The sorrows of the US restaurant industry


#1

Very, very high over head. And the tipping economy. Basically.

Most restaurants rent their space, and commercial rents are always higher than residential. In NYC they can go as high as a million dollars a month. More typical is in the 10-50k range. To serve liquor you need a license, which is often expensive. But also pretty hefty liability insurance. Heating, and especially cooling restaurant buildings (you’re pumping tons of heat in there between cooking equipment and refrigeration) is crazy expensive. Other utilities. Imagine running your whole house at max electrical consumption for 18 hours a day. And then multiply by 10. We’re bigger, our equipment eats more power, and we have more of it. You’ve got one fridge with an integrated freezer. My restaurant has 14+ fridges and 4 freezers. Staffing eats up a lot, even as pay is pretty low/unlivable over all. Even when people are cheap, you pack enough in there and it ads up. And you need a lot of people. There are at least 5 people involved in handing you a plate of food. Most states put a serious tax burden on restaurants. The financials are complex so you have to have business management, book keepers, and accountants. Lawyers on retainer. And so forth. Food cost is really high. Food can often be cheaper at retail vs wholesale. Because your wholesale price is determined by volume of buy. Unless you have multiple locations even a small supermarket is making larger buys and getting a lower per unit price than you are. Just as an example I buy limes at retail for my bar. They’re 3 for a dollar. Wholesale at the volumes we run, they’re a buck a piece. And prices are not stable. Last year the price of eggs quadrupled over the course of 4 days. We went from paying $20 or $30 bucks a gross at the beginning of the month. To paying over $100 a gross withing 30 days. A few years back some crop failures in the Mexican citrus market drove the price of limes to four dollars each. The lime garnishing your cocktail potentially cost more than the entire contents of the glass. Beyond that quality costs. We often have customers request we sub vegetables in for a side of pasta. A side of pasta (~8oz) costs us a quarter. The equivalent amount of broccoli costs us almost 2 bucks. Now we could get broccoli for the same price as the pasta. But it’d be shitty frozen broccoli imported from wherever. Instead of nice fresh domestic broccoli. My current employer is stupid cheep to run. You can do it with like 4 employees, small place etc. Still runs $2k+ per hour to keep the doors open. A successful restaurant will remodel every 5 years or so, in my state that’s a cost of about half a mil every 5 years. And there’s about a thousand other things I can’t just pull of the top of my head. You have to compensate for all that in pricing. So a given plate might only cost us say 8 bucks to put out. But if we sold it for $16, a relatively usual 50% markup. We’d still have a negative profit margin. Instead we need to sell it at $24 minimum to breach some sort of profit. More likely it’d be $27-$30. That’s kind of universal. Regardless of where you are in the world. There are a lot of moving parts. A lot of expenses. And it just all ads up. In a market where you may be putting that money out there with out seeing any coming in at any given moment. You get a day with no customers and it can be $25k-$50k down the drain.

The thing that makes restaurants uniquely unworkable in the US is the tip system. We’ve effectively created a secondary tier of the labor market where the rules don’t apply. You aren’t eligible for the minimum wage (there’s a separate much lower one for tipped workers). You can’t get sick time. Can’t get benefits. Can’t get a bunch of major labor rights that are considered universal and necessary for every other job in the world. Effectively our restaraunt industry works by offputting a large chunk of labor costs onto the customers. Your employer effectively only pays payroll and income taxes. And all actual income comes from tips. (For front of the house).

This creates artificially low prices, and an expectation with the public with regards to pricing that erodes profit margins over all. The real and actual costs of putting a plate of food and a beer in front of you are about 20-25% higher than what you see on the bill. But those rare restos that attempt to do away with tipping. And add 20-25% surcharges or increase pricing by that amount typically find that the American public is unwilling to pay those prices for the food on offer. Its relatively impossible to convince people to go along with that approach when the next 5 places down the road still have artificially low pricing. Your $5 beer should cost $7. Your $20 entree should cost $25. And that’s how it works in European countries with costs of living and economies on the same level as the US. Profit margins there are much higher, and employees are paid much better. But the pricing is higher across the board.

