Innovative capitalism or a ‘sweetheart deal’? Hilton Head beach chair rentals take in millions

The company that rents beach chairs, umbrellas and other equipment to tourists and local beachgoers generated $6 million in revenue for 2023.

From that total, the town of Hilton Head received one percent or $60,000.

But things are not as simple as a vendor providing a service and paying the town for the privilege. The same company that rents the chairs also provides all of the 80 lifeguards and beach trash collection services at a relatively small additional charge to the town.

With the town placing this contract out for bid Thursday night, there are questions about the fairness of the process, the bundling of unrelated services and what one local business owner calls the “absolute insanity” of the town’s current deal. For the next agreement set to begin on July 1, the town is now asking for as much as a 5% cut of the beach chair business.

Tourists are on the way

In as few as six weeks, the tourist crowd of more than 2.5 million visitors a year will begin their descent onto Hilton Head Island’s world-famous beaches. By July, finding a spot with enough room is a sport; with the wrong gust of wind, setting up an umbrella is a spectacle.

Shore Beach Service knows it. They have everything beachgoers need already set up, spanning 37 locations along the water including Sea Pines Beach Club, Coligny Beach and Burke’s Beach. Visitors can avoid schlepping heavy chairs and cumbersome umbrellas through the sand. Instead, they can pay a rental attendant $44 and plop down in Shore Beach Service’s signature blue chairs and umbrellas for the day.

Cracking the code to beach-going ease has grossed millions.

In 2022, Shore Beach Service, the 50-year-old company that currently has the contract, grossed $5.99 million from rentals, including kayaks, sailboats and bodyboards. It paid the town 1% of its gross rental receipts, or about $59,900. Between 2018 and 2022, the company grossed $23.85 million in equipment rentals, paying 1% or $238,545 according to documents provided by the town.

The town has awarded Shore Beach Service its sole equipment rental agreement, barring other companies from renting equipment on public beaches for 32 years and raising questions over how competitive the bid process is. The contract says it’s “non-exclusive,” meaning that other companies could rent chairs if approved by the town, but Shore Beach Service is the only company that has ever held a franchise agreement within Hilton Head beaches, according to the history of agreements provided by the town.

In the coming months, the town could award Shore Beach Service the agreement for another year with a renewal option for up to four additional years..

The current agreement is up in June and some say the request for proposal, makes it impossible for other companies to realistically meet the requirements to put their hat in the ring. Despite how lucrative it appears, no other company has bid on the service since it started, according to the history of bid proposals provided by the town.

Tying three services together

The current proposal and past agreements tie in rentals, lifeguards and garbage pickup, sidelining companies that are interested in providing just one of these services. This year vendors have two weeks to submit their proposals. During the 2018 bidding process, the town gave three weeks for companies to submit a proposal. Then, the agreement was signed May 24, 2019, to start July 1, 2019. Because of the timing, a new vendor could not take advantage of the five-month off-season to prepare. Instead, it would have about one month before the Fourth of July weekend to hire employees and purchase rental equipment.

Shore Beach Service’s operations manager Mike Wagner said one vendor being responsible for rentals, lifeguards and garbage pickup increases effectiveness and lowers costs. What’s more, Shore Beach Service has been an island staple for decades.

“We’re a small company that is locally owned and has been locally owned forever,” he said, noting that his family has owned the company since 1992. It makes them meet another requirement that bars potential bidders: “a minimum of five years’ experience providing similar services to a municipality or county government.”

Wagner told stories of couples who met working as lifeguards back then and now have kids working the lifeguard gig for them.

Wagner started working at Shore Beach Service as a college student. It was 1992 and his father purchased what was then called Shore Enterprises, established in 1974.

“When we came in they were combined,” Wagner said of the rentals, lifeguards and trash pickup. “They were always one in the same.”

In the 32 years since Wagner’s family purchased the company, and in the 50 since the company has provided services, Hilton Head’s tourism industry has grown exponentially, but the agreement is mostly the same. The biggest change came in 2023 when the town amended the language to call workers helping with rentals attendants, and not lifeguards. At that point, Shore Beach Service established different uniforms for the roles as well: red for lifeguards and blue for rental attendants.

Wagner said the responsibilities had been separated before the 2023 uniform change. He recalls it was sometime before 2000. The change is enforced by the company’s United States Lifesaving Association certification, which requires a lifeguard’s sole responsibility to be watching the water. USLA spokesperson Tom Gill said lifeguards are municipal employees in most towns and cities, but it isn’t uncommon for them to be private employees as is the case with Shore Beach Service.

