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Formula Business Restriction – San Francisco, CA

| Written by ILSR Admin | No Comments | Updated on Dec 9, 2010 The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/rule/formula-business-restrictions/2321-2/

Last updated: January 16, 2015

Since 2004, San Francisco has restricted the proliferation of “formula” (or chain) retailers and restaurants. The city has drawn on ILSR’s research and guidance in formulating its policy.

Under the law, formula retail stores and restaurants are considered conditional uses throughout most of the city, including all of San Francisco’s Neighborhood Commercial Districts. This means they must be approved by the Planning Commission on a case-by-case basis.

The law specifies that the Planning Commission must consider the following factors when deciding whether to approve a formula business:

  • the existing concentration of formula retail businesses within the neighborhood,
  • whether similar goods or services are already available within the area,
  • the compatibility of the proposed business with the character of the neighborhood,
  • retail vacancy rates in the area, and
  • the balance of neighborhood-serving versus citywide or regional-serving businesses.

Beginning in 2015, San Francisco’s policy also requires that large-scale formula businesses, defined as those over 20,000 square feet, except grocery stores,  undergo an economic impact analysis, the results of which are considered by the Planning Commission in deciding whether to grant the applicant a permit.  (The analysis must cover job creation, fiscal impacts, and leakage, but other important areas of impact are not included. As a result, the requirement is not as robust as economic impact review policies in other cities.)

The city’s regulations define a formula retail use as an establishment that shares common features, such as a standardized array of merchandise, trademark, architecture, and décor, with at least 11 other establishments worldwide. The term “retail use” includes both stores and restaurants, as well as some services.

While formula businesses are a conditional use in most areas, they are prohibited entirely in several neighborhoods, including North Beach, Hayes-Gough, and parts of Chinatown. Formula businesses are a permitted use and do not require conditional use authorization in the city’s downtown district and a few adjacent zones.

Between 2005 and 2013, the city received 104 applications to open formula retail stores and restaurants. The Planning Commission approved about three-quarters of these.

However, the formula business law appears to have a significant deterrent effect, greatly limiting the number of chains that apply in the first place.  A 2013 study found that formula businesses occupy 24 percent of the commercial space in the parts of the city covered by the policy and nearly twice that — 53 percent — in areas not covered.  Thanks to this decade-old policy, San Francisco has more independent businesses and fewer chains per capita than other big cities.

Permit decisions made by the Planning Commission can be appealed to the Board of Supervisors (San Francisco’s equivalent of a City Council). The Board of Supervisors heard 3 appeals between 2007 and 2012 and overturned the Planning Commission decision in one case in which it had approved a Starbucks.

History of the Policy

San Francisco’s original ordinance, adopted by the Board of Supervisors in 2004, added formula businesses to the list of uses that require neighborhood notification under city law. This meant that when a formula business applied to open within a Neighborhood Commercial District, nearby residents were notified. They then had the option of requesting that the applicant undergo a review by the Planning Commission. If no review were requested, the use would be approved, provided it met other aspects of city zoning policy. The 2004 ordinance also prohibited formula retail outlets entirely from the Hayes Valley business district.

“The increase of formula retail businesses in the City’s neighborhood commercial areas, if not monitored and regulated, will hamper the City’s goal of a diverse retail base with distinct neighborhood retailing personalities comprised of a mix of businesses,” the policy notes. “Specifically, the unregulated and unmonitored establishment of additional formula retail uses may unduly limit or eliminate business establishment opportunities for smaller or medium-sized businesses, many of which tend to be non-traditional or unique, and unduly skew the mix of businesses towards national retailers in lieu of local or regional retailers, thereby decreasing the diversity of merchandise available to residents and visitors and the diversity of purveyors of merchandise.”

In 2005 and 2006, the Board of Supervisors amended the policy to prohibit formula retail uses in one additional neighborhood (North Beach) and to require conditional use authorization for formula retail uses in several districts (regardless of whether neighbors requested such a review).