So basically you’ve got a situation where expenses are extreme. But if you price to hit sensible profit margins you price yourself out of the market. So the government subsidizes that by not requiring you to pay half your staff. Its absurd. Never invest in a restaurant. Money hole. Law suit factory. Very few people make a buck in food/bev without cheating. I’ve had maybe one employer that hasn’t been constantly involved in tax and labor disputes.

First I’m with you on that. And that’s my current quandary. 2nd a large bit of my point is that the content creators/publishers are basically in the same boat. Their only viable business model is to leave them selves open to 3rd party attack, exploitation of their customers. No matter how careful they are. I don’t like the idea of passing the blame on to them when they’re getting actively screwed (like in their ability to make a living) as well.

Yeah it sounds nice and it works for individuals. But as I and others ran through above it doesn’t scale. You can support your self through patreon style donations. Often at the cost of cutting your content off to the broader world. But you most often can not run a a business on that model. It’ll pay your bills. But won’t net you enough to hire a guy to polish up your audio. More complicated hybrid models increase the scale. But often only work in non-profit markets. And also run into a wall in regards to funding for staffing or additional projects. In short NBC won’t be running itself on Patreon donations. From what Orenwolf was saying the BB crew have looked into and found that Boing Boing couldn’t even sustain itself that way.

So again all of that is fine for the individual. But when you start thinking about companies or economy wide effects they just don’t practically work out in the real world. Outside of rather specific situations.


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#2

[quote=“Ryuthrowsstuff, post:144, topic:99028, full:true”]

Very, very high over head. And the tipping economy. Basically.

Most restaurants rent their space, and commercial rents are always higher than residential. In NYC they can go as high as a million dollars a month. More typical is in the 10-50k range. To serve liquor you need a license, which is often expensive. But also pretty hefty liability insurance. Heating, and especially cooling restaurant buildings (you’re pumping tons of heat in there between cooking equipment and refrigeration) is crazy expensive. Other utilities. Imagine running your whole house at max electrical consumption for 18 hours a day. And then multiply by 10. We’re bigger, our equipment eats more power, and we have more of it. You’ve got one fridge with an integrated freezer. My restaurant has 14+ fridges and 4 freezers. Staffing eats up a lot, even as pay is pretty low/unlivable over all. Even when people are cheap, you pack enough in there and it ads up. And you need a lot of people. There are at least 5 people involved in handing you a plate of food. Most states put a serious tax burden on restaurants. The financials are complex so you have to have business management, book keepers, and accountants. Lawyers on retainer. And so forth. Food cost is really high. Food can often be cheaper at retail vs wholesale. Because your wholesale price is determined by volume of buy. Unless you have multiple locations even a small supermarket is making larger buys and getting a lower per unit price than you are. Just as an example I buy limes at retail for my bar. They’re 3 for a dollar. Wholesale at the volumes we run, they’re a buck a piece. And prices are not stable. Last year the price of eggs quadrupled over the course of 4 days. We went from paying $20 or $30 bucks a gross at the beginning of the month. To paying over $100 a gross withing 30 days. A few years back some crop failures in the Mexican citrus market drove the price of limes to four dollars each. The lime garnishing your cocktail potentially cost more than the entire contents of the glass. Beyond that quality costs. We often have customers request we sub vegetables in for a side of pasta. A side of pasta (~8oz) costs us a quarter. The equivalent amount of broccoli costs us almost 2 bucks. Now we could get broccoli for the same price as the pasta. But it’d be shitty frozen broccoli imported from wherever. Instead of nice fresh domestic broccoli. My current employer is stupid cheep to run. You can do it with like 4 employees, small place etc. Still runs $2k+ per hour to keep the doors open. A successful restaurant will remodel every 5 years or so, in my state that’s a cost of about half a mil every 5 years. And there’s about a thousand other things I can’t just pull of the top of my head. You have to compensate for all that in pricing. So a given plate might only cost us say 8 bucks to put out. But if we sold it for $16, a relatively usual 50% markup. We’d still have a negative profit margin. Instead we need to sell it at $24 minimum to breach some sort of profit. More likely it’d be $27-$30. That’s kind of universal. Regardless of where you are in the world. There are a lot of moving parts. A lot of expenses. And it just all ads up. In a market where you may be putting that money out there with out seeing any coming in at any given moment. You get a day with no customers and it can be $25k-$50k down the drain. [/quote]

A member of my family works as a cook in Europe. I am not entirely sure, but I think that the situation is completely different. Rent seems to be much lower and I am pretty sure that wholesale is cheaper than retail. Not to criticize what you are writing, on the contrary I find it fascinating. But the differences should be studied to find out what is really going on.


