OpenTable is a proud media sponsor of the second annual Golden Gate Restaurant Association Industry Conference! Leaders in the Bay Area restaurant community will gather April 11-12 to discuss the top challenges facing businesses today. Here, Gwyneth Borden, Executive Director of the Golden Gate Restaurant Association, gives an overview of the current state of affairs and a taste of conversations to come.
If you’ve been paying attention to the San Francisco Bay Area culinary scene, you’re well aware that we’ve been experiencing the year(s) of the new restaurant.
In 2015, the United States Department of Commerce found that for the first time in history, Americans spent more money on dine-out food than on groceries; nowhere was that more evident than in the Bay Area, where new restaurants seem to open weekly.
Ironically, this growth comes at a time when costs are all rising — labor, rent and food. The affordability crisis affects both residential and commercial rents (for which there is no rent control). It means that San Francisco is too expensive for the average restaurant worker to live, so while the minimum wage is increasing and the cost of labor keeps going up, restaurants are attempting to find ways to pay workers even more to keep them in San Francisco.
And even with increased wages, the lack of affordable housing options means there just aren’t enough workers for the number of restaurants. We are quite literally reaching the tipping point, or as some have been calling it, “peak restaurant.”
In some ways, the Bay Area has never been so exciting, evident from recognition by Eater, Bon Appetit, the James Beard Foundation, and Michelin, among others. Chefs are executing delicious meals and new, innovative concepts are attracting diners and critics alike.
However, a large part of the growth in the industry is directly related to San Francisco’s robust economy that has experienced record job growth of its own with nearly the lowest unemployment rate around. This growth brought a new pool of restaurant investors — tech workers and venture capitalists who love the cache that restaurant ownership can bring without having to actually work inside of a restaurant. Individual investors, unlike banks, will take a chance on a chef or restaurant concept that resonates. Well-paid workers flush with cash, many of whom have grown up with the Food Network and have taken to photographing their food, are excited to make restaurants their primary source of social activity.
But even though the appetite for restaurants appears insatiable, is it possible that there are too many restaurants? The answer is yes.
At the upcoming Golden Gate Restaurant Association Industry Conference, we will be exploring different issues facing the industry and hear from leaders who are trying new strategies to succeed in this competitive and challenging climate. Below is a sample of the themes that will be addressed.
While San Francisco’s restaurant community is more collaborative and supportive of each other than many other places, competition remains fierce. Restaurants are competing for diners, workers, and public relations.
Restaurants are also not only competing against one another, but also against meal delivery services that prepare their own food, tech companies with large kitchen operations, and non-restaurant industry jobs like driving for Uber or corporate event staff. Restaurant jobs are unable to remain competitive with the salaries, benefits, or vacation time of other industries.
Within the industry, operational costs, as well as number of seats and turns, vary, allowing some to be more generous in wages and benefits than others. The affordability crisis has driven many out of the industry, so restaurants have to be bullish about hiring and retaining staff, which means poaching from others. And while this competition is a boon to workers, it is really driving up the cost of labor.
At one time, Walgreens and Target were focused on personal items and household products; however, they’re now in the business of prepared food. Add the proliferation of food trucks and mobile street carts, and now restaurants have an even broader group of competitors. In many cases, non-restaurant establishments are cheaper than a comparable restaurant because these operators don’t have the same overhead costs; this price difference matters to consumers.
Then there’s the game of public relations — can you make it on a tops list? Will your new brunch, happy hour, menu relaunch, or change of chef attract new diners? As new restaurants arrive on the scene, does it detract from your popularity? Is someone else doing a concept similar to yours, only less expensive, or with a more intimate ambiance? How do you continue to stand out? Is it good enough to be a popular neighborhood restaurant, or do you need to be a destination as well?
In the era of Instagram, food bloggers and review sites, restaurants have to be thinking how they can appeal to all consumers. They have to know their brand or determine what they want it to be.
Although there’s talk of a restaurant future filled with iPad ordering and robots serving drinks or making food, it’s still a very long way from becoming the industry norm. In fact, the economic model of a restaurant hasn’t changed much in the last 80 years, when the Golden Gate Restaurant Association (GGRA) was founded.
What has changed is the decline in unionized restaurants, which was a popular phenomenon in San Francisco dating back to the Gold Rush. GGRA was founded as a voice for the restaurateur when unions were prevalent in the industry in the 1930s. These days, unionized restaurants only exist in larger event facilities — hotels, stadiums, private clubs, and airports.
However, the decline of unionization and the benefits associated with them has led to modern day backlash to bring these benefits back. Whether it’s the Fight for $15, new healthcare laws, or state and local paid-leave ordinances, these regulatory efforts are rooted in the union model of how restaurants once operated in most cities.