In November 2006, by a 58 to 42 percent margin, voters approved a ballot measure that made formula retail uses a conditional use in all Neighborhood Commercial Districts. This meant that every applicant had to undergo a review and obtain approval from the Planning Commission to open.

In 2008 and 2011, the law was further amended to extend its requirements to Chinatown and certain mixed use and residential-commercial districts. (This map shows all of San Francisco’s zoning districts.)

In 2014, with input from ILSR and a wide range of stakeholders, including Jobs With Justice San Francisco and the San Francisco Locally Owned Merchants Alliance, the Board of Supervisors revised the policy.  They expanded the law to cover more commercial areas in the city and additional types of businesses; changed the definition of a formula business to be one with 11 outlets worldwide, rather than just in the U.S.; specified a means of measuring the existing concentration of formula businesses within a neighborhood; and added the economic impact review requirement for applications over 20,000 square feet.

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SEC. 303.1. FORMULA RETAIL USES.

(a) Findings.

(1) San Francisco is a city of diverse and distinct neighborhoods identified in large part by the character of their commercial areas.

(2) One of the eight Priority Policies of the City’s General Plan resolves that “existing neighborhood-serving retail uses be preserved and enhanced and future opportunities for resident employment in and ownership of such businesses enhanced.”

(3) Retail uses are the land uses most critical to the success of the City’s commercial districts.

(4) Formula Retail businesses are increasing in number in San Francisco, as they are in cities and towns across the country.

(5) San Francisco is one of a very few major urban centers in the State in which housing, shops, work places, schools, parks and civic facilities intimately co-exist to create strong identifiable neighborhoods. The neighborhood streets invite walking and bicycling and the City’s mix of architecture contributes to a strong sense of neighborhood community within the larger City community.

(6) Notwithstanding the marketability of a retailer’s goods or services or the visual attractiveness of the storefront, the standardized architecture, color schemes, decor and signage of many Formula Retail businesses can detract from the distinctive character and aesthetics of certain Neighborhood Commercial Districts.

(7) The increase of Formula Retail businesses in the City’s neighborhood commercial areas, if not monitored and regulated, will hamper the City’s goal of a diverse retail base with distinct neighborhood retailing personalities comprised of a mix of businesses. Specifically, the unregulated and unmonitored establishment of additional Formula Retail uses may unduly limit or eliminate business establishment opportunities for smaller or medium-sized businesses, many of which tend to be non-traditional or unique, and unduly skew the mix of businesses towards formula retailers in lieu of unique or start-up retailers, thereby decreasing the diversity of merchandise available to residents and visitors and the diversity of purveyors of merchandise.

(8) If, in the future, neighborhoods determine that the needs of their Neighborhood Commercial Districts are better served by eliminating the notice requirements for proposed Formula Retail uses, by converting Formula Retail uses into conditional uses in their district, or by prohibiting Formula Retail uses in their district, they can propose legislation to do so.

(9) Neighborhood Commercial Districts are intended to preserve the unique qualities of a district while also serving the daily needs of residents living in the immediate neighborhood; however community members have reported loss of daily needs uses due to inundation of formula retailers that target larger citywide or regional audiences. The City strives to ensure that goods and services that residents require for daily living are available within walking distance and at an affordable price. Establishments that serve daily needs and formula retail establishments are neither mutually exclusive nor completely overlapping.

(10) The San Francisco retail brokers’ study of 28 Neighborhood Commercial Districts conducted in 2014 found that the healthiest and most viable retail environments offer a mix of retailers who vary in size and offerings; including a mix of conventional and cutting edge retailers as well as established players and newcomers.

(11) Formula retailers are establishments with multiple locations and standardized features or a recognizable appearance. Recognition is dependent upon the repetition of the same characteristics of one store in multiple locations. The sameness of Formula Retail outlets, while providing clear branding for consumers, counters the general direction of certain land use controls and General Plan Policies which value unique community character and therefore need controls, in certain areas, to maintain neighborhood individuality.

