The fate of a project that would add a more-than-50,000-square-foot Food 4 Less grocery store to East Grand Avenue in Arroyo Grande lies with the City Council after a split Planning Commission rejected the proposal.

Later this month or in early October, council members will discuss the project, which also includes a 4,028-square-foot commercial building and 4,535-square-foot restaurant at East Grand Avenue and South Courtland Street.

Planning commissioners voted 3-2 on Tuesday to recommend the council reject the project, with Commissioners John Keen and Jennifer Martin dissenting.

The Food 4 Less store became the focus for some local business owners and residents, who argued the area doesn’t need another grocery store.

They’re also concerned that the competition could harm nearby grocers such as the Cookie Crock Warehouse and Spencer’s Fresh Market — the latter of which is located diagonally across the street from the proposed store.

A Von’s grocery store is also located in Grover Beach a few blocks west of the project site; Cookie Crock is a few blocks east.

“There’s only so many food dollars to go around,” commission Chairman Tim Brown said Thursday.

However, Carol Florence, a representative for developer Nick Tompkins of NKT Commercial, said Food 4 Less — a discount supermarket — offers a different type of grocery store than any currently in the area.

She said revisions will likely be made to the site plan before it goes to the council.

“Revenue enhancement for the city is extremely important,” she said. “But I also think having a good design and appropriate development is important. It’s a balancing act.”

The overall project is estimated to bring an additional $25,000 annually in property tax revenue to the city and $36,000 annually to the Arroyo Grande Redevelopment Agency, City Manager Steve Adams said.

According to Adams, the developer estimates the Food 4 Less will bring in $67,000 to $75,000 in sales tax annually, which is projected to increase to $134,000 to $150,000 a year in four years — an amount that some local business owners and Brown disputed.

Adams said that his staff could not verify those amounts. A brief staff analysis stated that revenue in the $100,000 range is a reasonable assumption, he said, though it’s unknown how much of that would be net revenue, or revenue lost by other stores.

“Some store is going to suffer one way or another,” Brown argued.

Mayor Tony Ferrara, who can’t vote on the project because he lives within 500 feet of it, wrote as a private citizen to the Planning Commission and council that he opposes the approval of the Food 4 Less proposal.

“To approve this project would send a message to our existing small business community that we have no intention of honoring our previous commitments or remaining consistent with our own planning doctrine,” he said.

Prior to Tuesday’s meeting, planning commissioners received a petition that claims to have been signed by nearly 600 people opposing the development.

It listed concerns including traffic congestion, increased noise and harm to existing local businesses.

“I like the small community feel of our area and do not think a large store like that will contribute in any way,” Tara Da Re, a Grover Beach resident, wrote in an e-mail to commissioners.

Tompkins bought the 6-acre property in 2007, and in 2009 the city’s Redevelopment Agency purchased a 1.63-acre parcel from him to use for subsidized housing.

People’s Self-Help Housing Corp. has purchased that parcel from the agency, and intends to build 36 below-market-price rental units.

Reach Cynthia Lambert at 781-7929. Stay updated on Twitter by following @SouthCountyBeat.