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Comment by bsagdiyev | Hacker News Reader

Christ, people here and their taller than standard horses. My girlfriends dad owns a pizza place and walked away with $5k last year, after paying rent, supply and wages. Where do they magically pull this money from? They aren’t evil banker types with bags marked “$$$” full of money like people here seem to think and it is disgusting they’re considered cheap instead of just “people will absolutely not pay the increase in price” to pay for these wage increases. This man is one of the most hardworking and honest people I’ve met, as opposed to the people I meet working in tech.

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Small businesses have notoriously high rates of failure, restaurants seem like a huge risk with pretty modest possible reward. My guess is you'd be more likely to get rich being a pro athlete than as a restaurant owner.

Yet they get treated like evil "fat cats" by a certain section of the intelligentsia. Many of whom simultaneously believe global mega corporations who profit from wars and dictatorships, avoid paying taxes, bust unions, use slave labor, and buy politicians and influence elections are noble justice warriors. It's really strange.

> Small businesses have notoriously high rates of failure (...) Yet they get treated like evil "fat cats" (...)

A small business can still be exploiting workers with abusive labour and business practices.

If your business model relies on working your employees to death while paying close to nothing then, regardless it's a golden goose or a money pit, then you have no right to complain that you're being held accountable for exploiting and abusing workers. Moreso, you have absolutely no right to complain that the job market rejects your exploitation.

I didn't imply it couldn't.

This pretty much.

Small business that doesn't make much money, doesn't pay its workers much, and requires a lot of exploitation to keep the doors open.

Now the workers are leaving and those businesses are going bust.

It's capitalism at work, but it hurts if you run a not so profitable pizza joint.

it’s not magic. there are inputs and outputs. raise prices by a buck a pizza. people will absolutely pay it. problem solved.

Yeah, demand is totally inelastic to price.

Well presumably all restaurants would have similar issues hiring cooks so prices should rise everywhere. I would wager that demand for restaurant food as a category is less elastic than demand for any one particular Mexican restaurant's food.

At the margin consumers are sensitive to price. A family of 4 might skip out on getting drinks with their order if the price goes from 36->40$. Drinks are where the entire profit for many restaurants comes from.

In terms of total market, the effects are well studied in the field of labor economics.

Big producers can easily absorb the added labor costs. They outsource some elements of their labor (prep work). They simplify menus for better economies of scale. They cut back hours on marginal employees and add hours for high productivity ones.

Small shops without economies of scale struggle and go out of business. A restaurant owner that owns 1 restaurant is likely working full time to keep it afloat. The added time to respond to the current labor market can break the camels back. vs. McMegacorp that has people that sit around and optimize cost all day long.

So the trade off is more McDonalds and Chipotle and less Albertos burrito stands.

This is one of the reasons why companies like Sysco and US Foods have been pushing more and more pre-prepped packaged menu items that restaurants can just heat up and serve. USF calls these Scoop items: https://www.usfoods.com/great-food/scoop-.html You may have noticed how lots of places, including mom and pop shops seem to suddenly have nearly identical menu items and it's partially because of this trend in the foodservice industry.

They are basically taking the economy of scale that a large chain previously exclusively had and bringing it to the market to street sales (e.g. mom & pop joints). They simply took what they were doing for institutional food service and expanded it because it's substantially more profitable for them than selling the raw ingredients.

If it worked this way, why not have a $1000 pizza? Raise it a thousand times and... Obviously, it doesn't - at some point, raising it a dollar will start losing customers, it's obvious. Now, where is that point? Do you know? Does business owner know? Who would be the better expert in determining this point - they guy who runs a pizza place or a random guy on the internet whose experience is more like ordering pizza online?

Yes, thank you for demonstrating that reductio ad absurdam is still absurd.

"You could do better if you raised prices a dollar" and "you would do worse if you raised prices a thousand dollars" can absolutely both be true. In fact, in many, many circumstances, they will be.

> If it worked this way, why not have a $1000 pizza?

This blend of slippery slope argument is all fine and dandy, but the key point of this discussion is that there are operational expenses and revenue and if your business plan depends on a never-ending inflow of cheap labor from people willing to work for below-poverty wages to drive down your operational expense then not only is your business model completely unrealistic but you also have to take a step back and seriously considering your net contribution to society.

I mean, think about it: why is a 1000$ pizza supposed to be a ridiculous idea but 8$/hour to make said pizza is not shocking? Is it reasonable to assume that the person making the pizza should be forced to work about 3 hours making pizzas before he could afford one of his own?

