SF restaurants are suffocating(medium.com)
medium.com
SF restaurants are suffocating
https://medium.com/@azhar.hashem/why-sf-restaurants-are-suffocating-795392211c66
416 comments
This article was a bit scattered over the various sources of issues (high living costs, low labor pool (leading to high salaries and high turnover), reduced high-skilled chefs, high taxation, complaints about customer base with some nativism thrown in); figured I'd try simplifying it.
On the labor side, there's enough labor competition to drive salaries of line cooks to $50k/year. That's about $38k post-tax, which even after spending spending $19k/year in rent (split a two bedroom maybe 40 min from downtown) leaves $19k. Not great, but mind you the average line cook in the US is pulling $30k/year pre-tax (24k post-tax) -- the COL difference is pretty much compensated for.
Where things break down badly is with older, more experienced workers that have/might have families (e.g. the cook with 4 kids in the intro paragraph). Space comes at a premium in the Bay Area and if they prefer to not be crammed in to a small place, the salary an experienced worker can make isn't going to cut it to cover the desired marginal living space.
The final piece in the puzzle is that the desired salary multiple of these experienced workers (over entry-level ones) is higher than their productivity gains. That is, if the experienced cook needs twice as much take-home ($110k pre-tax) as the entry-level one (due to family needs), unfortunately, there is insufficient customer demand to pay 2.2x as much for food for this higher quality. (but mind you much more base demand in SF than elsewhere!). Result is that experienced folks move to areas where housing costs (per-sq feet) are lower as a percent of salary.
Net effect might be that the dominant strategy for someone in the restaurant business is to start out in SF but later move to a somewhat lower COL area. With such a strong economic incentive, restaurant composition will likewise follow; city policies, etc. are likely secondary.
On the labor side, there's enough labor competition to drive salaries of line cooks to $50k/year. That's about $38k post-tax, which even after spending spending $19k/year in rent (split a two bedroom maybe 40 min from downtown) leaves $19k. Not great, but mind you the average line cook in the US is pulling $30k/year pre-tax (24k post-tax) -- the COL difference is pretty much compensated for.
Where things break down badly is with older, more experienced workers that have/might have families (e.g. the cook with 4 kids in the intro paragraph). Space comes at a premium in the Bay Area and if they prefer to not be crammed in to a small place, the salary an experienced worker can make isn't going to cut it to cover the desired marginal living space.
The final piece in the puzzle is that the desired salary multiple of these experienced workers (over entry-level ones) is higher than their productivity gains. That is, if the experienced cook needs twice as much take-home ($110k pre-tax) as the entry-level one (due to family needs), unfortunately, there is insufficient customer demand to pay 2.2x as much for food for this higher quality. (but mind you much more base demand in SF than elsewhere!). Result is that experienced folks move to areas where housing costs (per-sq feet) are lower as a percent of salary.
Net effect might be that the dominant strategy for someone in the restaurant business is to start out in SF but later move to a somewhat lower COL area. With such a strong economic incentive, restaurant composition will likewise follow; city policies, etc. are likely secondary.
Not mentioned here is that Tawla had a slightly rough start [1] (that they purportedly righted):
> My reactions were mixed on my first visit, but by the third, I was a major supporter. Flavors blossomed, and I could sense the kitchen becoming more confident.
I went early on, found the food to be reasonable but not great, and ultimately didn’t return. Roughly, she shot for Mourad-level prices, but without the track record or execution. I grew up with this food, and while (again) it was okay, it simply wasn’t great. For $16, that should be an amazing dish of mujadara.
I assume many people felt that they’d rather get tastier middle eastern food, rather than feel hip with the pretty decor. I’d love to see an upscale middle eastern restaurant succeed, but the food has to come first.
[1] https://www.sfchronicle.com/restaurants/diningout/article/Ta...
> My reactions were mixed on my first visit, but by the third, I was a major supporter. Flavors blossomed, and I could sense the kitchen becoming more confident.
