Rob Perez

Raising Cane

By Rob Perez

Sunday, September 23, 2001

Payoffs criticized in tourist lull

Up and down the North Shore, some businesses pay hundreds of dollars to get tourists to eat or shop at their retail outlets.

To the businesses, it's a legitimate marketing expense, one that, until recently, assured a somewhat regular flow of customers. You pay a tour company to deliver tourists in buses, vans or limousines.

To critics, the practice is akin to paying kickbacks. What's worse, they say, it makes Hawaii more expensive for visitors, something the state can ill afford in the aftermath of the terrorist attacks and the resulting drop in tourism here.

The paying of commissions to tour companies is not unique to the North Shore. Restaurant owners, luau operators and other retailers throughout Hawaii frequently pay to have tour vehicles stop at their retail establishments.

But along the North Shore, where customers are harder to come by even in good times, the practice is raising questions in light of recent events.

Some of the questions are directed at restaurants that pay cash (typically $1 to $3 per tourist) directly to bus drivers and help offset such expenses by charging higher menu prices.

Barry Markowitz, a former Hauula restaurant owner, likened the payments to kickbacks or bribes.

"Anyone who participates in that now is helping seal Hawaii's tourism death warrant," said Markowitz, also a freelance photographer whose work occasionally appears in the Star-Bulletin.

Roland Ahi Logan, who runs Ahi's Restaurant in Punaluu but doesn't pay tourist commissions, said he couldn't afford to make a $2-per-head payment and still keep his menu prices affordable.

"We don't want to overcharge people to begin with," Logan said.

The ethics of making such payments also has been questioned, especially when the practice contributes to higher prices but isn't disclosed to customers.

"You've got to earn your business," Markowitz said. "You can't buy your business. To circumvent that by paying a bribe, that's not ethical."

Those who make such payments say the practice is not only ethical but standard throughout the industry, much like a real estate agent getting a commission for bringing a buyer to a house deal.

It also is legal, according to the Prosecutor's Office.

The big tour wholesalers, in fact, for years have had formal agreements with restaurants and other retail establishments where their buses stop. The arrangements, they say, are aboveboard.

Roberts Hawaii, the state's largest tour and transportation company, selects places to stop based on such factors as value to the visitor, reliability of the vendor and how the stop will fit the overall tour, according to Sam Shenkus, a company spokeswoman.

Moreover, competition dictates tour pricing, she added. "We can't just charge what we want," Shenkus said.

Some retailers also said the commissions do not lead to higher prices for customers.

Fred Livingston, owner of five restaurants, including Crouching Lion Inn, historically a popular tour bus stop on the North Shore, said the commission expenses are offset by taking less profits. "Your menu prices remain constant."

The commissions may not directly affect product prices, but they are part of the cost of doing business, something that does affect pricing.

"Most costs of doing business are transferred to the bottom line to some degree and are reflected in the price of products," said Dana Alden, chairman of the marketing department at the University of Hawaii College of Business Administration. "I don't know how a business could operate otherwise."

Alden acknowledged that some businesses may rely on the commission-generated tourist traffic to help cover fixed costs. If that traffic weren't there, the businesses might have to charge higher menu prices to cover fixed costs.

Alden wondered whether paying commissions, which in some cases can amount to 10 percent to 20 percent of a meal's price, is an efficient way to get customers.

Frank Lorusso believes it is. He ran the Spaghetti Shack in Kahuku until about a year and a half ago and paid $1 a tourist.

Buses stopped two or three times a day, delivering about 20 to 25 visitors a load.

Though the commission amounted to 14 percent or more of the price of his entree items, Lorusso said the expense was worthwhile, considering his restaurant was not in a highly visible location.

"It was the best marketing and advertising you could possibly do," Lorusso said. "It put people in the restaurant."

Lorusso paid cash to the bus driver, who also received a complimentary meal. Commissions on some days totaled as much as $75, and Lorusso had a relatively small operation. Other businesses pay much more.

As effective as the commissions may be, some within the industry say the practice deserves to be re-evaluated in these tough times.

The dramatic drop in tourism already has prompted companies to lay off workers, pare work hours, cut services or take other cost-cutting measures. It also has triggered plans by the state to step up marketing to entice more people to visit the islands.

In that context, anything that can cut the cost of a visitor's stay, even in small ways, is worth considering.

Star-Bulletin columnist Rob Perez writes on issues
and events affecting Hawaii. Fax 529-4750, or write to
Honolulu Star-Bulletin, 500 Ala Moana Blvd., No. 7-210,
Honolulu 96813. He can also be reached
by e-mail at:

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