Sitting at a low chair in front of a polished mahogany bar, one man leans back and sips a beer. A flat-screen TV, perched just above a wall of shelves stacked with bottles and a fluorescent Peroni sign, is showing a replay of the Super Bowl.
The man will be catching his flight soon, and this pre-boarding time is leisurely, peaceful. No one is chattering nearby to drown out the TV. When he places an order for food and another round, he is unencumbered by other travelers.
But at a table near the entrance to Chiaramonte’s Deli, the owner of the establishment looks at his balance sheet, glances back at his lone customer, and wonders aloud how much longer he can stay afloat. “When we came here we were going after a dream,” says Louis Chiaramonte Jr., a fifth-generation Italian-American. “But it’s really just turned into a nightmare.”
Tall and somewhat slight in frame, Chiaramonte has a boyish face speckled with two days’ stubble. In trying to expand his family’s 103-year-old delicatessen, which still operates at its original location on North 13th Street, Chiaramonte took a risk by opening a shop late last year at San Jose’s Mineta Airport. Working with leaseholder HMS Host, a food and beverage retail giant, the family took out more than a half-million dollars in loans to build an attractive sandwich shop and bar in Terminal A.
What’s happened since that time serves as a reminder that timing is everything in life, and that nothing is more important in real estate than location.
The recession has hit airports harder than many other business sectors, and Mineta has seen a steep drop in traffic—flights are down 33 percent since 2007. To make matters worse, Chiaramonte’s bar and deli is located in Mineta’s least-visited pocket.
About 70 percent of the airport’s flights are still funneled through the recently renovated Terminal B, which leaves less than a third of traffic to go through Terminal A. Chiaramonte’s is located at the end of a jagged corridor that leads to a largely hidden area called Terminal A-Plus. The area is so remote one airport security officer didn’t know it existed.
Only 13 percent of the airport’s flights enter or exit SJC from this location, leaving Chiaramonte’s Deli out of sight, out of mind, and in two weeks, likely out of business.
Cutting the Fat
The Chiaramontes have trimmed their menu to the basics. They say they have only two weeks until they will have to file for bankruptcy.
“We were led to believe this would be prosperous, but the traffic was not here to begin with,” says Louis’ father, Lou Sr., whose great-grandfather opened the original location in 1907.
Lou Sr. claims that business has fallen woefully short of the projections provided to the Chiaramontes by Host. According to those documents, Max’s Deli, the establishment previously operating in Chiaramonte’s location, was making $1.4 million in annual revenue as of 2008. But the Chiaramontes say they are lucky to bring in more than $40,000 a month, leaving them almost $1 million short. As a result, the family-run business is severely behind on monthly payments for its loans as well as rent.
David Vossbrink, Mineta’s communications director, blamed the situation on the fact that the airport’s flights have been scaled way back. “It’s a lot of disappointment for everyone,” he says.
Airport director Bill Sherry submitted a memo to the City Council on Tuesday that says Mineta has engaged Host in discussions about vacating Terminal A Plus since traffic has slowed and many of the retail offerings are suffering. In doing so, the airport would save about $50,000 a year. But so far, Host, which did not return requests for comment for this story, has declined to take the airport up on the offer.The Chiaramontes admit they knew next to nothing about running a business out of an airport when they started looking for funding for their plan. Refusing to be dissuaded, though, they took out high-interest loans. Since then, disputes over pricing schemes with Host have put the family at even greater competitive disadvantage, the Chiaramontes say. The very first day of operations at the airport, Chiaramonte’s was told to close by a Host official because its prices were not in line with the company’s standards.
Unlike many of the other concessions at SJC, the family decided to take on the costs of building their shop and the day-to-day management of their operation, rather than simply lending their name and menu to Host for a small percentage of revenue.
Just three months after opening the deli’s doors to travelers, the Chiaramontes were pleading with the City Council to see if it could help settle disputes with Host and the airport. They went to the city because, they say, that’s how they got into this fix in the first place.
Were it not for a meeting in 2007, when the city hosted an event to attract local business to SJC, the Chiaramontes say they might have been content to expand their endeavors in more traditional markets. But spurred by civic leaders, the family chose to be bold and jumped at the opportunity to open a shop at the airport.
City Councilman Sam Liccardo, whose district includes the airport, and by proxy the Chiaramonte’s business, has been looking into the matter for several weeks. Liccardo says the city is trying to help the Chiaramontes find options to stay in business, but it appears the city’s hands are tied.
The nature of Chiaramonte’s lease with Host prevents the family from being able to directly engage the city or airport to resolve any issues.
“I’m not trying to wash our hands here,” Liccardo says, “but it is important when somebody signs a contract they know the parties involved.”
Call it a sign of the times, but it appears banks are too big to fail while small businesses that take out bad loans fall short of the bailout threshold.
Host has offered to buy the Chiaramontes out, which would still leave the family with about $300,000 of debt in loans, they say. Host would, they say, have a remodeled location at half the cost.
“We were promised all these pie-in-the-sky things,” Chiaramonte Jr. says, “and not put in a posiiton to succeed.”
The family admits it made plenty of mistakes, including not doing more due diligence. But with the city and Host pushing for the partnership, the Chiaramontes can’t help but feel like they were misled.