Why Restaurants Are So Fucked – Part II
joelleparenteau.medium.com
joelleparenteau.medium.com
>Ok so, here’s the plan: you pay $15 for a sandwich and I give my whole team a raise. Sweet. You’re the best! The money’s gotta come from somewhere. People seem to forget that part. But yes, I like this idea. In fact, Chipotle has recently increased both wages and pricing. McDonald’s as well. Now our turn, LFG!
And yet, if you go to the source the article links directly in that paragraph: "Chipotle Mexican Grill has hiked menu prices by roughly 4% to cover the cost of raising its workers’ wages...In May, Chipotle said that it would raise hourly wages for its restaurant workers to reach an average of $15 an hour by the end of June."
4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.
It's far beyond what's needed to cover increased wages, and they don't even have the guts to list prices honestly.
Restaurants were tacking on COVID surcharge fee on top of the SF mandate fee that they were imposing on diners. Tack on tax and tip and you literally have four additional fees on top of what you see on a menu.
They claim it's for transparency, but they were still advertising fee-less prices on the menu the last time I was there. You'd only see this sign at the check-out counter. Here's a Yelp review complaing about just that (raised to 75 cents as of 2018): https://www.yelp.com/biz/ikes-love-and-sandwiches-berkeley-6...
I've never seen anything like that anywhere else.
"We are having to add a 50c surcharge per beef entree" "Each burger has a 50c surcharge" etc.
Later this went to 50c charges for all meats (chicken or beef or whatever).
In the short term, it was to avoid having to reprint all signage/menus/etc when they were unsure how long things would go on. I think in the restaurants in our town, they've just raised prices and don't advertise the 'surcharge' any longer.
/s
Aren't most McDonalds franchises? You definitely see individual owned stores going out of business.
his point still stand.
https://boxaroundtheworld.com/mcdonalds-supply-chain-managem...
"McDonalds is a fine example of how vertical integration can keep costs down and profits up. They grow their own beef through contracted producers, process their own meat, create their own spices and mixes in factories that they contract, grow their own potatoes and other vegetable through contracted producers, transport their goods on their own. McDonalds owns the land that their restaurants are situated on, so they do not have to deal with leases and landlords. They have taken control of their supply chain nicely."
edit: a mom and pop operation can't compete with McDonalds. McDonalds can increase employees wages thus force others to do the same even if mom and pop doesn't have a vertical integration like McDonalds. by increase wages, it force smaller operators to cut staffs or shut down. McDonalds can keep their competition down.
Where? In my five+ decades on this planet I have never seen one close. Might see them shift to new nearby location, newer building…but never seen one close.
The only way I see an individual store going out of business is if community around them dies. I seriously doubt that a McDonalds in a populated area would close. You would have people lining up to buy the franchise.
-WSJ article from this year
The McDonald's in a nearby hospital closed in the last 5 years. Perhaps the franchisees in those cases were a little optimistic.
That reads like a headline from The Onion.
By the way, the McDonald’s in our local hospital has been in operation 24/7/365 since the late ‘70s. It’s a symbiotic relationship I guess.
There was a Walmart with a McDonald’s in my town that closed, however the McDonalds in its parking lot is still going strong.
Materials costs go up: Well, that's the cost of doing business, raise prices a bit
Rent goes up: Well, that's the cost of doing business, raise prices a bit
Labor costs go up: Business go crazy and threaten their employees
Contrast this to a labor market, where a laborer needs work to survive and thus it already has a lower level of power than its employer, even before any negotiation takes place.
That just isn’t true. Companies exploit power asymmetries with trading partners all the time, especially if they’re massive corporations like McDonalds.
Materials go up? Eh, they own both sides - food distribution, farming, etc. will all be included a diversified portfolio.
Rent goes up? Your REITs go up.
Labor costs go up? That's not offset. That takes chunks out of all parts of your portfolio.
Restaurants themselves will be equally bothered by all three but they don't decide what part of what bothers them gets media prominence.
Chipotle's margin increased after the change. They didn't tap into margin using prior excess to stay afloat.
No...
> 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.
This isn't in the article [0]. You're conflating revenues and wages.