I went early on, found the food to be reasonable but not great, and ultimately didn’t return. Roughly, she shot for Mourad-level prices, but without the track record or execution. I grew up with this food, and while (again) it was okay, it simply wasn’t great. For $16, that should be an amazing dish of mujadara.
I assume many people felt that they’d rather get tastier middle eastern food, rather than feel hip with the pretty decor. I’d love to see an upscale middle eastern restaurant succeed, but the food has to come first.
[1] https://www.sfchronicle.com/restaurants/diningout/article/Ta...
According to the laws of economics and supply and demand, restaurant prices should be rising accordingly, if customers are still demanding restaurant food. In other words, if the tech industry has produced so much wealth that has driven up rent prices, it should be driving up everything else too, right? People need to go out to eat somewhere, right? (And my experience says this is true -- I live in NYC and I get sticker shock at SF restaurant prices.)
Presumably other restaurants are thriving? Are we sure this particular one just didn't have the right business model, like most attempted restaurants don't? The restaurant industry is notoriously competitive, and the customer is always right -- you've got to give them the food they want (not the food you think they should want) at the location they want at a price that's competitive.
As long as plenty of other restaurants are managing to pay their staff enough so that they'll commute... and it doesn't seem like restaurants are disappearing from SF... then isn't this just the case of a bad business plan, or product-market-mistmatch, for this one particular restaurant?
Presumably other restaurants are thriving? Are we sure this particular one just didn't have the right business model, like most attempted restaurants don't? The restaurant industry is notoriously competitive, and the customer is always right -- you've got to give them the food they want (not the food you think they should want) at the location they want at a price that's competitive.
As long as plenty of other restaurants are managing to pay their staff enough so that they'll commute... and it doesn't seem like restaurants are disappearing from SF... then isn't this just the case of a bad business plan, or product-market-mistmatch, for this one particular restaurant?
I can tell you why the whole Service Charge Inclusive irritates customers. Its false advertising. You are increasing the cost of the meal but not reflecting it on the menu. People find it dishonest like every other time in our lives where we are told a price, but then we get hit with a fee. Ask bank customers about it.
Just be honest, the meal needs to cost more because the cost of production is more.
Just be honest, the meal needs to cost more because the cost of production is more.
The tone of the article was really off-putting. I get that it is a hard business, especially in SF, but it felt like she was blaming everyone (including her staff) for her restaurant's failure and taking zero responsibility herself.
I don't disagree with the problems outlined. But, for this particular case, start and end with the fact that the restaurant has 3.5 stars on Yelp and people were consistently dissatisfied with the food and service?
SF has incredible 4-5 star restaurants of all price levels. So who wants to eat at a very expensive 3.5 star one when there's a Michelin Star place 5 minutes away?
If SF's problems are so insurmountable, how do other good restaurants do it, even ones not owned by some major group?
SF has incredible 4-5 star restaurants of all price levels. So who wants to eat at a very expensive 3.5 star one when there's a Michelin Star place 5 minutes away?
If SF's problems are so insurmountable, how do other good restaurants do it, even ones not owned by some major group?
I'm reminded of this part of David Chang's take on "the next global food mecca" being Houston, a city in many ways the complete opposite of SF:
I've always wondered where the food in a Blade Runner-like future would appear first and what it would taste like—and I genuinely believe it's here.
Partly that's due to a demographic reality: By some measures, Houston is the U.S.A.'s most ethnically diverse city (a bunch of New Yorkers just choked on their halal kebabs reading that, but it's true), and when you get a collision of immigrants, the food scene is guaranteed to be bonkers.
Houston also has cheap commercial and residential rents—oh, and no state income tax—which means broke-ass cooks and chefs can afford to live and open here. Zoning laws are more permissive than an Amsterdam brothel. And customers have cash to spend.
Source: https://www.gq.com/story/david-chang-houston-food-city
Added disclaimer- I grew up in SF and left in 2005. I live in Houston now.