There are a lot of factors we do not know here: I was an investor in a small restaurant as I wanted to keep it open after the owners quit. Upping anything on the menu $1 would've killed the business dead because all surrounding restaurants where already cheaper, but we had better cooks, however people are frugal or poor or both and they were not that much better to make the difference that much bigger. We still ran at incredibly thin margins: amounts that seems weird to me as an IT guy. It depends: depending on your location (both country and inside that country) it can very well be that you cannot up your prices even a cent or people won't come back. We had that with beer: our neighbour's restaurant upped the price of a bottle of beer with 10cts and suddenly all the regulars came to drink at ours and eat at theirs (cheaper).

A pizza place in the center of a popular city with high ratings probably can up the prices.

Before we left San Diego I offered quite a few times to go in, unpaid, to help out. This man works 6 days a week, open to close. I don’t know what sort of upbringing people on this site seem to have but it doesn’t feel “working class” to me most of the time.

>what sort of upbringing people on this site seem to have but it doesn’t feel “working class” to me most of the time

Some people around these parts have ardently defended that 100k USD is poverty wage and that having a net worth of 1 million doesn't make you rich.

So I'm inclined to definitely not believe "working class".

I must have missed those people. People here are in general not poor, but most are neither completely out of touch.

Actually helping run this place showed me how skewed this world is. I met many hospitality service owners, small ones mostly and most of them are lucky to take 5-10k profit in a year in total: that while most people I know in software and management get angry when they cannot go on multiple 10k vacations a year...

How is he living in San Diego on $416 / mo?

He isn’t, him and his wife earn around 40k total before tax. It’s possible but it isn’t fun. I talk about it elsewhere in the comments. She works as a preschool teacher.

> Upping anything on the menu $1 would've killed the business dead (...)

You could have a point if you didn't picked an example from an industry where you count on customers to expense additional charges to subsidize employees' wages in the form of tipping.

raise prices by a buck a pizza. people will absolutely pay it.

Perhaps in some cases, but far from always. Down the street from there are 3 'cheap' pizza places within a ~5 minute walk from each other, that all server basically identical quality pizza at essentially the same price. If any one of those where to raise their prices people would almost certainly not pay and just go to one of the other places instead.

There is also a 4th place that serves much higher quality pizza and charges 50-100% more than any of the other places as it is. If they where to raise their price by a buck then people would no doubt still pay since the people who go to that place have already proven themselves less price sensitive.

$5k total, or $5k in addition to their salary? If you dug into it, I'm guessing it would be the latter.

$5k total. That’s his salary. They make maybe $40k before tax on a good year, over the two of them, him and his wife who works as a preschool teacher. They’re both almost at retirement age at this point and are going to work until they die.

5k is a lot in Kazakhstan. (Just noticed the username)

It is not actually, about $416 per month or 176k tenge (local currency) per month. A cook in Almaty, KZ can make between 170-350k according to the local job board https://almaty.hh.kz/search/vacancy?st=searchVacancy&L_profe...

EDIT:

Not saying its nothing, good money but to call it a lot would be an overstretch imho

No, but 5k in Kazakhstan tells a completely different story than 5k in the US.

Then that dude should legit go out of business and get a job as a janitor for $16,000 per year.

exactly. we should strive to replace all businesses with chains and large corporations. /s

heck maybe by then they can just automate away the jobs too

Yeah. Real nice to go to the extremes. What's next on your argument list...that we should all kill ourselves and there won't be any supply and demand and therefore have a permanent solution?

No. What I am saying is that if you are only earning $5,000 per year, you should go out of business, because clearly, that person is a horrible business person. Maybe he is not doing any marketing. Maybe horrible food with substandard ingredients. Maybe he never heard of the maxim "location, location, location." Maybe he never cleans the restaurant and it is a filthy mess and has a filthy bathroom (I've been to restaurants like this, and immediately walk out - if they can't clean the bathroom, what does their kitchen look like?). Maybe he spending extravagantly on stuff that doesn't make a difference. Maybe he has too many employees.

I used to live in San Francisco, which is a real foodie town. People go out to the restaurants all the time - plenty of people, and lots and lots of small restaurants. And there were restaurants opening and closing all the time, and there were restaurants that have been open for 100 years.

The restaurant business is one of the most unforgiving industries that one can get into. But, there is no reason at all to go out of business, unless one needs to go out of business because they are a shitty business person, or if tastes and mores have changed, whatever.

Only chains and large corporations /s

another trend i've noticed around here at least is that many of these legacy restaurants are owned by boomers who are well past retirement age but basically just kept going because it gives them something to do. when the economics shift too rapidly and hurt their ability to break even, they're far more likely to simply close up shop than try to take on risk and hope things work out.

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