Days after they celebrated the dramatic renovation of California Avenue, Palo Alto officials are bracing for their next challenge: to save the eclectic business strip from its own success.

With property values rising and construction booming in the city's "second downtown," members of the City Council and some merchants are getting flustered about the prospect of mom-and-pop businesses getting priced out and replaced with chain stores. On Monday night, the council will consider a new law that would curtail this trend and create a limit on what is known as "formula retail."

If the council supports a recommendation from city planners, chain stores would not be banned from California Avenue but they would be required to take out conditional-use permits before setting up shop. The city would also revise the zoning code to define formula retail, a subject on which local law is currently mum.

The permit would need approval from the city's director of Planning and Community Environment. Anyone who isn't satisfied with the director's decision would be able to request a hearing in front of the Planning and Transportation Commission, which would then forward a recommendation to the City Council.

The relatively cautious approach reflects the feedback staff received during two community meetings and through a survey that elicited 348 responses. Respondents expressed a strong preference for having more shops on California Avenue (72 percent said there aren't enough of them, while 26 percent said the amount is "just right" and 1.2 percent said there are "too many") and more restaurants (while 59 percent voted for "just right," 34 percent said there aren't enough and 7 percent said there are too many).

The three types of establishments that respondents said are too plentiful on California Avenue are offices, chain stores, and hair and nail salons. On the topic of salons, 48 percent of the respondents said there are too many of them, while 48 percent said the balance is "just right."

The survey also showed most respondents favoring independent businesses, with 48 percent saying there aren't enough of them and 47 percent saying the mix is just right (4 percent said there are too many). For chain businesses, the results were markedly different. While 55 percent said the current number of chain restaurants is just right, 38 percent said there are too many of them and 7 percent there aren't enough. On the topic of chain stores, meanwhile, 58 percent lauded the current mix, 27 percent said there are too many of them, and 15 percent said there aren't enough.

A city employee also solicited feedback from residents at the weekend farmers market and spoke with pedestrians in the area on several occasions, according to a new report from the Department of Planning and Community Environment. There was a general consensus, according to the report, with most people wanting to "reinforce the retail environment with unique stores, allowing for some formula retail, and supported by a mix of restaurants."

According to staff, the street currently has eight establishments defined as "formula retail": Subway, Starbucks, The Counter, FedEx, Pure Barre, Aveda Salon, Benjamin Moore Paints and Pizza Studio. These operations would not be impacted by the new law, which would only apply to new shops.

The staff report notes that during community meetings, there was "very little to no support" for an outright prohibition on chain stores. While some advocated for a limit on how many new "formula retail" shops would be allowed, others called these shops valuable because of their capacity to draw more customers to California Avenue. The report noted that there was "some tension between those who advocated for more regulation to protect neighborhood character and those that favored market forces to determine appropriate businesses based on existing regulations."

Jessica Roth, whose shop European Cobblery is celebrating its 75th year on California Avenue, has been among the leading proponents of restricting chain stores. Last year, hundreds of retailers and residents signed her petition in support of a limit, a measure that she argued would help California Avenue "keep its local flavor and charm."

"The biggest question from people is: Is it too late already?" Roth told the council last September. "My plea to you is: Let's not make it too late."

The goal of preserving local retail has emerged as a hot-button issue in City Hall over the past year, with numerous downtown businesses (Shady Lane, Zibibbo and Jungle Copy) recently shuttering or relocating. The trend is similar on California Avenue, where Cho's Dim Sum, Bargain Box and Avenue Florist have recently shut down because of rent increases. Last week, the council took one step toward reversing this trend when it approved a temporary ordinance prohibiting the conversion of ground-floor retail space to office use. And in March, the council adopted an annual cap of 50,000 square feet on new office development in downtown, California Avenue and El Camino Real.

While those two decisions focused on the broader topic of retail preservation, the May 18 discussion will zoom in on protecting mom-and-pop shops on California Avenue, which has just gone through a $7 million renovation that includes wider sidewalks, two new plazas and a prominent new fountain. The street is widely viewed as the quainter, artsier counterpart to the cosmopolitan hustle-and-bustle of University Avenue.

"Residents and business owners cherish its uniqueness and are proud that it is distinguished from other commercial centers in the community," the report states. "However, many believe that California Avenue is losing its character as more tenant spaces display signs of national chain stores. ... Many have seen an evolution on California Avenue that is less neighborhood-serving and increasingly focused on serving workers in nearby office buildings."

A survey of other cities showed that there is no magic formula for restricting, or even defining, formula retail. San Francisco considers formula retail as chains with at least 11 other establishments in the United States and requires such businesses to get permits in most areas of the city. The city's Planning Commission approves these permits on a case-by-case basis. In Los Gatos, by contrast, a business needs only seven other locations to qualify for the definition of formula retail. The city also requires permits for these businesses to open shop.

In Malibu, formula retail is a business with 10 locations besides the one being proposed. Local law requires them to get permits if they are looking to open in the central commercial district, though it also exempts uses such as grocery stores, gas stations, drug stores and medical offices.

Once the Palo Alto council decides whether and how to restrict chain stores, staff will draft a law that would be reviewed by the Planning and Transportation Commission before returning to the council for adoption this fall.