Chipotle raising prices by 4% for EACH sandwich allows you to increase salaries by way more than 4% for employees.
Taking a $7 sandwich, a 4% increase yields...
[$7 sandwich] * [4% price increase] * [20 sandwiches/hr/employee] * [1hr/employee] = $5.60/hr/employee in incremental wages
Here's Chipotle's audited financials, if you want to dig. [0]
That's what you want. Fair?
However, you also said the following,
> 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7.
which implies that you think EACH sandwhich needs to be increased dollar for dollar to achieve the "living wage" gap.
edit: the "Pay your employees" , in context, came off as saying Chipotle wasn't paying their employees, despite the promise and plan.
We have a place down the street, Deli Board, that makes truly amazing sandwiches. The only sandwich I've ever had that made me say "You know, this might be too much filling and not enough bread". They're expensive, literally $18 to $22, but you never ever feel like it wasn't worth it.
But many places aren't interested in making food that feels worth paying for.
Some people will pay for a Bentley. Doesn't mean a lot of people will.
Best example might be In-N-out burger, that is relativity good quality for the price that is accessible to most people, and compensates their employees relativity well, though they work super hard. . But I don't know what their margins are
I haven't really enjoyed in n out in a decade, maybe I just grew out of it.
Really? Where is that?
I live around Paris -- a city where the cost of living isn't considered low by world standards. Here the normal price for an excellent sandwich made of fresh bread (1/2 baguette), chicken or beef, lettuce, tomato and sauce is around €4.5; if it's just ham and cheese, and the same wonderful bread, the cost is €4.
I consider that expensive because I can make a meal at home for less than €2 (the cost can even go down to 0 if I just eat the leftovers from yesterday's dinner).
I don't think I'd ever pay $20 for a sandwich of any quality.
A decent sandwich in a bakery wild have great bread (which is really important) and wild not be that enormous either (we do not have the kind of sandwiches where there are 20 folds of ham).
I wild occasionally have one but if I bring the bread back home what I will make myself won't be different (they have the same ham, cheese and vegs I do, there is not much more to add)
The place from my original comment[1] is in San Francisco.
People come from far and wide to have these sandwiches. I’ve seen people in the wild wearing swag from this sandwich place. Calling them sandwiches is almost criminal. Even making it at home you would certainly spend $10 on ingredients. There is no skimping on the meat.
I mean just look at the photos on their homepage. The sandwich is unlike anything I’ve seen in a European bakery. They’re typically 2 meals for me.
That said, if they are so big that they count for 2 meals, then obviously the cost per meal is $10, not $20.
Sometimes I fly from Dallas to New York just to get one. Whenever the price for tickets goes down below $100 for a weekend round-trip flight, I snag a ticket and fly up there just to eat at Katz's.
But you've touched on a real problem with NYC... There's just nothing to do there besides eat at Katz's!
I go up there for my sandwich and then I'm stuck in the hotel for the rest of the weekend because there's never anything going on in NYC!
Before the pandemic, good sandwiches ran $8 to $11 from food trucks in DC. This I assume was set by the need of the food truck to make a profit. The result was the sandwiches were sized to make $11 sense for the workers thereabouts--I thought them a bit large for lunch.
I've seen little indication that DC has a sane cost of living.
Looks like the cheapest sandwich is about $25. I never tried to go in to see what the hype is about, but I've never seen a place quite like this before. Every time we walked back to our hotel, the line was backed up at least an entire city block, like a six hour wait to get a sandwich.
Another guy in the thread says he flies from Dallas to NYC to get those sandwiches, which means that they probably should charge even more...
I haven't found that style of sandwich anywhere else so I don't know the prices.
I paid around $9 in San Diego a few months ago and while it was delicious and completely oversized (american style), my Vietnamese friends would kill me if they knew how much I paid.
You’d expect the 4GBP sandwich to cost $12 in SF just based on labor cost. I imagine rent and ingredients also cost more.