I've always wondered where the food in a Blade Runner-like future would appear first and what it would taste like—and I genuinely believe it's here.
Partly that's due to a demographic reality: By some measures, Houston is the U.S.A.'s most ethnically diverse city (a bunch of New Yorkers just choked on their halal kebabs reading that, but it's true), and when you get a collision of immigrants, the food scene is guaranteed to be bonkers.
Houston also has cheap commercial and residential rents—oh, and no state income tax—which means broke-ass cooks and chefs can afford to live and open here. Zoning laws are more permissive than an Amsterdam brothel. And customers have cash to spend.
Source: https://www.gq.com/story/david-chang-houston-food-city
Added disclaimer- I grew up in SF and left in 2005. I live in Houston now.
This is the first time I’ve heard the entire state of Illinois being labeled a “rich locale”. I’m assuming the author meant Chicago suburbs? That or they’ve never traveled through rural Illinois (95% of the state).
Illinois is also home to some of the most violent and poor metropolitan areas in the country. East St. Louis which ranks in around 18x the national homicide rate and South Side Chicago which is consistently one of the most violent places in the country.
Illinois is also home to some of the most violent and poor metropolitan areas in the country. East St. Louis which ranks in around 18x the national homicide rate and South Side Chicago which is consistently one of the most violent places in the country.
I've lived in SF for 25 years, and eat out often. While I never visited this particular restaurant, as others have noted, 3.5 stars on Yelp in SF's hyper-competitive market is telling. 3.5 is maybe enough to keep the cheap place you go to across the street when you're lazy in business. Less than 4 stars isn't going to get enough people to make a reservation, travel across town and shell out $$$. We have over 4500 restaurants listed in Yelp, and roughly 7% turnover of openings/closings per year. It's physically impossible for anyone to eat at all, let alone a fraction, of the places here. Foodie places which are successful may be a big hit when they first open, but if they don't keep up the quality, they will die quickly as that crowd moves onto the next shiny thing. It takes a lot to stay in business here.
The way that some restaurants blame their success and failure on the high cost of labor makes about as much sense as when people review restaurants on Yelp and complain how surprised they were by the bill at the end of the night. It's a math problem. Other people are managing to balance their costs and revenue and stay in business.
The way that some restaurants blame their success and failure on the high cost of labor makes about as much sense as when people review restaurants on Yelp and complain how surprised they were by the bill at the end of the night. It's a math problem. Other people are managing to balance their costs and revenue and stay in business.
Oh the irony that the author is a former Google executive, who I assumed started the restaurant after cashing out big time.
She doesn't realize that she has a role in this as well? How much did she pay for her house/rent? Did she outbid someone in cash?
Yes, I realize the supply side is a major issue to. SF should build more.
It's just the finger pointing (those evil landlords with their Ellis evictions!) made me chuckle a bit.
She doesn't realize that she has a role in this as well? How much did she pay for her house/rent? Did she outbid someone in cash?
Yes, I realize the supply side is a major issue to. SF should build more.
It's just the finger pointing (those evil landlords with their Ellis evictions!) made me chuckle a bit.
Why the service charge? Why not simply raise your prices to that same level, while still letting people tip if they want to?
More specifically, why does the cook only make $24 per hour while the waiting staff gets $42-48?
I understand that San Francisco is an expensive city, but doesn't that simply mean you should raise your prices? Of course that will mean poor people won't be able to eat at your restaurant, but it sounds like poor people have trouble affording anything at all in San Francisco anyway. Clearly the only viable market to focus on is the rich people who can afford to live there.
I don't mean to be callous about this: it's terrible when a city is so expensive that only rich people can afford to live there, and kicking poor tenants our of rent-controlled housing should be illegal. But if your employees are leaving because you don't pay them enough, the solution seems obvious: pay them more. Raise your prices correspondingly. If the market can't bear those prices in such an expensive city, then clearly there's not enough demand for restaurants in San Francisco, which would be sad, but it may be the reality.
