Why Eating Out is Only Getting More Expensive
Will a burger soon cost $30? How rising rent, labor, and ingredient costs are jacking up East Bay menu prices.
Imagine that the mighty Rodzilla burger represents chef Rodney Worth’s 2016 gross revenue from all seven of his restaurants. Then, imagine that the empty plate represents his revenue after expenses: The toothpick that held it together, a few crumbs, and perhaps a french fry are all that’s left. Worth, who closed two of those seven restaurants at the beginning of this year, says his varied establishments have been operating on a 1 to 3 percent profit margin.
The burger is a good illustration of what Worth is up against. He charged $10 for the half-pound bacon cheeseburger when he opened his first restaurant in 2004. It’s $14 now—but the price of Angus ground beef has since doubled; the cost of applewood-smoked bacon has more than doubled; and the artisanal bun is up to 81 cents (from 45 cents). Then, there’s the barbecue sauce that’s made in-house, which brings us to the subject of labor.
At the beginning of 2017, the minimum wage in California increased from $10 to $10.50 per hour for businesses with more than 25 employees, such as Worth’s. In turn, the increase prompted his purveyors—such as the produce company that provides the Rodzilla’s plump tomatoes, green leaf lettuce, and onions—to tack on a delivery charge to cover their own rising labor costs. Restaurant owners with fewer than 26 employees are similarly mandated; they just have an extra year to adjust to the new wages.
“It’s all unfolding,” says Worth. “Prices are going up, and we are all kind of in shock.”
Making a buck in the restaurant business has always been a dubious proposition, but in today’s landscape—which includes soaring rents in prime locales like downtown Walnut Creek—running a profitable, independent, full-service dining establishment requires exceptional talent, dedication, and luck.
If beverage sales aren’t high and the dining room isn’t “mostly full most of the time”—as Andrew Hoffman, who co-owns the successful Comal in Berkeley, puts it—you’re just not going to make it. In August 2015, Hoffman and his business partner, John Paluska, opened one of Diablo’s most commended restaurants, The Advocate in Berkeley. But the modern, Mediterranean-style restaurant—and its $16 cheeseburger served on a house-baked bun slathered with Calabrian chili aioli—was history after just 14 months.
“We never hit that critical mass,” says Hoffman of The Advocate, which had an inventive and extensive farm-to-table menu that demanded a team of talented cooks. “What we thought would attract 150 people a night attracted 100.” Even though The Advocate instituted a fixed service charge that gave the restaurant more flexibility in how to spend money and compensate employees, Hoffman says they “just ran out of money.”
For established restaurants like Walnut Creek Yacht Club (which turns 20 in May), the mandated raise of the minimum wage—standard for tipped servers—puts owners in a bind. “Your front-house staff automatically gets a raise, making it even more difficult to give a raise in the back,” says Yacht Club’s co-owner and chef, Kevin Weinberg, who estimates his servers earn $25 to $50 an hour just in tips.
The seemingly obvious solution is to raise prices. Economists like Christopher Thornberg, founding partner of Beacon Economics in Los Angeles—whose clients include the Oakland Chamber of Commerce and the East Bay Leadership Council—cite marketplace fundamentals: High rent and labor costs are often associated with areas that have an affluent population whose wages are also going up, so diners are not deterred by rising restaurant prices. Costs go up. Prices have to go up. Market equilibrium usually occurs. But, Thornberg says some businesses will go under.
We’re already paying more than $20 for a burger at many of our favorite restaurants—whether we realize it or not. At The Cooperage American Grille in Lafayette, for instance, if you top your $15 burger with caramelized onions and Swiss cheese ($1.50 each), tack on the sales tax (8.25 percent), and leave a 20 percent tip, then that delicious patty (ground from brisket, sirloin, and short ribs) sets you back $23.08. Glass of water included.
Because the food hospitality industry is changing quickly, full-service independent restaurant operators are reluctant to raise prices. In addition to competition from supermarket buffets and restaurant-style home delivery services like Blue Apron, three relatively new concepts are booming: local chains like Super Duper Burgers that emphasize local, healthful ingredients (a half-pound burger costs $7.75); limited-service restaurants, such as Sideboard Neighborhood Kitchen and Coffee Bar, that offer innovative, high-quality dishes you order at the counter (the Prather Ranch cheddar burger costs $14); and hip, full-service chains like True Food Kitchen, with corporate resources and a seasonal, sustainable menu (a grass-fed burger costs $17).
Raising prices, as Thornberg suggests, in a changing environment like this is a risky strategy, according to the chefs and restaurant operators interviewed for this article. It leads to lower volume, which Hoffman says creates “a negative vacuum.” (A slow restaurant is less inviting.) And Weinberg has noticed how even modest price increases can lead to “great but expensive” comments on Yelp. Plus, it’s the front-of-the-house staff that “wins again,” says Weinberg, not the back-of-the-house staff: Adding $2.50 to that burger means another 50 cent tip.
Europe doesn’t have the kind of tipping culture that creates such a discrepancy between the front- and back-of-the-house wages, which Hoffman calls the “single biggest problem” facing the restaurant industry here. “It’s out of control,” he says.
Think of it this way: If a restaurant like Comal does $4 million in sales, then that means patrons dish out $800,000 in tips—money the operator has no control over distributing. That’s why Comal switched from voluntary tips—slowly and with much staff input—to a standard 20 percent service charge, which is shared evenly among the entire staff (excluding the owners). Many restaurants have tried similar approaches, but they have abandoned the idea after push back from servers and clientele.
Xavi Padrosa is thrilled with the popularity of Telefèric Barcelona, his Spanish restaurant (with traditional American tipping policies) in downtown Walnut Creek. But he says, “At the end of the day, you put in a lot of effort and don’t keep much. It’s tough.” Padrosa adds that if he were to open another restaurant in Barcelona, he figures he could make higher profits.
Peter Jee-Oh Chung, owner of the modern Korean restaurant Gan in Pleasanton, recently put a $16 burger—ground from Angus choice rib eye and served on a house-made bun with Korean chili aioli and a kimchee-style pickle—on the menu. Chung barely makes a dime on that burger, but if you start with Korean spirits and crispy croquettes, finish with perilla ice cream, and give Gan a shout-out on Yelp, those dimes can turn into dollars. “I run a tight ship,” says Chung. “You take hits where you need to and make up for it where you can.”
As for pricing that Rodzilla burger, Worth is reluctant to make cold calculations. “I still run this biz with my heart, not my brain,” he says. He had to close The Pear Southern Bistro in Napa and Ferrari’s Cucina Italiana in Blackhawk, but that still leaves him with The Little Pear and The Prickly Pear Cantina in Blackhawk; The Peasant and the Pear in Danville; The Peasant’s Courtyard in Alamo; and his latest, Worth Ranch in San Ramon.
Hopefully, his profit will amount to more than a frilled toothpick or two this year. “I’m pruning the tree so it can grow again,” says Worth. “It’s a hard time for chefs. Our backs are against the wall.”