These are the current rates:
Under 18: £4.62 ($6.26), 18 - 20: £6.56 ($8.89), 21 - 22: £8.36 ($11.33, 23+: £8.91 ($12.07),
These are all going to rise in April 2022:
Under 18: £4.81 ($6.51), 18 - 20: £6.83 ($9.25), 21 - 22: £9.18 ($12.44), 23+: £9.50 ($12.87)
That only works if the price elasticity is 0 - meaning that a 4% price increase doesn't lead to a decrease in sales. The price elasticity isn't 0. It's close to 1. A 4% price increase leads to close to a 4% drop in sales. Fixed costs stay the same.
Do the math under those assumptions.
Competitors may do the same, or less, or more, driving business to you or away from you. Suppliers may increase product cost. Employees may be taxed more. Employees may lose benefits. Demand will fall by an unpredictable amount. Demographics of employees and customers will shift. Inflation may hit, temporarily/geographically localized or not. labor cost increases may need to ripple up through the entire labor pool, not just bottom-tier. Employee's cost of buying food just went up, diluting their gains. And so on.
Many of those effects are miniscule. Some are good, some bad. But there's an endless amount of them. It's a chaotic system, it's not just some simple equations.
presumably that's already factored into the price elasticity calculations. also that logic only slightly offsets it. At the end of the day you're paying your workers more, and only a small fraction of that increase goes into your pockets. All in all it's still a net negative.
Those numbers are hard to get. But people who have done studies have estimated that in the restaurant industry, the number is close to 1.
I mean think about what you are saying if you are claiming that the price elasticity is 0. You are saying that even before the wage increases, they could have raised prices by 4% and returned that money to their investors as pure profit, in an industry where profit margins are single digit and not usually high single digit. Not a chance.
No, that is not all what I meant, and at this point I don't really understand how I can make it clearer.
The 4% increase in prices leading to a 15% minimum wage is a FACTUAL DATAPOINT. It is EMPIRICAL REALITY. No theorem, model, or anything, can change that, because that's what ACTUALLY HAPPENED.
It's not theoretical. After all was said and done, prices were increased by 4%, and wages were increased to 15$/hour.
It's completely useless to talk about elasticity, and try to estimate it, in this context. You are trying to apply a model, to reality, and arguing that the model is correct, but reality is not correct.
Article: The money’s gotta come from somewhere. People seem to forget that part.
Response: 4% price increase to get to a living wage. Not $15 sandwiches, just $7.28 instead of $7. Pay your employees. It's that simple.
The clear implication of the response, clear to me at least, is that where the money comes from to raise the employees' wages is revenue due to the price increase. Let me know if you understand it differently.
That only works if the price elasticity is 0. They sell the same amount of food at higher prices and use the money to pay higher wages.
If price elasticity is 1, they raise prices by 4%, they sell 4% less food, and the money for wages needs to come from somewhere else. Could be less profit for the restaurant, could be hiring fewer workers or giving them fewer hours, could be smaller portions or cheaper ingredients, could be the money comes from the bondholders who don't get repaid when the company goes bankrupt.
If price elasticity is infinite, they raise prices and demand goes to 0 and they eventually go bankrupt.
No restaurant would intentionally be operating with prices set in a range where the price elasticity is 0. They would raise prices until it wasn't in that range. The money for wages can't (only) come from increased revenue from a price increase. That was my point.
At a large chain like Chipotle, sure. But most "fine dining" restaurants have razor thin margins on food. Alcohol is how they make money. With the pandemic, people have switched to ordering food for takeout and therefore restaurants can no longer make a profit on drinks.
There's also two other aspects the author won't touch on: if you open a legitimate fine dining restautant you'll have to compete with places employing illegal aliens. And lastly, some restaurants are really just fronts for money laundering. They can operate a really long time without making any real profit; it's a business where it's easy to claim some large transactions were made in cash.
but they also just need to keep the kitchen open.
[1] https://www.upjohn.org/research-highlights/does-increasing-m...
Let's just use raw analysis.
If a restaurant's current labor budget is 30% of revenue, and the restaurant's profit margin is 3% and the cost of labor increases by 10%, how much profit is the restaurant making now? If the restaurant owner wanted to maintain a 3% profit margin in such a scenario, how could they do it?