(12) The homogenizing effect of Formula Retail, based on its reliance on standardized branding, is greater if the size of the Formula Retail use, in number of locations or size of use or branded elements, is larger. The increased level of homogeneity distracts from San Francisco’s unique neighborhoods, which thrive on a high level of surprise and interest maintained by a balanced mix of uses and services, both independent and standardized.

(13) Due to the distinct impact that Formula Retail uses have on a neighborhood, these uses are evaluated for concentration as well as compatibility within a neighborhood. As neighborhoods naturally evolve over time, changes and intensifications of Formula Retail uses should also be re-evaluated for concentration and compatibility within a neighborhood.

(14) According to an average of ten studies done by the firm Civic Economics and published by the American Independent Business Alliance in October of 2012, spending by independent retailers generated 3.7 times more direct local spending than that of Formula Retail chains.

(15) Money earned by independent businesses is more likely to circulate within the local neighborhood and City economy than the money earned by Formula Retail businesses which often have corporate offices and vendors located outside of San Francisco.

(16) According to a 2014 study by the San Francisco Office of Economic Analysis (OEA) report “Expanding Formula Retail Controls: Economic Impact Report” the uniqueness of San Francisco’s neighborhoods is based on a combination of unique visual characteristics and a sense of community fostered by small merchants and resident relationships. A Formula Retail establishment is determined by its recognizable look which is repeated at every location, therefore, detracting from the unique community character.

(17) The OEA Report found that in general, chain stores charge lower prices and provide affordable goods, but may spend less within the local economy, and can be unpopular with some residents because they can be seen to diminish the character of the neighborhood. At the same time, this OEA Report found that excessively limiting chain stores can reduce commercial rents and raise vacancy rates.

(18) Through a 2014 study commissioned by the Planning Department, titled “San Francisco Formula Retail Economic Analysis,” staff and consultants conducted one-on-one interviews and worked with small groups including independent retailers, small business owners, merchants associations, formula retailers, commercial brokers, neighborhood representatives and other stakeholders. The Study found that landlords often perceive a benefit in renting to large established chains, which landlords believe typically have better credit and can sign longer leases than local, independent retailers, lowering the risk that the tenant will be unable to pay its rent. The existing land use controls for Formula Retail may create a disincentive for formula retailers to locate where the formula retail controls apply.

(b) Definition.

A Formula Retail use is hereby defined as a type of retail sales or service activity or retail sales or service establishment that has eleven or more other retail sales establishments in operation, or with local land use or permit entitlements already approved, located anywhere in the world. In addition to the eleven establishments either in operation or with local land use or permit entitlements approved for operation, the business maintains two or more of the following features: a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, uniform apparel, standardized signage, a trademark or a servicemark.

(1) Standardized array of merchandise shall be defined as 50% or more of in-stock merchandise from a single distributor bearing uniform markings.

(2) Trademark shall be defined as a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs that identifies and distinguishes the source of the goods from one party from those of others.

(3) Servicemark shall be defined as word, phrase, symbol or design, or a combination of words, phrases, symbols or designs that identifies and distinguishes the source of a service from one party from those of others.

(4) Decor shall be defined as the style of interior furnishings, which may include but is not limited to, style of furniture, wall coverings or permanent fixtures.

(5) Color Scheme shall be defined as selection of colors used throughout, such as on the furnishings, permanent fixtures, and wall coverings, or as used on the facade.

(6) Facade shall be defined as the face or front of a building, including awnings, looking onto a street or an open space.

(7) Uniform Apparel shall be defined as standardized items of clothing including but not limited to standardized aprons, pants, shirts, smocks or dresses, hats, and pins (other than name tags) as well as standardized colors of clothing.

(8) Signage shall be defined as business sign pursuant to Section 602.3 of the Planning Code.

