorn, cotton candy, nuts, candied nuts, soft pretzels, and chestnuts
  • Class E: Uncut fruit and vegetables
Classes A and B are considered “processing units” where foods are cooked, sliced, or mixed while Classes C, D and E are defined as “non-processing units.” An additional requirement for NYC food vendors stipulates that all pushcarts and trucks must be serviced and storied in overnight facilities, a.k.a. “commissaries”, with a Health Department permit. As Davidson points out, due to this latter restriction food-vendors are limited in the types of services they can provide. Given their legal mandate and by default large market share, these commissaries have formed a sort of oligopoly, free to maintain the status quo: plenty of hot dogs and candied nuts.

To those food-truck operators frustrated by long waiting lists, the City recommends instead applying for a “restricted area” permit. This permit is just as it sounds: restricted. While it does not authorize street vending, a restricted area permit authorizes vending on a private property in a commercially-zoned area or on property under the jurisdiction of New York City Department of Parks & Recreation. This all but defeats the purpose of being mobile which includes the freedom to service customers in areas most likely to return a profit.

Emerging food-truck mecca

At first glance, Portland’s rich tapestry of arts and culture would seem like a natural fit for a food-truck bonanza. Yet less than ten years ago Portland’s food-truck scene was confined to a few select areas. In recent years, Portland emerged as a strong contender for the nation’s food-truck mecca. From 2008-2009, there was a reported 40 percent increase in the number of food-carts operating within city-limits. At the same time, there exists a growing variety of culinary options as prefaced in Davidson’s closing remarks. So what lies behind Portland’s success?

For starters, there appears a lot more space for businesses to operate. The City of Portland incentivizes food-carts to set up shop on vacant lots, underutilized sites, brownfields, and surface parking lots downtown. This allows vendors to take advantage of unoccupied space while simultaneously contributing to a more vibrant urban setting. The relationship holds true in both low-density and high-density neighborhoods.

At least on the surface, the regulatory environment appears more conducive to food-truck startups in Portland than in NYC. For those with a knack for mobility, no permit is required for vending from a truck. Otherwise for those who wish to operate a “vending cart” on a public sidewalk or private property, permits are required with attendant regulations concerning cart size and aesthetics. Importantly, there exists no cap on the total number of permits issued. In the absence of a quota, aspiring food-truckers are free of barriers which can be significant as in the case of NYC’s shadow permit market.

Finally, Portland’s city government does not impose on the creativity of its food-vendors. There exists no mandate that operators store or service their carts in a predefined “commissary” nor is there any mention of separate classes of food-carts. Portland prides itself on its unique flexibility. Hence, the wide variety of options from Mexican to Korean to Indian food. All the while, New York’s vendors (and hungry customers) drown in dirty-water dogs.

Follow the leader

If New Yorkers want a food-truck economy they can be proud of, they would be wise to follow Portland’s lead and do away with the bureaucracy. Those in city government should pledge to stamp out the 1980s legalese and replace the outdated model with a simple framework. Five different classes of food-trucks, with some separated only by how butter is applied to a bagel, seems unnecessary. For all practical purposes, it creates additional paperwork for entrepreneurs already occupied by the gargantuan task of starting a business.

A second step in liberalizing the food-truck economy should involve eliminating “commissaries.” The word itself is a remnant of a different era. Right now, the way the system operates resembles something of a custodial staff performing the rote task of doling out stale bagels and soggy frankfurters. The sector is sorely lacking spontaneity. The elimination of commissaries will not only increase consumer choice but also convince artists to enlist their much-needed creativity.

Most importantly and what will likely generate the most resistance, New York should put to a referendum the removal of the cap on food-vendor permits. Just as medallions for the city’s taxi cabs artificially inflate the cost of doing business, so too does a quota on carts prevent the city’s food-truck sector from realizing its potential. New Yorkers are hungry for change.

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