And his salary is only $1.2M, the rest is performance incentives and so forth.
num_staff = 15
curr_staff_pay = 7
curr_staff_costs = num_staff*curr_staff_pay
curr_labour_budget_pc_revenue = .3
curr_staff_costs = num_staff*curr_staff_pay
print(f"Current Staff Costs: {curr_staff_costs}")
curr_revenue = (curr_staff_costs/curr_labour_budget_pc_revenue)
prof_pc = .03
curr_profit = round(((curr_revenue/100)*prof_pc), 2)
print(f"Current Revenue: {curr_revenue}")
print(f"Current Profit ({prof_pc}%): {curr_profit}")
other_costs = curr_revenue - (curr_staff_costs+curr_profit)
print(f"Other Costs: {other_costs}")
#%%
increase = .1
new_staff_pay = curr_staff_pay+(curr_staff_pay*increase)
new_staff_costs = num_staff*new_staff_pay
print(f"New Staff pay is: {new_staff_pay}")
print(f"New Staff Costs are: {new_staff_costs}")
new_total_costs = other_costs+new_staff_costs
print(f"New_total_costs: {new_total_costs}")
increase = new_total_costs-curr_revenue
print(f"% increase = {(increase/curr_revenue)*100}")The real problem is restaurants artificially lowering prices of a sandwich by paying people less for decades to the point people don’t realize that eating out used to be expensive. All the full service restaurants in my small town still do well. The ones that don’t are the sandwich shops where you pay $14 for a cold sandwich. Eating out is expensive and should be expensive if you want businesses to sustain themselves when there’s turmoil in the industry.
Why is it only expensive because there can be turmoil? Isn't it primarily expensive IFF labor is expensive?
It might be longterm good for eating out to be expensive again (especially for waistlines) but it will come as a big shock and do short term harm.
Is that true? In a lot of new homes where I live the kitchens are one of the places the builders spend money. It's pretty common to see multiple ovens, a high end stove top, big dishwasher, gigantic refrigerator, etc...
Regular people generally can't afford new homes. Working class professionals usually get shoved into apartments (usually small ones) with small kitchens in 5+1 buildings or renovated industrial buildings.
Stuff like this is pretty common - https://images1.apartments.com/i2/5Wguguo1YZBzaUo30bfX2jUIY6... or this one https://images1.apartments.com/i2/PuDTEuad8QYuGVJfUJAbGHCZIS...
It's not impossible to cook here, of course. But it's designed around the idea that most of your big meals will be "out" somewhere else.
The parent comment said kitchens are getting smaller and smaller but I'm not sure if that's actually true. I lived in quite a few houses (middle / lower-middle class) growing up and it seemed like the older homes all had much smaller kitchens than the ones that weren't as old.
Maybe that is happening for apartments for singles and DINKs living in urban areas where your lifestyle may be shifting towards eating at restaurants more than at home, but especially for families with kids, the trend definitely seems to be larger kitchens and kitchens that are more integrated into the home.
Certainly seems to be true here in Sweden. All new houses and apartments I've seen recently have tiny open plan kitchen with terrible layouts. It's clear that they layed out the rest of the house first and then just crammed in a kitchen in whatever space was left over.
Is that a net good or bad?
Eating out shouldn't have to be more expensive than eating in. And in many countries it isn't.
Restaurants benefit from scale that your kitchen doesn't.
If you were feeding a family of 150, your per-meal price would crater.
Of course a restaurant has to pay staff, so the numbers have to add up, but conceptually, there's no particular reason why a chicken sandwich at a restaurant should cost more than a chicken sandwich at home, as long as that restaurant is serving chicken sandwiches, chicken tacos, and chicken pasta all afternoon/evening.
Granted during covid and shipping shortages all bets are off.
And obviously even during non-covid times, restaurants can set their own prices, charge a 100x multiple for exclusivity, ambiance, etc.
But fundamentally there's no obvious reason why getting food at a restaurant needs to cost more than getting food at home, while still making the restaurant a profit that lets them pay salaries and sustain their business.
It should be and is cheaper to cook your own food. Purchases are limited to need, meals are usually a tiny percentage of the overall purchase, cost does not include: rent, talent, fixed costs such as kitchens/tables/plates/etc, healthcare, marketing, etc.
Also, what one doesn't factor in is the cost of waste of food at home. You (the consumer) generally don't waste food when buying out.
