Could the El Farolito Debate Finally Move the Needle on SF's Formula Retail Rules? – SFist

It might take San Francisco’s boundless passion for burritos to finally force some changes to the city’s rules around chain restaurants and retail — and when the retail landscape continues to look dismal in once thriving neighborhoods, maybe we should be rethinking this altogether.
We learned last week that city officials had pushed back on an effort by beloved Mission-style burrito purveyor El Farolito to open a new location in North Beach. The reason: El Farolito’s owners — or some combination of owners — already own 11 very similar taquerias in the Bay Area, including some that are called El Favorito but have essentially the same menu and signage.
11 is the magic number under San Francisco’s 17-year-old formula retail ban, which creates a lot of red tape and a conditional-use process for any chain that wants to move into select neighborhoods — chains aren’t banned in Union Square or SoMa, for instance, but they are banned in North Beach, Hayes Valley, Chinatown, the Castro, and other places defined as “Neighborhood Commercial Districts.” The purpose of the ban, which is encoded now in the city’s planning code following a ballot measure in 2007, is to protect small businesses from undue competition from chain retail, and to preserve the non-formulaic character of SF’s retail nodes. (See the timetable about the various changes to the law here.)
Over the years, while the law has remained popular and has arguably succeeded in the latter goal — keeping places like Hayes Valley full of quirky, non-chain shops — the strict ban has presented problems on several fronts. From the perspective of retail vibrancy in a difficult retail economy, the widespread ban on chains with more than 10 locations worldwide means that storefronts sit empty in some cases where there could be opportunity to fill them with businesses a neighborhood might enjoy. Chains have deeper pockets, and SF landlords often demand high rents that small mom-and-pop businesses can’t afford — hence the many empty storefronts across the city in recent years.
And for locally grown small businesses like El Farolito, the 10-location limit starts to seem silly — especially when bar-hoppers on Grant Avenue in North Beach would love to be able to get a good burrito at 1 a.m.
“When I have 15 vacancies on a street, I don’t know how we can’t be more relaxed,” said commercial realtor Pam Mendelsohn last year, speaking to the SF Business Times. And speaking to the Chronicle this week, Mendelsohn says, “Despite its noble intentions, the laws have never really done what they set out to do. In some cases it’s kept out big chains, yes, but it’s also pushed out small local businesses simply because they have more than 11 locations. That’s not right.”
One example the Chronicle points to is the San Francisco Soup Co., founded in 1999 and now known as Ladle & Leaf. The company’s co-founder Jennifer Sarver says that growing their business was made difficult because of the inability to move into certain neighborhoods once they had 10 locations. Once boasting 20 locations around the Bay Area, Ladle & Leaf now has 10, with three still in the Financial District.
Exemptions can still be granted, as happened with that Hayes Valley Trader Joe’s, via the conditional use process. But that can take years, and a business like El Farolito might not be able to afford the rent to hold on to an empty location while that process takes place.
The extraordinary economic toll of the pandemic on the retail sector doesn’t seem to have been enough to force a change in the formula retail ban — though it looked a year ago like it might.
El Farolito still hasn’t been formally denied by the Planning Department, and it still seems likely to be able to move into the space at 1230 Grant Avenue formerly occupied by The House restaurant. Supervisor Aaron Peskin, who continues to say the formula retail ban shouldn’t change, suggests that there might be some leeway for El Farolito given that all their existing locations aren’t under the exact same ownership. And in emails to El Farolito last week, some planning staff suggested that El Farolito could make “sufficient changes” to the menu and signage at one of their other locations, or the new one, in order to skirt the chain rules.
But the public outcry over this pushback is calling attention to what many see as an absurdly strict rule that may be doing more harm than good at this point.
“At a time when many restaurants and bars are struggling after a year of COVID shutdowns, it’s a miracle that this cherished homegrown taqueria seeks to expand,” wrote the Examiner’s Editorial Board last week. “The Planning Department’s decision may reflect the letter of the law, but it clearly does not reflect the spirit of San Francisco.”
And a petition in support of El Farolito launched last week already has over 1,700 signatures.
“Let’s be clear: El Farolito is a small business, yet it is being treated as a chain,” writes petition organizer Danny Sauter. “We should reshape these outdated rules to help fill empty storefronts and allow small businesses that are growing, but are not yet truly chains, to open in North Beach and neighborhoods across San Francisco.”
The progressive bloc on the Board of Supervisors sounds less than eager to change the rules, as the Chronicle reports. Besides Peskin’s comments, they also got comment from Sup. Dean Preston (“I disagree with the idea that one should try to gut a very successful, pro-small business law because of interest in how it applies in one case.”), Sup. Hillary Ronen (“The fact that in San Francisco we have extra scrutiny at the very least for formula retail is a good thing.”), and Sup. Connie Chan (“It’s premature to be talking about changing a policy that has been extremely popular and effective at protecting our small businesses.”).
But Supervisor Matt Haney — who’s now likely running for State Assembly — says he’d be on board with changing some part of the rules. And Mayor London Breed’s office issued a statement saying “we should look at further reforms to ensure that our laws aren’t punishing successful small businesses, especially ones that started here in San Francisco.”
Will this all blow over as soon as El Farolito gets the go-ahead for their North Beach location? Probably.
But will North Beach, the Sunset, the Castro, and other neighborhoods continue to suffer from an epidemic of retail vacancies that most residents would gladly see filled with Mixt Greens or Pokeworks or whatever? Probably.
Previously: An El Farolito is Coming to North Beach
Photo: Danny Sauter
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Jay C. Barmann is a fiction writer and web editor who's lived in San Francisco for 19 years.
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