#3

Wholesale is cheaper than retail here but there’s dynamics to it that can leave an individual restaurant paying more for a given item than you’d pay retail. 1st is that our distributors work on tiered pricing. The farther you are from a central distribution center to more you pay for a given item. But the big one is that wholesale pricing is based on bulk buys. The more you buy the lower the unit price. A super market buys a whole pallet of limes. So each lime can cost like 5 cents. A typical bar or restaurant will buy a small case of 50 limes at a time. Those limes might cost 25 cents. But my bar only goes through like a dozen limes a week. So we buy them a dozen at a time. From the wholesaler that makes them a buck each. Then you’ve got the retail business’ lower over head and much higher margins. When the price spikes on something they can keep prices the same (or similar), hiding it from retail customers. An independent restaurant making low volume buys can’t. Because there isn’t enough margin to cover the spike in expenses.

As for what’s different in Europe? Even in places where the rents are not lower (say London) restaurants are more stable, more profitable. There’s probably plenty of factors in that. Better social safety nets, more progressive taxations etc.

But so far as I’m aware most of the people who’ve studied have come to the conclusion that its down to lack of a tip system. Restaurants in Europe are more expensive largely because the workers are (usually) paid a living wage, but that higher pricing also allows for healthier profit margins. The tipped system here has persisted so long, putting a heavy pressure on keeping prices artificially low. Often as low as possible. That the general public is sort of unwilling to pay prices that allow for more than a 15-20% margin at best. If you raise prices to increase your margin, but noone else does. Suddenly you are not competitive.


#4

“Hey! We’re forcing the person who handles your food to come and work when they’re sick and possibly contagious. That’s not a problem, is it?”

We really fucked up that choice.


#5

And it’s top to bottom much of the weird in the US food/bev business is justified on “hey those fuckers are getting rich off tips” style arguments. Tax breaks for small business? Restaurants don’t need that! They don’t even need to pay their workers. They must be rolling in it! Public healthcare? Those fuckers are getting tipped why would they need public healthcare!

I’ve yet to meet one of these filthy rich servers everyone is on about.


#6

Oh man, that rhetoric just incenses me.


#7

I don’t think that European wholesale uses discount on quantity as much as you explain, but I may be wrong.

On the other hand, I certainly agree that the US tip system is detrimental to restaurants, waiters and patrons. It is a bad system and has gone out of hand. The first time I visited the US, standard tips where 10-15%. Now they are 20% min. How is that going to end?


#8

The 20% number is a suggestion. For that matter, the whole system is a suggestion. I usually tip 17-22% because I can afford it. When I couldn’t, I didn’t. If I like the server, I’ll usually tip more. If service is bad, I’ll tip less. I don’t think it’s 20% minimum.


#9

in my 55 years i’ve met exactly two. one worked at the best, and most expensive, restaurant in estes park, colorado. in 1991 she was bringing in $120,000 per year in tips. 9 years ago i met a guy who works as a waiter at one of the more expensive and consistently highly regarded restaurants in dallas, texas. he was bringing in close to $350,000 a year. each of them specialized in making diners eager to hand over 25-30% tips to them.


#11

This is part of the problem.

There are few other industries as prevalent as foodservice where your base pay is depending on someone approving of your level of work. Most industries get appropriate base pay, with bonus amounts for good work.

Worse, the back of the house (the rest of the staff), if they “share tips”, are at the mercy of the front of the house (the servers, bartenders, and hostesses) to supplement their pay as well.

The system is a mess, and it’s a mess because somewhere someone decided restauarant staff don’t “deserve” all that tip money, and a real paycheck.

I think if I ran a restaurant I would enfoice three things:

  1. Transparent, equal pay for all workers based on job, and seniority
  2. Benefits according to normal standards for other industries
  3. contests for “best meal” and “best service” held regularly to recognize exceptional front/back of the house service, and
  4. No tips from customers.