Also, good luck with your mcdonalds only diet. I'll stick with a balanced, healthy, home cooked diet myself.
Luckily for you, you can live without waste. You are the grand minority.
How much does a 100 pack of the cheapest thin patties cost? A 100 pack of american cheese? A 100 pack of terrible buns? The only challenge is that most grocery stores aren't even stocking food so crappy, not that the food costs are considerably higher.
My budget is already shot.
We can discuss the system but its not a given. What is a given is the ingredients you use for your one meal at home should be cheaper than what it takes to make it at a restaurant. The inclusion of other humans to hire, manage, train, and then process, create, and discard the remainders of your order and clean alone should be indicative of that.
There are many reasons! You're the one making the sandwich at home and bringing it to your table, so you absorb the labor costs. And you're already paying for space, heat, light at your place whether you eat there or not, whereas the restaurant has to pay for these. Not to mention profits (why would they run a place if not to earn money?)
The only things that your place and a restaurant have in common are the ingredients; and while restaurants can maybe pay less because they buy in bulk, they also have to abide by health codes that don't apply to you; you can eat yesterday's meat if you want, but restaurants usually can't serve it to you.
So it's really unclear how restaurant food could ever approach the cost of meal made at home.
To give you an idea...it costs Papa John's less than $2 to make a large pizza.
You'll spend twice that at home just on the cheese. At supermarket prices, you'll easily spend 15 dollars recreating it at home.
Also, the hard part about making a Papa John's pizza from grocery store ingredients is finding ingredients that are crummy enough and in small enough quantities. ): It's easier to make a a big pizza with good cheese and fresh ingredients at home for $20-30 of ingredients. You would pay more than that for the equivalent at a restaurant when dining or delivery tax and tip are factored, especially.
Economies of scale do help restaurants, but only to the extent that they can pack their labor and other operating costs into the price and not lose money. Many restaurants have not survived because they couldn't attract a high enough percentage of customers to the higher margin items on the menu. So when someone orders out they are going to end up paying for the labor they're not spending, outside of unusual circumstances or the few money-printing carryout formats (like mass market carryout pizza.)
You're assuming the only thing that contributes to costs is the raw material. In reality, there's raw materials, labor, rent/mortgage on the space, taxes, and other costs including your initial investment and constant upkeep. Combine all of these and making a Sandwich at home is almost 100% cheaper (even if you shop at Whole Foods and only eat organic).
And comparing it with other countries is not exactly Apples to Apples comparison. In India or Singapore, almost all businesses cheat on taxes, labor is overexploited (more than the US), there's limited licensing or health oversight, and ingredients can get downright questionable. Those help a lot with lowering costs, but not feasible in US. (Or rather only McDonalds can achieve to some degree)
Food is not that expensive. The restaurant is not getting their materials much cheaper than people are at Costco.
What is expensive is good labor. Labor that wants to work a laborious, strenuous job, at very inconvenient hours. How are you going to convince someone to work at times when everyone else is out and having fun or having meals together at home as a family? Or getting ready for weekend trips? You have to pay them more to sacrifice.
The only reason this has not been a problem until now is there has been a big supply of labor willing to do that undesirable job at undesirable hours, so they had no negotiating power for higher wages.
Name a single country where eating out is relatively (ie. Compared to wages) cheaper than the US...
Looking at McDonald's prices for Japan vs. USA, it's roughly the same, but the US has 20% higher wages making it relatively cheaper.
It is hard to compare apples to apples though; I don't like the typical American fast food and probably many don't like the food here. So even though it would be cheaper, if you would never go there...
The US has, in my experience, by far the cheapest restaurant experience in the world, relative to the average worker's wage. Of course I haven't been everywhere. Currently in Czech Republic and it's cheap by most standards but relative to wages on point with most western countries.
[1] https://japanhubdotcom.wordpress.com/2013/08/05/japan-eat-ba...
In these places the credit card machine is often ‘broken’ or there is a 5% discount for paying cash. I’ve even seen a place that was ‘cash only’ and had built an ATM right next to the cash register in the middle of the restaurant so you couldn’t complain.
In Australia it isn’t helped by a labor law system so complicated that even large firms with HR and finance departments the size of a small army can’t pay people properly.
