U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch FINAL AGENCY DECISION ISSUE AUTHORITY CASE CHRONOLOGY

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Figaro s Pizza of Phoenix #2, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DECISION The USDA, Food and Nutrition Service (FNS) finds that there is sufficient evidence to support the decision of the Retailer Operations Division to deny the application of Figaro s Pizza of Phoenix #2 (hereinafter Figaro s or Appellant ) to participate as an authorized retailer in the Supplemental Nutrition Assistance Program (SNAP). As a result, the Appellant may not reapply for six months from the date of the denial decision. ISSUE The issue accepted for review is whether the Retailer Operations Division took appropriate action, consistent with 7 CFR 278.1(k)(1), (2) and (5) in its administration of the SNAP when it denied the application of the Appellant to participate as an authorized SNAP retailer. AUTHORITY 7 U.S.C and the implementing regulations at 7 CFR provide that A food retailer or wholesale food concern aggrieved by administrative action under 278.1, or may file a written request for review of the administrative action with FNS. CASE CHRONOLOGY The Appellant applied to participate in the SNAP as an authorized retailer on May 31, In a letter dated August 8, 2017, the Retailer Operations Division informed the Appellant that the firm did not carry a sufficient variety of staple food items in 1

2 the four required staple food categories, and therefore did not meet eligibility Criterion A. The Retailer Operations Division also determined that the store failed to meet eligibility Criterion B because the store's staple food sales comprised 50 percent or less of its annual gross retail sales. Therefore, the store s application was denied. The letter also informed the Appellant that it could not submit a new application to participate in SNAP for a period of six months from the effective date of the denial as provided by SNAP regulations at 7 CFR 278.1(k)(2). In a letter postmarked August 10, 2017, the Appellant requested an administrative review of the Retailer Operation Division s denial of its SNAP application. The request for administrative review was granted. STANDARD OF REVIEW In appeals of adverse actions, an appellant bears the burden of proving by a preponderance of the evidence, that the administrative actions should be reversed. That means an appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, might accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true. CONTROLLING LAW AND REGULATIONS The controlling law in this matter is contained in the Food and Nutrition Act of 2008, as amended, 7 U.S.C. 2018, and its implementing regulations at Part 278 of Title 7 of the Code of Federal Regulations (CFR). 7 CFR 278.1(b)(1)(i)(A) reads, in part, An establishment... shall normally be considered to have food business of a nature and extent that will effectuate the purposes of the program if it sells food for home preparation and consumption and meets one of the following criteria: Offer for sale, on a continuous basis, a variety of qualifying foods in each of the four categories of staple foods as defined in including perishable foods in at least two of the categories (Criterion A); or have more than 50 percent of the total gross retail sales... in staple foods (Criterion B.) [Emphasis added.] 7 CFR 271.2, defines Staple food, in relevant part, as:... Those food items intended for home preparation and consumption in each of the following food categories: meat, poultry, or fish; bread or cereals; vegetables or fruits; and dairy products. Hot foods are not eligible for purchase with SNAP benefits and, therefore, do not qualify as staple foods for the purpose of determining eligibility. 2

3 Accessory food items including, but not limited to, coffee, tea, cocoa, carbonated and uncarbonated drinks, candy, condiments, and spices shall not be considered staple foods for the purpose of determining eligibility of any firm. 7 CFR 278.1(b)(1)(ii) states in part: In order to qualify under [Criterion A] firms shall: (A) Offer for sale... qualifying staple food items on a continuous basis... on any given day of operation, no fewer than three different varieties of food items in each of the four staple food categories... [Emphasis added.] (B) Offer for sale perishable staple food items in at least two staple food items. Perishable foods are items which are either frozen staple food items or fresh, unrefrigerated or refrigerated staple food items that will spoil or suffer significant deterioration in quality within 2-3 weeks; and (C) Offer a variety of staple foods which means different types of foods, such as apples, cabbage, tomatoes, and squash in the fruit or vegetable staple food category, or milk, cheese, butter and yogurt in the dairy category. Variety of foods is not be interpreted as different brands, different nutrient values, different varieties of packaging, or different package sizes. Similar processed food items with varying ingredients such as, but not limited to, sausages, breakfast cereals, milk, sliced breads, and cheeses, and similar unprocessed food items, such as, but not limited to, different varieties of apples, cabbage, tomatoes, or squash shall not each be considered as more than one staple food variety for the purpose of determining variety. Multiple ingredient food items intended for home preparation and consumption, such as, but not limited to, cold pizza, macaroni and cheese, soup, or frozen dinners, shall only be counted as one staple food variety each and will normally be included in the staple food category of the main ingredient as determined by the FNS. 7 CFR 278.1(b)(1)(iii) states in part: In order to qualify under [Criterion B] firms must have more than 50 percent of their total gross retail sales in staple food sales. Total gross retail sales must include all retail sales of a firm, including food and non-food merchandise, as well as services, such as rental fees, professional fees, and entertainment/sports/games income... [Emphasis added.] 7 CFR 278.1(k) reads, in relevant part: FNS shall deny the application of any firm if it determines that: (2) The firm has failed to meet the eligibility requirements for authorization 3