(c) “Retail Sales or Service Activity or Retail Sales or Service Establishment.”

For the purposes of this Section 303.1, a retail sales or service activity or retail sales or service establishment shall include the following uses whether functioning as a principal or accessory use, as defined in Articles 1, 2, 7, and 8 of this Code:

(1) Bar;

(2) Drive-up Facility;

(3) Eating and Drinking Use;

(4) Liquor Store;

(5) Sales and Service, Other Retail;

(6) Restaurant;

(7) Limited-Restaurant;

(8) Take-Out Food;

(9) Sales and Service. Retail;

(10) Service, Financial;

(11) Movie Theater;

(12) Amusement and Game Arcade;

(13) Service, Limited Financial, except single automated teller machines at the street front that meet the Commission’s adopted Performance-Based Design Guidelines and automated teller machines located within another use that are not visible from the street;

(14) Service, Fringe Financial;

(15) Tobacco Paraphernalia Establishment;

(16) Massage Establishment; and

(17) Service, Personal.

(d) Conditional Use Criteria.

With regard to a conditional use authorization application for a Formula Retail use, the Planning Commission shall consider, in addition to the criteria set forth in Section 303, the criteria below and the Performance-Based Design Guidelines adopted by the Planning Commission to implement the criteria below.

(1) The existing concentrations of Formula Retail uses within the district and within the vicinity of the proposed project. To determine the existing concentration, the Planning Commission shall consider the percentage of the total linear street frontage within a 300-foot radius or a quarter of a mile radius, at the Planning Department’s discretion, from the subject property that is occupied by Formula Retail and non-Formula Retail businesses. The Department’s review shall include all parcels that are wholly or partially located within the 300-foot radius or quarter-mile radius. If the subject property is a corner parcel, the 300-foot radius or quarter mile radius shall include all corner parcels at the subject intersection. For each property, the Planning Department shall divide the total linear frontage of the lot facing a public-right of way by the number of storefronts, and then calculate the percentage of the total linear frontage for Formula Retail and non-Formula Retail. Half percentage points shall be rounded up.

For the Upper Market Street Neighborhood Commercial District only, if the application would bring the formula retail concentration within a 300-foot radius to a concentration of 20% or above, Planning Department staff shall recommend disapproval of the application to the Planning Commission. If the application would not bring the formula retail concentration within the 300-foot radius to a concentration of 20% or above, Planning Department staff shall assess the application according to all the other criteria listed in this Subsection 303.1(d), and recommend approval or disapproval to the Planning Commission, according to its discretion and professional judgment. In either case, the Planning Commission may approve or reject the application, considering all the criteria listed in this Subsection 303.1(d).

(2) The availability of other similar retail uses within the district and within the vicinity of the proposed project.

(3) The compatibility of the proposed Formula Retail use with the existing architectural and aesthetic character of the district.

(4) The existing retail vacancy rates within the district and within the vicinity of the proposed project.

(5) The existing mix of Citywide-serving retail uses and daily needs-serving retail uses within the district and within the vicinity of the proposed project.

(6) Additional relevant data and analysis set forth in the Performance-Based Design Guidelines adopted by the Planning Commission.

(7) For Formula Retail uses of 20,000 gross square feet or more, except for General or Specialty Grocery stores as defined in Articles 2, 7 and 8 of this Code, the contents of an economic impact study prepared pursuant to Section 303(i) of this Code.

(8) Notwithstanding anything to the contrary contained in Planning Code Article 6 limiting the Planning Department’s and Planning Commission’s discretion to review signs, the Planning Department and Planning Commission may review and exercise discretion to require changes in the time, place and manner of the proposed signage for the proposed Formula Retail use, applying the Performance-Based Design Guidelines.

(e) Conditional Use Authorization Required.