Meanwhile, the city would do well to invest in some affordable housing if they don't want to turn into a rich people's ghetto.
More specifically, why does the cook only make $24 per hour while the waiting staff gets $42-48?
I understand that San Francisco is an expensive city, but doesn't that simply mean you should raise your prices? Of course that will mean poor people won't be able to eat at your restaurant, but it sounds like poor people have trouble affording anything at all in San Francisco anyway. Clearly the only viable market to focus on is the rich people who can afford to live there.
I don't mean to be callous about this: it's terrible when a city is so expensive that only rich people can afford to live there, and kicking poor tenants our of rent-controlled housing should be illegal. But if your employees are leaving because you don't pay them enough, the solution seems obvious: pay them more. Raise your prices correspondingly. If the market can't bear those prices in such an expensive city, then clearly there's not enough demand for restaurants in San Francisco, which would be sad, but it may be the reality.
Meanwhile, the city would do well to invest in some affordable housing if they don't want to turn into a rich people's ghetto.
> In nearby San Francisco, only 0.1% of restaurant staff can find affordable housing in the city, with the average monthly rent for a one-bedroom apartment at an insane $3,447.
Lack of affordable housing is doing the suffocation. America was built by a strong middle class, and SF is setting an example of what happens when people stop caring about the middle class and $70K/year becomes low income.
Lack of affordable housing is doing the suffocation. America was built by a strong middle class, and SF is setting an example of what happens when people stop caring about the middle class and $70K/year becomes low income.
It's amazing that front of house staff are making $80-90k. That's starting salary for engineers in many parts of the country. Absolutely boggling.
“We thought hard about all the ways we could help from tapping our networks to find a more dignified temporary place for our cook to stay, to figuring out how to pay him more without having him lose access to different low-income programs for which he currently qualifies.”
Wow. Or you could actually pay them a living wage that doesn’t require public subsidy. If this were Walmart making this statement they would be crucified.
Wow. Or you could actually pay them a living wage that doesn’t require public subsidy. If this were Walmart making this statement they would be crucified.
A bar closed in my neighborhood and and when I was chatting with them they too blamed the spending habits of the tech crowd. I think if anything, people spend more money on eating out and drinking than the average person. So I don't think it's that people are unwilling to spend it.
I'm not sure it is technology folks or millennials, but I find there are increasing amounts of people who want the "best of" everything...shoes, falafel you name it. People aren't okay with just a "good experience", they want the best experience. As a result, I think there are plenty of people who aren't very forgiving. Especially if you eat out regularly and have a lot of things to compare it to.
Oh yeah and the housing situation is broken.
I'm not sure it is technology folks or millennials, but I find there are increasing amounts of people who want the "best of" everything...shoes, falafel you name it. People aren't okay with just a "good experience", they want the best experience. As a result, I think there are plenty of people who aren't very forgiving. Especially if you eat out regularly and have a lot of things to compare it to.
Oh yeah and the housing situation is broken.
The state is paying the price for two decades of anti-tenant rule. So long as no one is working to repeal the Costa-Hawkins (and to a lesser degree, the Ellis Act), the noose will continue to tighten around Bay Area quality of life and raise the price of doing business in all of California.
A similar problem with sky rocketing housing cost occurred in the 70's True rent control was established in the communities that needed it and the threat of it in other communities stabilized prices. And California 1972-1995 is unambiguously a success story. In '95 Costa-Hawkins passed, and prices have been rising faster than the 1970-1995 period ever since. With an accompanying rise in homelessness.
Particularly interesting about Costa-Hawkins, it was soundly defeated when written as proposition measure and only passed the legislature by one vote and with strong backing from the real estate industry. But today it has somehow become politically impossible to repeal. Unless California has become a lot more conservative since 95, it is clear money in politics and political advertising are to blame.