4 under Criterion A or Criterion B, as specified in paragraph (b)(1)(i) of this section... Any firm that has been denied authorization on these bases shall not be eligible to submit a new application for authorization in the program for a minimum period of six months from the effective date of the denial. [Emphasis added.] APPELLANT S CONTENTIONS The Appellant made the following summarized contentions in its request for administrative review, in relevant part: The store never intended to qualify under the stocking requirement of Criterion A. Over 50% of the firm s gross retail sales are from SNAP eligible staple food primarily cold pizza which is a multi-ingredient item under the breads and cereals category. Figaro s is a franchise and nearly all of its stores have qualified under Criterion B for the last 30 years. The USDA has referred to the business as a buy and fry and this model allows Figaro s to qualify under Criterion B. The preceding may represent only a brief summary of the Appellant s contentions in this matter. However, in reaching a decision, full attention and consideration has been given to all contentions presented, including any not specifically recapitulated or specifically referenced herein. ANALYSIS AND FINDINGS Store Visit Results The case record documents that in reaching its decision to deny the Appellant s SNAP application, the Retailer Operations Division relied upon information obtained during a store visit conducted on June 17, 2017 by an FNS contractor to observe the nature and scope of the firm s operation, stock and facilities. The store visit report and photographs documented that the firm was primarily selling hot and cold pizza and other prepared food items and had a DVD rental service. The store employee on site stated to the contractor that the location offers take and bake pizza for $1.00 less than the price for hot pizza. The store visit photographs show signage on an exterior glass window that offers a $6.00 lunch special for sandwiches/chips and drinks or a personal pizza and drinks. Another inscription on an exterior glass window also advertises the sale of pizza by the slice from 11:30 am to 2:00 pm. 4

5 Figaro s also has a large oven and has tables and seating available for dining in. The store advertises and offers delivery service, call-in ahead of time, and on-line ordering. In summary, although the Appellant firm says it is primarily a take and bake pizza store, it likely has a larger percentage of hot food sales. Eligibility under Criterion A Although the Appellant states that it never intended to qualify under Criterion A, the Appellant s application positively and incorrectly stated that the firm had at least three (3) different items in each of the four (4) staple food categories. Therefore, the Appellant s eligibility under Criterion A had to be assessed. The Retailer Operations Division determined from the store visit report that the firm does not qualify for the SNAP under Criterion A which requires at least three varieties of staple food in each of the four staple food categories. The Appellant correctly states that cold, unbaked pizza which is intended for home preparation and consumption is a multiple ingredient staple food under 7 CFR However, a multiple ingredient staple food may only be counted under one staple food category as noted in 7 CFR 278.1(b)(1)(ii). A review of the store visit report and photographs shows that the Retailer Operations Division correctly concluded that the Appellant did not meet Criterion A as it did not offer for sale at least three (3) varieties of food in each of the four (4) staple food categories. Eligibility under Criterion B The SNAP regulations at 7 CFR 278.1(b)(1)(iii) state that in order to qualify under eligibility Criterion B firms must have more than 50 percent of their total gross retail sales in staple food sales. The SNAP regulations at 7 CFR define staple foods as those food items intended for home preparation and consumption. [Emphasis added.] The Appellant noted in its application that the firm s sales information was an estimated number since two Figaro locations are combined together on its tax documents. The Appellant s application stated that it estimated its staple food sales at 75% of its gross retail sales. According to the Appellant, this percentage is generated largely from the sale of cold, unbaked pizzas intended for home preparation and consumption. The Retailer Operations Division determined that this estimate was likely too high based on a review of the store visit report and pictures which indicated the store likely had a high percentage of hot food sales. On July 10, 2017, the Retailer Operations Division issued a proof of inventory letter requesting that the Appellant provide sales receipts/invoices and tax documents in order to accurately determine the store s percentage of staple food sales and hot food sales. In response, the Appellant submitted an untitled one-page sales report covering the period from July 11, 2016 through July 11, The 5