I think this post still misses the mark.
Food prices are not up 5-15%, based on what my family is seeing it's up 40-50%. They're desperately trying to find cheaper solutions.
In addition to that, when the restaurants were forced to be shut down in 2020, people switched roles. People started working at Amazon and other companies.
Now there's a shortage of cooks, bar-tenders, etc. Previously, they were paying $7/hr + tips for a bar-tender. Now, they can't get people to apply for under $15/hr + tips. My one family member cannot even find a cook and they're offering 50% more than they were in 2019 -- $30/hr. So they're working 12-14 hr days, 7 days a week to keep the place running.
Combined with increased costs, there was a drop of 20% or so of patrons (compared to 2019) and patrons are more price sensitive.
To me, it's clear from reading this comments that many people do not understand the economics of a restaurants. Which are far different than chain fast-food place locations.
How much clearer can it be than if the financial balance of the restaurant is not profitable, it is time to shift into a different menu and price points, or shut down all together and find a different avenue of work.
The restaurant owners are in the same predicament as their workers. If it's not worth pursuing for your time and money, then pursue something else more worthwhile. Adjust or die.
Oh I (and my family members) agree, they're trying to sell the businesses.
Typically small time businesses like this are highly tied with personal finances. You can't just "close up shop" when you have a $50k loan and no job lined up.
Again, it's more complex than people recognize. For instance, you can raise your prices (and my family has), but they have to compete with other chain restaurants. So they can't raise prices too much faster than the competition.
Understandable, of course. Some of my sentiment was informed by the article-in-question's supposition that workers were being too demanding in terms of wages and a plea for sympathy that rang hollow in terms of her arguments (IMO at least). Workers do not owe anything to anybody - if a more prodigious opportunity presents itself, it ought to be taken.
The pain points are going to become more apparent as we try and sort through a new standard that has upended much of what we took for granted emotionally, socially and culturally (including morality and finances in the latter).
Wishing your family good luck.
She complained about being screwed and left out by govt programs, and about Facebook commenters who called for higher pay like it was something she hadn't thought of. Didn't notice any bashing of workers.
then she goes on a rant about how people don't want to work because "unemployment" during A PANDEMIC! Boo-hoo to someone who cares less about he health and lives of her employees than her bottom line. Again... this is coming from someone who is already financially stable with several successful businesses and a very successful spouse. Completely oblivious in her perspective.
Read the article again, this time slower and with fewer prejudices.
To point out one last thing: most restaurants fail. She is complaining about being successful but not as much as she'd like... while the US experiences a 4.2% unemployment rate, which is amazing given where we were a year ago. Talk about lacking any perspective.
> 4.2% unemployment rate, which is amazing given where we were a year ago
That's not exactly an accurate way to describe what's happening...
Look at the 25 year trends:
https://tradingeconomics.com/united-states/employed-persons
https://tradingeconomics.com/united-states/employment-rate
59% of the population is currently employed, down from 65% in 2000. We're down ~2.5% from where we were in 2020. Which doesn't exactly seems to jive with the reported "unemployment rate" - https://tradingeconomics.com/united-states/unemployment-rate
In 2020, 158M were employed, now 155M are employed (with millions increase in population). We're probably looking at a gap of at least 5 million.
Average working hours have not increased:
https://tradingeconomics.com/united-states/average-weekly-ho...
What is debatable is whether that matters. The unemployment rate is based on those seeking work, not those who are of age to work.
Seems to me, if unemployment an federal aid is not the culprit, then the simpler explanation is wages.
Wages are too low. This is precisely what the blog writer's argument is against: increasing wages.
Supply and demand didn't stop being a thing and your charts prove it.
[0] https://www.npr.org/2021/08/23/1028993124/these-older-worker...
[1] https://www.bloomberg.com/news/articles/2021-10-09/child-car...
ETA: Looking on the other side, there is likely some unknowable number of 16-18 year olds that are not entering the workforce yet, that would have pre-pandemic.
She specifically says "I don't blame them" (emphasis hers) referring to those people on unemployment. she is complaining about the incentives created by the govt program, which I referred to.