A similar problem with sky rocketing housing cost occurred in the 70's True rent control was established in the communities that needed it and the threat of it in other communities stabilized prices. And California 1972-1995 is unambiguously a success story. In '95 Costa-Hawkins passed, and prices have been rising faster than the 1970-1995 period ever since. With an accompanying rise in homelessness.
Particularly interesting about Costa-Hawkins, it was soundly defeated when written as proposition measure and only passed the legislature by one vote and with strong backing from the real estate industry. But today it has somehow become politically impossible to repeal. Unless California has become a lot more conservative since 95, it is clear money in politics and political advertising are to blame.
The article seems to be transparent at first glance with giving lots of numbers about salaries and so on. Why no numbers on profit and what the owners take home?
Also, there is no mention of trying to raise the prices of their products in order to pay their employees a living wage. I guess that could mean you go out of business if your competition offers a similar product but doesn't raise prices. But I would personally be ok with that. Otherwise what's the service you're really providing? Guilt free eating for your customers who you shield from what those prices are paying the welfare dependent cook? I'm ok with not being in that business.
Also, there is no mention of trying to raise the prices of their products in order to pay their employees a living wage. I guess that could mean you go out of business if your competition offers a similar product but doesn't raise prices. But I would personally be ok with that. Otherwise what's the service you're really providing? Guilt free eating for your customers who you shield from what those prices are paying the welfare dependent cook? I'm ok with not being in that business.
It does not make sense that this person is attempting to run a reasonably priced restaurant and has FOH staff.
SF needs to adopt more Japanese style ordering machines. You choose and pay up front. When you are done you just leave. It's beautiful.
SF needs to adopt more Japanese style ordering machines. You choose and pay up front. When you are done you just leave. It's beautiful.
This kind of complaint drive me nuts. It is manifestly untrue that "restaurants are suffocating in San Francisco." San Francisco is chock-full of restaurants, and the vast majority of them are not going out of business. The author's real complaint is not that restaurants are suffocating, it is that his restaurant suffocated. But the reason his restaurant suffocated is not because there's a systemic problem with the restaurant business in San Francisco, it's because the market didn't conform to the author's preconceptions. If it were really true that there was some kind of systemic crisis among San Francisco restaurants, they'd be closing left and right. The survivors would then be able to raise prices to the point where the crisis went away. That's how the market works. But this isn't happening because there is no crisis, only a market operating just as it should by occasionally weeding out businesses that, for whatever reason, don't conform to the market's needs.
> figuring out how to pay him more without having him lose access to different low-income programs for which he currently qualifies
Wow, the charitable impulses here are overwhelming. You'll pay him more, as long as it doesn't lift him out of poverty. Wow. Wow.
If you want more staff, pay staff more. This easy equation has been understood for thousands of years but business owners find it difficult to comprehend when it is their business.
Wow, the charitable impulses here are overwhelming. You'll pay him more, as long as it doesn't lift him out of poverty. Wow. Wow.
If you want more staff, pay staff more. This easy equation has been understood for thousands of years but business owners find it difficult to comprehend when it is their business.
"We, among others, tried to be innovative. We tried to go the ‘service charge inclusive’ route, automatically including 20% in every check."
I wouldn't call that innovative. Innovative would be paying a fixed salaray which allows your staff to live in SF without relying on tips.
Others have done it in the US too. In lots of countries the world over, tipping is a plus, not a requirement.
https://www.nytimes.com/2015/10/15/dining/danny-meyer-restau...
I wouldn't call that innovative. Innovative would be paying a fixed salaray which allows your staff to live in SF without relying on tips.
Others have done it in the US too. In lots of countries the world over, tipping is a plus, not a requirement.
https://www.nytimes.com/2015/10/15/dining/danny-meyer-restau...
eh, I think the real problem is that we're building/converting space into office space at a much faster rate than we're building/converting space into residential.