However, today’s restaurant cost structure is strained because of the patchwork of regulations and wages set across different jurisdictions, along with business models structured to keep prices low enough to encourage dining out daily.
In a recent Freakonomics podcast, Danny Meyer of the Union Square Hospitality Group discussed how their tipless restaurants will be able to increase employee wages so that the “lowest-paying kitchen jobs — washing dishes, cleaning floors and so on — would rise to $12 an hour, up from less than $10. Cooks would now start at $14 an hour.”
Being in the Bay Area, where San Francisco’s minimum wage sits at $12.25 (going to $13 July 1), the minimum wage in Oakland is $12.55, and Emeryville is $14.44 for employers with more than 55 employees, it’s clear that we’re not operating at all on a similar playing field with most anywhere else — at least not the other most expensive U.S. market, New York City.
A full-service restaurant in San Francisco would be hard pressed to find a cook to work for $14 an hour. In addition to San Francisco having the highest minimum wage of any large city come July, employers must pay the cost of the city’s local health care ordinance, which is $1.68 an hour per employee for employers with 20 to 99 employees and $2.53 for employers with 100 or more employees. We also have a requirement to provide paid sick leave, which some other jurisdictions have adopted. And now, new paid parental leave benefits are being added to the mix.
All this considered, before even adjusting for market pressures for employee wages, San Francisco restaurants are in at $15 to $16 an hour per employee on mandated costs. There’s no tip credit in California, so everyone makes the full minimum wage. This reality has forced the local restaurant industry to ask whether we’re facing the end of the economic model of the restaurant as we know it. In a high cost labor environment, can restaurants raise prices and continue to a profit without alienating consumers?
Charting the Path
In a room of Bay Area restaurateurs, everyone will talk about the affordability crisis, the labor shortage, rising costs, and the lack of late-night transportation. Clearly some of these problems are systemic and are beyond one industry tackling, although chefs often suggest providing housing for cooks or having a Bay Area Rapid Transit system that runs all night.
The real vexing question is what is the best path forward to survive? The competition and economic climate has restaurateurs talking seriously about whether they can eliminate tipping or add service charges.
Is a tip line on the bill for the kitchen okay, since back-of-the-house staff cannot share in the tip pool? Restaurateurs are exploring whether they should move into a pre fixe menu or get out of the full service business and move to “quality casual.”
As some restaurateurs leap into charting a new path, everyone is watching to see if they should try it, too. Most have already raised prices, and some restaurants have added surcharges when they didn’t previously have them. Everyone is looking for answers and will hold out as long as they can before choosing a definitive path.
What does the future hold? For many it’s a bit uncertain, but now more than ever it’s important that the industry support each other, share best practices, and educate the consumer.
About the Conference
The Golden Gate Restaurant Association Industry Conference will provide both tactical and inspirational insights on how to deal with issues like rising costs, labor laws, food safety, the labor shortage, and more. There will be a reprise of last year’s Tipping Point panel, which will include Sabato Sagaria, Chief Restaurant Officer of the Union Square Hospitality Group, sharing his experience in the tipless world; as well as Thad Vogler, who initially eliminated tipping at his restaurants Bar Agricole and Trou Normand but then abandoned the decision after some time; and Andrew Hoffman of Comal and The Advocate in Berkeley, who charges a 20% service charge in lieu of tipping.
There will be a panel addressing how we look at who our labor force is to ensure that we’re thinking more broadly about who could be staffing restaurants. Other panels range from brand management, the rise of fast casual, and menu planning in the era of climate change, to looking at the legacy of an iconic restaurant, Rubicon, which will include storied restaurateur Drew Nieporent and alums Larry Stone, Stuart Brioza, and Dennis Leary.
Finally, we will present the results of our economic and compensation survey as well as other economic indicator data related to the industry. We will have a discussion with key local leaders on the issues of affordable housing, transportation, homelessness and the rising cost of doing business, with the Mayor’s Homeless Czar, Sam Dodge; the director of the Mayor’s Office of Economic and Workforce Development, Todd Rufo; and San Francisco Supervisor, Scott Wiener. We will also review all the public policy issues of the day ranging from the proposed state cocktail tax, to paid parental leave and more.
San Francisco restaurants have always been at the forefront of innovation in how the industry operates, driving advancement in hospitality while dealing with a unique set of challenges. The Industry Conference serves as a safe place to learn, ask questions, and share successful strategies.
If you are an industry stakeholder, you should be part of the conversation on these topics with fellow restaurateurs — please attend the Golden Gate Restaurant Association’s second annual Industry Conference on April 11 – 12, at the Bently Reserve in San Francisco. The full schedule and tickets are available here.