Umm, no - I'd sincerely doubt that "most of the users" here are working at IT companies and startups that never made money until <insert random date>. Even if they did, they certainly were being compensated well for the work. Are you aware that we are discussing a POSSIBLE living wage of roughly 15 USD/h, which is still ridiculously low, but at least a laudable goal, while you are selling me laments about the VCs and owners not making it in what is an incomparable industry to hospitality (60% of restaurants fail in the first year - she's still profitable throughout her multiple restaurants even in the middle of a pandemic and has the temerity to complain about paying her workers living wages... done here)
My argument is not about IT companiesand VC-funded startups, but about the restaurant business in a mid-pandemic economy and the lack of perspective the owner of said restaurant displays regarding her worker's wages.
If she is willing to treat them as merely expenses to be eliminated and not as partners in a struggling business reaching success, then again, she should not be running a restaurant.
Food is essential - restaurants are not (to quote someone else somewhere up/downthread).
I certainly haven't seen 40-50% increases in supermarket prices or in prices for local vegetables or local meats.
That doesn't seem much fucked to me. In fact it sounds like business is going great.
>Let’s start with the government paying our workers to stay home. First, let me say that anyone high risk, or with young kids at home, I understand. This isn’t about you. But I’m talking about the restaurant industry here. We employed 1.7M teens in the US before the pandemic. Of course they rather get paid to Netflix & chill than scrub dishes. I don’t blame them. I’m not exaggerating. I know this. How? Cause they told me. They’d ask to only work a few shifts a week or else they’d stop getting their ‘free money’ (ie our tax dollars). This made it nearly impossible for us to stay open. It’s gotten a bit better as these programs wrapped up, but in Canada at least, they are talking about bringing them back.
I don't think a couple of infrequent Covid stimulus checks is the equivalent of paying people to not work. Even minimum wage pays a lot more than Covid checks.
This article is full of generalizations and assumptions that are wrong or exaggerated. Lettuce being 15% more expensive does not mean the final product is 15% more expensive. That is because there are a lot of inputs that go into determining the price besides the raw materials. Where I live I only noticed 2 restaurants closed out of probably 50. Some cut hours or only do drive-though. A long way from being fucked as the title suggests.
https://fivethirtyeight.com/features/many-americans-are-gett...
A Bank of America Global Research report published in April estimated, nationwide, workers who earn less than $32,000 annually could make more money on unemployment than they could from work.
An analysis of California Employment Development estimates showed $31,200, or $15 an hour, was the break-even point in the state, not accounting for differences in how the money might be taxed. The state portion of benefits is capped at $450 per week for higher-income earners.
“You could potentially earn $750 a week maximum in California using unemployment. That can be a disincentive to some workers especially some of those workers in lower-paid jobs,” said Roccato.
https://www.cbs8.com/article/news/verify/verify-can-you-make...
And the fact that the most anyone could make was capped under 24,000 USD a year - if you consider anything above poverty level in the US in 2020/2021, then this conversation should stop here...
The thing is, a terrible feature of current poverty programs in North America is the existence of cliffs, where the net resources of a household can decrease -- especially in the short to intermediate term-- if one pursues more lucrative careers. See https://www.atlantafed.org/economic-mobility-and-resilience/...
This is at baseline. Some of the pandemic response measures have further worsened the picture. Work, in the short term, is punished.
We need a (small) basic income, and to structure the rest of poverty programs to make sure these kinds of perverse incentives no longer exist.
Making benefits universal is understood as a way to make the population unite behind them long-term, a political danger to capitalist elites who benefit from worker precarity.
Having no benefits at all is another political danger. The obvious cruelty of total economic exclusion results in social movements for reform.
Crippled benefits gate-kept by a punitive bureaucratic layer are the stable compromise.
This seems like an unusually pejorative way of describing the desire to have a functioning economy, where workers actually have an incentive to work instead of being paid to Netflix and chill.
And this article and its commentary are replete with examples that defy the usual straw men associated with arguments for UBI, if that helps. CERB at $2k a month is the prime example and the source of the original article.
Ideological defense of capitalism often takes the same forms as denial of interpersonal abuse.