Lifeguards aren’t responsible for rentals and garbage collection while on duty; but, according to Wagner, their roles are fluid, meaning that an employee could be collecting garbage one day and guarding the beach another. It allows for a “synergy” that keeps the beach running smoothly. He cites an example: if a child gets lost, everyone is on the same radio system. In case of an emergency, employees covering chair rentals could shift to lifeguard duties. It also provides the company flexibility to staff for bathroom and lunch breaks.

“It’s allowed us to have a much larger, better trained, more robust beach patrol on the island than you would have otherwise,” he said, adding that combining the forces allows them to keep costs to the town down by, for example, using the same vehicles.

Coughlin, the local business owner, believes if the equipment rental agreement was separate from lifeguard he could save the town money by increasing the franchise fee from one percent. He said he might be willing to pay 10%, 12% or 15% of gross sales to the town.

“This is the sweetheart deal of a century,” Coughlin said. “One percent is absolute insanity.”

He suggested that the increased percentage would cover what it costs for the town to separately staff lifeguards and trash collectors as municipal employees.

Another company wants a chance

At least one small, local company wants in on the business. Hilton Head’s Patrick Coughlin was hopeful the town would change the bid process to make it easier to earn a part of the agreement. Coughlin owns the Pirates of Hilton Head, a cruise experience; Lowcountry Watersports, an outdoor outfitter; and other tourism-based companies. He was interested in expanding to chair rentals until he saw the agreement.

“We hit a brick wall,” he said of the requirements. “My concern is that the entire request for proposal is designed so that the only company that has any chance of getting it is Shore Beach Service.”

Specifically, Coughlin wanted chair rentals to be broken out from lifeguards and garbage pick-up.

The financial equation

The town has never analyzed how much it would cost to hire lifeguards as municipal employees, according to Deputy Town Manager Josh Gruber. As a comparison, the California City of Santa Barbara budgets $1.95 million a year for lifeguard services for their roughly 2 million visitors. Its service has fewer staff: about 35 lifeguards compared to Shore Beach Service’s 80, but their employees are only responsible for their work as lifeguards, not rentals or garbage. Currently, with the bundled approach Hilton Head employs, its expense is a little more than $400,000 annually or $1.6 million lower than the California city.

Shore Beach Service bills the town for certain costs in addition to the millions it makes each year on equipment rentals, such as trash and recycling fees and the staffing for some beach control supervisors. These are called “billable services” in the contract.

In 2023 the town paid Shore Beach Service $406,462 for billable services, according to the town budget. In the past four years, it’s totaled $1.38 million.

In 2018, Hilton Head agreed to reduce Shore Beach Service’s payments from equipment rentals from 3% to 1% to avoid re-forecasting an approved town budget to make up for non-billable fees, according to Gruber and Wagner. In the current request for proposal the town details a 5% minimum franchise fee that is “up for negotiation.”

“It was always looked at as ‘You guys are going to have a large percentage of your revenues that are going to go towards creating a beach patrol for the island,’” Wagner said. “That’s where you get into the non-billable stuff.”

To ensure Shore Beach Service is reporting the correct amount of money to the town, the town requests copies of its tax filings and compares the amount it has reported to the government to the amount reported to the town, according to Gruber. “If they’re lying on their tax returns about the amount of gross revenue that they’ve received, the state has a much bigger team than the town has to respond to that,” he said.

Contract timing

In the winter, Hilton Head beaches are mostly quiet. Sea fog is common; warm air flows over cold waters, and misty clouds blanket the sand. There aren’t many swimmers. It’s mainly locals bundled up and bearing the relative chill for a stroll. Toward the end of March, tourists start trickling in and the chair rental season starts.

By the time the Fourth of July rolls around, the public beaches are packed. It’s what many consider the peak of the season, and four days after the chair rental agreement would switch over. Based on the 2018 bid process it would be a month after the contract was finalized.

The town determined the bid and contract switch timing with the same reasoning as why rentals, lifeguards and garbage pickup are bundled together.

“That’s been driven, I believe, by the prior agreements,” Gruber said.

Even if chair rentals were split out of the contract and another business won the bid, it would be a rush to gather the necessary equipment, according to Coughlin.

“It’s an impossible task,” he said, adding it would make more sense if it switched during the five-month chair rental off-season that runs from October to March.

He estimated it would take three months to get all the equipment. The request for proposal detailed 3,060 beach chairs and 1,404 umbrellas.

Come end of March, Shore Beach Service employees will set up those blue beach chairs and umbrellas on beaches across Hilton Head. But the five-year agreement with the town, which it entered in May 2019 will be up June 30.

Shore Beach Service plans to bid on the agreement again, and Wagner hopes they can continue to be part of the Hilton Head community in the same capacity. He said the people who have worked for Shore Beach Service feel like “part of the family.”

Coughlin said he won’t be bidding on the proposal. Not because he doesn’t want to, but because he said he can’t.

“Absolutely not,” he said. “It would be impossible.”