Divvy pedaled to loss in ’13

By Thomas A. Corfman May 29, 2014

Source: Crain’s Chicago Business

Photo via Flickr/Daniel X. O'Neil

Photo via Flickr/Daniel X. O’Neil

While trying to gain traction with riders, Divvy posted a preliminary operating loss of $148,000 last year, most of which must be covered by Mayor Rahm Emanuel’s administration under its agreement with operator Alta Bicycle Share Inc.

The operating deficit came on revenue of $2.2 million in 2013, according to a spokesman for the Chicago Department of Transportation. Because of the uncertainty over the bicycle rental program’s success, the administration agreed to cover 90 percent of operating losses through this year. Meanwhile, Alta is set to receive a nearly $2.5 million fee from the city for installation.

Though the operating loss is not unexpected, and the amount is relatively small, it comes at a time when Mr. Emanuel is under intense pressure to cut costs and avoid tax increases. The bicycle-sharing program has not yet reached many neighborhoods, reinforcing a view that Divvy is merely a toy for yuppies and tourists.

With the program expected to ramp up this year, achieving profitability is crucial to its long-term success. The administration expects Divvy to at least break even this year.

‘THEY SIMPLY NEED MORE CUSTOMERS’

Yet transportation expert Joseph Schwieterman said it could take as many as three years for demand to rent bikes to fully develop. The program has proved popular with out-of-towners, but it must win over more price-sensitive customers, such as city residents.

“Divvy’s brand recognition is tremendous . . . but they simply need more customers,” said Mr. Schwieterman, director of the Chaddick Institute for Metropolitan Development at DePaul University. “This summer will be critical since the marginal buyer will have to make a choice.”

The operating loss underscores the importance of sponsorships and advertising, which the city doesn’t have to share with Alta. The city has netted $650,000 to date in advertising on bike stations, including $221,000 last year, the Transportation Department spokesman said in an email.

Divvy received a big boost in May, when the Emanuel administration announced a five-year, $12.5 million sponsorship agreement with Blue Cross & Blue Shield of Illinois. When the deal was announced, the administration said it would use the proceeds from the sponsorship to expand Divvy and pay for things that would improve biking in general, such as purchasing sweeping and snow-removal equipment for bike lanes.

SUPPLIER DISPUTE

City officials said Divvy may still post an operating profit for 2013, pending the outcome of a long-running dispute with Montreal-based equipment supplier Public Bike System Co. Since August, the city has withheld more than $2.1 million in payments to Alta because of delays in the delivery of equipment and software updates. Alta, in turn, has withheld payments to Public Bike System, or Bixi as it is known.

Bruno Rodi, owner of Quebec sofa maker Rodi Design, who bought Bixi out ofbankruptcy last month, did not return calls requesting comment. An executive at Portland, Oregon-based Alta did not respond to an email requesting comment.

After several delays, Divvy launched June 28. The bulk of the program’s startup costs, including Alta’s installation fees, are to be funded through a combination of federal grants, totaling $24.4 million, and matching city funds of $6.1 million, according to information obtained from the U.S. Department of Transportation. Chicago officials said their local contribution is $175,000 more than federal records show.

So far, the Emanuel administration has paid Alta $17.7 million, according to Chicago purchasing records, which the city spokesman said was for equipment.

CITY AGREEMENT

Because of “uncertainty in adoption rates” for Divvy, which is “novel in Chicago in size and scope,” the Emanuel administration agreed to take 90 percent of the program’s losses, or profits, through 2014, according to a City Council committee report on the five-year agreement, signed in 2013.

Starting in the third year of the deal, Alta would receive between 40 and 70 percent of operating profits, based on a bonus formula. Also starting the third year, Alta’s annual losses are capped at 10 percent of projected annual expenses. For example, expenses are expected to be about $7.8 million in 2014.

Alta set single-day records twice over the Memorial Day weekend, with 12,863 trips on May 24, followed by 16,259 rides on May 25, the Emanuel administration announced.


TakeAways

It is past time for the blathering on the Chicago ChainLink Forum about the future of the Urban Cycling Movement to translate into action rather than just more talk. If they insist on riding the Chicago Critical Mass Rides then it simply must be astride Divvy bikes. We have had a gift horse dropped into our laps and yet countless Chicago Cycling Commuters simply will not bother to use these bikes instead choosing to concentrate on whatever person bikes they own.

Personal bikes create parking problems. They engender more bicycle theft because of the designs of the locks and cables that are used. We could clear up bicycle theft and on-street parking hassles in one easy stroke if Chicago’s Blathering Urban Cyclists would put their money where their mouths are.