A Conditional Use Authorization shall be required for a Formula Retail use in the following zoning districts unless explicitly exempted:

(1) All Neighborhood Commercial Districts in Article 7;

(2) All Mixed Use-General Districts in Section 840;

(3) All Urban Mixed Use Districts in Section 843;

(4) All Residential-Commercial Districts as defined in Section 206.3;

(5) Japantown Special Use District as defined in Section 249.31;

(6) Chinatown Community Business District as defined in Section 810.1;

(7) Chinatown Residential/Neighborhood Commercial District as defined in 812.1;

(8) Western SoMa Planning Area Special Use District as defined in 823;

(9) Residential Transit-Oriented Districts as defined in 206.4 and 206.5;

(10) Limited Conforming Use/Non-Conforming Use in RH-RM-RTO and RED Districts;

(11) Third Street Formula Retail Restricted Use District, as defined in Section 786;

(12) The C-3-G District with frontage on Market Street, between 6th Street and the intersection of Market Street, 12th Street and Franklin Street.

(f) Formula Retail Uses Not Permitted.

Formula Retail uses are not permitted in the following zoning districts:

(1) Hayes-Gough Neighborhood Commercial Transit District;

(2) North Beach Neighborhood Commercial District;

(3) Chinatown Visitor Retail District;

(4) Upper Fillmore District does not permit Formula Retail uses that are also Restaurant or Limited-Restaurant uses as defined in Sections 790.90 and 790.91;

(5) Broadway Neighborhood Commercial District does not permit Formula Retail uses that are also Restaurant or Limited-Restaurant uses as defined in Sections 790.90 and 790.91;

(6) Mission Street Formula Retail Restaurant Subdistrict does not permit Formula Retail uses that are also Restaurant or Limited-Restaurant uses as defined in Sections 790.90 and 790.91;

(7) Geary Boulevard Formula Retail Pet Supply Store and Formula Retail Eating and Drinking Subdistrict does not permit Formula Retail uses that are also either a Retail Pet Supply Store or an Eating and Drinking use as set forth in Section 781.4;

(8) Taraval Street Restaurant Subdistrict does not permit Formula Retail uses that are also Restaurant or Limited-Restaurant uses as defined in Sections 790.90 and 790.91;

(9) Chinatown Mixed Use Districts do not permit Formula Retail uses that are also Restaurant or Limited-Restaurant uses as defined in Sections 790.90 and 790.91.

(g) Neighborhood Notification and Design Review.

Any application for a Formula Retail use as defined in this section shall be subject to the notification and review procedures of Subsections 312(d) and (e) of this Code. A conditional use hearing on an application for a Formula Retail use may not be held less than 30 calendar days after the date of mailed notice.

(h) Determination of Formula Retail Use.

In those areas in which Formula Retail uses are prohibited or subject to the provisions of Subsections 303.1(d) or (e), any application for an entitlement or determination determined by the City to be for a Formula Retail use that does not identify the use as a Formula Retail use is incomplete and cannot be processed until the omission is corrected. Any entitlement approved or determination made that is determined by the City to have been, at the time of application, for a Formula Retail use that did not identify the use as a Formula Retail use is subject to revocation at any time. If the City determines that an entitlement or determination, or an application for the same, is for a Formula Retail use, the applicant or holder of the entitlement bears the burden of proving to the City that the proposed or existing use is not a Formula Retail use.

(i) Performance-Based Design Guidelines.

All new, enlarged, intensified or non-intensified Formula Retail uses or establishments must comply with the Commission’s adopted Performance-Based Design Guidelines for Formula Retail, as directed by the Planning Department and Planning Commission.

(j) Change of Use.