6 Appellant did not submit any actual sales receipts, invoices or tax records. The sales report states that the Appellant sold 5 U.S.C. 552 (b)(6) & (b)(7)(c) in U-Bake pizzas and medium calzones. The report shows eligible non-staple food sales 5 U.S.C. 552 (b)(6) & (b)(7)(c). Lastly, the report shows other ineligible sales 5 U.S.C. 552 (b)(6) & (b)(7)(c) which consist of baking charges, sandwiches and ice cream. The Appellant did not document the gross retail sales from non-food items such as the DVD rentals. Based on these figures, the Appellant handwrote on this document that its eligible staple sales were over 79% of its gross retail sales. A review of the sales report reveals that it does not sufficiently document that the store s staple food sales exceed 50% of its gross retail sales. For example, the report does not show the actual number of unbaked pizzas sold or the number of baked pizzas sold. The report does show 5 U.S.C. 552 (b)(6) & (b)(7)(c) in baking charges but does not further breakdown this figure or show the total dollar amount of hot food sold. In conclusion, this sales report is insufficient to support the Appellant s claim that over 50 percent of its gross retail sales are in staple food items intended for home preparation and consumption. As shown by the store visit report, Figaro s does offer for sale cold, unbaked pizza for home preparation and consumption. However, the store menu, signage, infrastructure and layout indicate that Figaro s also offers a substantial amount of hot and cold ready-to-eat food not intended for home preparation and consumption including hot pizza, chicken wings, calzones, and made-to-order sandwiches which appear to have been underreported. In conclusion, the Appellant has not provided sufficient evidence to establish its eligibility under Criterion B by a preponderance of the evidence. Therefore, the Retailer Operations Division correctly determined that the Appellant firm does not meet eligibility Criterion B. Eligibility of Other Franchise Stores Buy and Fry The Appellant states that Figaro s is a franchise and nearly all of its stores have qualified under Criterion B for the last 30 years. It is beyond the scope of this review to evaluate whether other franchise operations are correctly authorized or not. Instead, this administrative review is limited to an evaluation whether or not the Retailer Operations Division acted in accordance with the statute and regulations when it denied the SNAP application of the Appellant store. Therefore, the Appellant s contention concerning other locations is irrelevant to this review. 6

7 The Appellant states that the USDA has referred to the Appellant s business as a buy and fry and this model allows it to qualify under Criterion B. The term buy and fry does not appear in regulations but is a colloquialism that refers to a practice in which stores that are usually already authorized for the SNAP may heat food post-sale without being in violation of selling hot food. To avoid a violation, the store must deliver food cold at the point of sale to the customer in exchange for SNAP benefits. After the sale, the retailer is allowed to receive the food back from the customer for heating. The retailer may charge a heating fee but it cannot be paid for with SNAP benefits. It should be noted that new regulations will soon be implemented which will end this buy and fry practice. There is no indication from the store visit report that the Appellant operates on a buy and fry model. Instead the Appellant store appears to sell hot food at the point of sale at a higher price than its cold pizza which is sold for home preparation and consumption on a take and bake model. Eligibility to Submit New Application Section 9 of the Food and Nutrition Act of 2008, as amended, states, in part, [a] retail food store or wholesale food concern that is denied approval to accept and redeem benefits because the store or concern does not meet criteria for approval... may not, for at least 6 months, submit a new application to participate in the program. In addition, 7 CFR 278.1(k)(2) states, in part, that any firm that has been denied authorization shall not be eligible to submit a new application for authorization in the program for a minimum period of six months from the effective date of the denial. Based on the law and SNAP regulations, there is no agency discretion to allow a firm to submit a new application less than six months from when a firm is denied for not meeting the eligibility requirements for SNAP authorization. CONCLUSION Based on the analysis above, the decision by the Retailer Operations Division to deny the SNAP application of the Appellant, Figaro s Pizza of Phoenix #2, is sustained. In accordance with 7 CFR 278.1(k)(2), the Appellant shall not be eligible to submit a new application for SNAP authorization for six months from August 8, 2017, the effective date of the denial. 7

8 RIGHTS AND REMEDIES Section 14 of the Food and Nutrition Act of 2008 (7 U.S.C. 2023) and Title 7, Code of Federal Regulations, Part (7 CFR 279.7) addresses your right to a judicial review of this determination. Please note that if a judicial review is desired, the Complaint, naming the United States as the defendant, must be filed in the U.S. District Court for the district in which you reside or are engaged in business, or in any court of record of the State having competent jurisdiction. If any Complaint is filed, it must be filed within thirty (30) days of receipt of this Decision. Under the Freedom of Information Act, we are releasing this information in a redacted format as appropriate. FNS will protect, to the extent provided by law, personal information that could constitute an unwarranted invasion of privacy. RONALD C. GWINN September 26, 2017 Administrative Review Officer 8