I personally think that to get zoning approval to build an office tower in this area, you should need to get someone to agree to build an apartment tower nearby with a similar number of units. I mean, I'm not saying they need to be owned by the same people or that those apartments will be occupied only by people who work in that office building, but you need housing nearby where there are jobs.
I personally think that to get zoning approval to build an office tower in this area, you should need to get someone to agree to build an apartment tower nearby with a similar number of units. I mean, I'm not saying they need to be owned by the same people or that those apartments will be occupied only by people who work in that office building, but you need housing nearby where there are jobs.
This is obviously extreme, but we're in an extreme situation here. Vote with your feet and get out of the city, move away from the Bay. Only once the upper middle class feels some pain will anything be done about it. Until then, it's not their problem, they can work around it thanks to the flexibility wealth affords you. I don't see how else this will be fixed, it has to get much worse before it gets any better.
What's the breaking point here? Are we there? SF needs to make the NIMBYs shut up and start building more housing yesterday.
> our servers were making $38 per hour or the equivalent of $70,000 to $80,000 a year ... assuming 36% on rent after tax, that would mean you have about $1,460 available for rent per month.
> Cheryl Young, an economist for Trulia, found that in nearby San Francisco, only 0.1% of restaurant staff can find affordable housing in the city, with the average monthly rent for a one-bedroom apartment at an insane $3,447.
$80,000 is vastly too much pay for restaurant servers.
It's understandable that if one-bedroom rent in the bad part of town is $2447 that restaurants simply can't exist in this economy. That's just the way it is.
> Cheryl Young, an economist for Trulia, found that in nearby San Francisco, only 0.1% of restaurant staff can find affordable housing in the city, with the average monthly rent for a one-bedroom apartment at an insane $3,447.
$80,000 is vastly too much pay for restaurant servers.
It's understandable that if one-bedroom rent in the bad part of town is $2447 that restaurants simply can't exist in this economy. That's just the way it is.
San Francisco isn't unique as a city with very high rents. Somehow places like London, NYC, and Washington DC all still have a nice selection of restaurants. This makes me think that it'll sort itself out even if it is painful for some of the people currently affected.
It probably doesn't help that San Francisco has been shooting themselves in the foot over housing for years. This link from a couple weeks ago has a lot of details on that: https://news.ycombinator.com/item?id=18778496.
It probably doesn't help that San Francisco has been shooting themselves in the foot over housing for years. This link from a couple weeks ago has a lot of details on that: https://news.ycombinator.com/item?id=18778496.
Excellent article. Key take-away: "There is no amount of money an owner could pay an employee within the economics of a small business to allow their employee to live within the borders of the city or even within a reasonable radius that doesn’t have them traveling for two-plus hours a day to come to work. This is the reality of where we live."
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This article is ridiculous. Yeah, SF is expensive, but $80k+ is a ridiculously large income for front-of-house service staff. When I first started working as a software engineer in SF, I was making $70k/year and I survived just fine. I got roommates and spent <$900 on rent. Obviously, I increased my earnings over time and as soon as I could moved into a 1br. I now pay right about average, which is more than I'd like but which I make do with.
She's comparing apples and oranges, and doesn't even realize it.
$3,447 is the asking price for apartments now on the market. $1,600 is the median rent price people are actually paying, including people with rent control and affordable housing. People who have been living in rent-controlled apartments for many years pay a fraction of the current market rate.
As a result, her second and third conclusions don't follow. If this is the kind of critical reasoning that comes with "an MBA from a top school, the rigor of an engineering education and a decade and a half launching and managing some of the most successful businesses for Google and other tech companies," it's worrying.
In fact, it's easy to find actual market rate rent prices from 2016. According to the sites below, it was around $3,500, so rental prices have remained very flat over the last few years.
[1] https://www.zumper.com/blog/2016/05/zumper-national-rent-rep... [2] https://www.rentjungle.com/average-rent-in-san-francisco-ren...