Changes of Formula Retail establishments are generally described below, except that a change of a Formula Retail use that is also a nonconforming use pursuant to Section 182 is prohibited. In all other instances, changes of Formula Retail establishments from one use category to another, including a change from one use to another within the sub-categories of uses set forth in Planning Code Section 790.102 and Section 890.102, require a new Conditional Use authorization as a new Formula Retail use. Changes of Formula Retail owner or operator within the same use category that are determined to be an enlargement or intensification of use pursuant to Subsection 178(c) are required to obtain Conditional Use authorization and shall meet the Commission’s adopted Performance-Based Design Guidelines for Formula Retail. In cases determined not to be an enlargement or intensification of use, the Performance-Based Design Guidelines for Formula Retail may be applied and approved administratively by the Planning Department, unless the applicant requests a Conditional Use Hearing at the Planning Commission. The applicant shall also pay an administrative fee to compensate Planning Department and City staff for its time reviewing the project under this Subsection, as set forth in Section 360 of this Code.

(k) Accessory Uses.

Conditional use authorization shall be required for all accessory uses within those use categories subject to Formula Retail controls as defined in this Section 303.1, except for the following:

(1) Single automated teller machines falling within the definition of Limited Financial Services that are located at the street front that meet the Commission’s adopted Performance-Based Design Guidelines for automated teller machines;

(2) Automated teller machines located within another use that are not visible from the street;

(3) Vending machines that do not exceed 15 feet of street frontage or occupy more than 200 square feet of area facing a public right of way.

(Added by Ord. 235-14 , File No. 140844, App. 11/26/2014, Eff. 12/26/2014)

 

…..

ECONOMIC IMPACT REQUIREMENT

(i) Large-Scale Retail Uses.

With respect to applications for the establishment of large-scale retail uses under Section 121.6, in addition to the criteria set forth in Subsections (c) and (d) above, the Commission shall consider the following:

(1)   The extent to which the retail use’s parking is planned in a manner that creates or maintains active street frontage patterns;

(2)   The extent to which the retail use is a component of a mixed-use project or is designed in a manner that encourages mixed-use building opportunities;

(3)   The shift in traffic patterns that may result from drawing traffic to the location of the proposed use;

(4)   The impact that the employees at the proposed use will have on the demand in the City for housing, public transit, childcare, and other social services; and

(5)   An economic impact study. The Planning Department shall prepare an economic impact study using qualified City staff or shall select a consultant from a pool of pre-qualified consultants to prepare the economic impact study required by this Subsection. The analysis, in the form of a study, shall be considered by the Planning Commission in its review of the application. The applicant shall bear the cost of paying the consultant for his or her work preparing the economic impact study, and any necessary documents prepared as part of that study. The applicant shall also pay an administrative fee to compensate Planning Department and City staff for its time reviewing the study, as set forth in Section 359 of this Code. The study shall evaluate the potential economic impact of the applicant’s proposed project, including:

(A)   Employment Analysis. The report shall include the following employment information: a projection of both construction-related and permanent employment generated by the proposed project, and a discussion of whether the employer of the proposed project will pay a living wage, inclusive of non-salary benefits expected to be provided, relative to San Francisco’s cost of living.

(B)   Fiscal Impact. The report shall itemize public revenue created by the proposed project and public services needed because of the proposed project, relative to net fiscal impacts to the General Fund. The impacts to the City’s public facilities and infrastructure shall be estimated using the City’s current assumptions in existing nexus studies (including area plan, transit, open space in-lieu fee and other impact fees), and should account for any contributions the proposed project would make through such impact fee payments.

(C)   Leakage Analysis Study. This portion of the report shall be twofold: both quantitative and qualitative. The quantitative portion shall provide an analysis of whether the proposed project will result in a net increase or decrease in the capture of spending by area residents on items that would otherwise be purchased outside the area. The area to be studied for potential economic impacts of the proposed project shall be determined by the City in consultation with the expert conducting the study as different sizes of study areas would be pertinent depending on a multitude of factors, including but not limited to, size and type of the proposed store. This quantitative leakage analysis should be paired with a qualitative assessment of whether the proposed use would complement existing merchandise selection in the area by adding greater variety of merchandise, bolstering the strength of an existing retail cluster, or matching evolving consumer preferences.

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