This would require more expensive dishes and/or surcharges. Now, being in Canada the situation is less dire (we have far more reasonable minimum wage), but as the OP said, this would also require customers to agree to the higher prices. If I were independently wealthy, I’d absolutely try this experiment (especially because it dovetails nicely with my culinary school hobby as well. :slight_smile:


#12

Also, why is someone’s base pay a percentage of what their customers bills were. That always drives me nuts!
We tip like we’re Rockerfellers when we go to diners and dives. Because those people fucking hustle, and then they get 15% on a $30 tab while having 12 other tables and drunks and vomitting babies etc and then someone at a high end resto gets a % of a $300 tab? How does this make any sense to anyone? Ugh. Ban tipping! Living wages for all!


#14

Oh, I absolutely agree. I was just pointing out that the “20% min” is just not so.


#15

Yes. Just to name-drop a little. four of us dined at the French Laundry a few years ago. The guy who took my reservation was the most professional, flawless service-industry person I’ve ever dealt with. The wait-staff was awesome as well.

Of course, the bill ran to almost $1,000, so I’m sure they were well compensated.


#17

If you need to know how to get a reservation, I can tell you. But it will be just between us! :wink:


#18

I’ve just worked out how long that would feed me for.

:expressionless:


#19

I don’t want to start that debate about tipping at this point. But 20% is less a suggestion than it is the minimum appropriate tip these days. We’re not entitled to the minimum wage in most states. Federal tipped minimum is somewhere around 3 bucks an hour. Though some states leave it higher (8 and some change here). Most shift pay ends up going to taxes. So your tip is my entire take home pay. If everyone rigidly tipped 15% every time it’d be fine. But sufficient people don’t tip, or tip low that we need 20% on most checks to hit a livable tip average.

Basically the minimum wage hasn’t kept pace with cost of living and tax rates. And the tipped minimum is even farther behind. So as shift pay has stagnated tip numbers have gone up to compensate for inflation and cost of living. Becoming an ever increasing portion of worker compensation. In the 70s 5-10% was appropriate because the base pay was a living wage. By the 90’s and 00’s 10-15% and 20 was a great tip. Now most of us need 20% just to make ends meet.

So I tend to think of 20 as the baseline. I almost always tip more than 20 (professional courtesy). But I’ll tip as low as 10 if there’s a service issue. I’ll never leave less than 5 bucks.

It still happens in very specific places. Big 5 star steakhouse in nyc. But it’s interesting to see the dates there. There’s been a big erosion of incomes in a lot of places since 08. Everyone seems to have dropped an income bracket. If you used to be able to make 40k in a year. Now your staring at 25.

Kitchen workers are regular wage workers so they are eligible for most regular labor protections. And it’s illegal for a them to be manditorily included in a tip pool. Tipped workers can volunteer to pass a couple bucks to this kitchen. But best case scenario means your sending a few hundred bucks to a team of 10 or more people. It’s impractical (and largely illegal) to cover the shortfall in kitchen pay that way. Think of another industry where it’s commonly suggested that workings take money out of their own pockets to pay wages to other employees.

What you end up with is this vast income inequality in successful places with high tip averages. Back of the house see way less money for doing way more work. It’d be better and more equal if everyone was just paid a wage.

But kitchen pay is on the rise in a lot of places. A three fold increase in the number of restaurants nationally along with competition from start-ups and meal prep/delivery has created a massive shortage of kitchen staff. Our dishwashers get nearly 20 an hour, mandatory overtime etc. Still no sick time or benefits.


#21

Next time I need to store the Bugatti, I’ll bear that in mind.


#22

I’m en route to Austin (yay!) and will eat here upon arrival.

http://www.blackstar.coop

No tipping. They make a big point of the fact they pay everyone a livable wage. Now… it hasn’t been smooth sailing year in year out. Not long ago they appealed to members that things weren’t looking great and they might have to close. The next day or so they had record sales. Problem is there’s just too much competition in Austin in the brewpub arena.


#24

Seconded. Mainland Europe restaurants manage to be cheaper despite no tipping. Dunno how, but even the wealthy countries like Germany and Netherlands this is true.


#25

OK, if you don’t mind a little cat-hair…