There are likely more unproductive (deliberately) workers on balance who are siphoning wages from companies than there are “capitalist elites” who prey on their workers needing a job.
The entire article and thread of comments demonstrate that people would prefer to stay at home and be paid than to work and be paid. It’s not hard to imagine why and see the negative downsides unless you’re one of the people trying to justify being paid to stay at home.
I literally did not say anything about "motivations and needs."
I referred to "benefit," as in their interests.
Interests, motivations, and needs aren't all the same thing. You should know this and recognize it all by yourself!
I'm really not interested in refuting your sociopathic little distortions.
> people actually creating the jobs
ROFL
But I agree to walk away. If you ROFL at the prospect of someone who is legitimately creating jobs being an interested party in the discussion of our economic structure, it's probably not worth the typing energy to debate with you.
distorted by you into some offensive pejorative about "motivations".
Your dishonesty is disgusting.
CERB does exactly what a UBI shouldn't do: phase out if you made more than a (small) income threshold. This creates an explicit incentive to not work. The "U"-- "universal" -- is important to not create these types of cliff where work is punished.
Right now in the US we have a mess of systems: tax brackets, EITC, SNAP, housing assistance, WIC, etc. I don't think we can quite "nuke them all" and replace them with a UBI, but a UBI with a flatter tax system, no EITC, less unemployment insurance, and a bit less SNAP could ensure everyone can still eat; would tide over people between jobs; would assist people in situations where they're voluntarily changing careers, etc... and most importantly, would remove the perverse disincentives to work that the cliffs on SNAP, WIC, etc, do.
My groceries used to cost $200/month, now they're $300. Internet and my phone cost $120, leaving $330 month to cover anything that wasn't bare minimum essential. Thank god I already had a bike, because paying for my car would have eaten the last of the money. Also, CERB was a taxable benefit, but deductions weren't taken, meaning that I'll have to pay back some of it at tax time.
Not even joking, if I hadn't moved in with my wife a month before covid hit, I'd be homeless today, CERB or not.
I assume the author was talking more so about the extended unemployment benefits and not the stimulus checks. At least in the US, working 15 hours instead of 30 wasn't going to be the difference between getting a stimulus check or not, since the cutoff was something like an AGI of $75,000 for the previous year, whereas the unemployment benefits are done one a week-to-week basis and are based on how much (if any) income you're bringing in.
edit: I understand the author's main business base is Canada and things are different there
Raw materials + labor + profit = end price. If raw materials go up, labor goes up and profit stays the same.. that would suggest prices will increase too. The fed has already stopped labeling inflation as transitory and it will continue likely through a good portion of this year too.
I'm glad only 2 restaurants of the 50 near you have closed. About 30% of the restaurants near me have closed, most were small and locally owned. A few chain locations closed too. Most of the remaining ones significantly cut hours. They seem to still be bleeding.
Author is from Canada. The welfare checks given there were 2K per month since the beggining of the pandemic. And that's exclusing other welfare programs.
Further - I think a lot of places were hit MUCH harder than 4%.
For the entire US - there are 37% less small businesses open than in January of 2020: https://www.statesman.com/story/news/politics/politifact/202...
Restaurants are one of the most common small businesses.
I think she's looking for publicity more than anything, seems to me she's as manipulative and cynical as she is wealthy and successful.
The government of Canada gave money to anyone who (1) was over the age of 15, (2) made more than $5000 in the year prior to the pandemic and (3) lost at least 50% of their wages.
CERB was $2000/4 weeks * 6 periods, CRB was $900/2 weeks for up to 54 weeks
So do the math ... you're a 18 year old student that made $5000 the year before the pandemic. The government potentially has paid you upwards of $30,000 to stay home over the past year and a half. You could go back to a $15/hours job (that's Ontario's minimum wage), but you have more money in the bank than you ever thought you would at this point.
It's not the older, "full time" worker staying home. It's that none of the students feel the need to work anymore.
And it's not just restaurants. I went to a very large, major chain, grocery store last night at 7pm. Half of the shelves were empty and they had ONE self checkout open (with a line of customers). No staff there either ...
Also, what are the odds this "shortage" will result in even larger immigration quotas, especially close to election time?
With the thin margins, most can't afford to pay more and many customers aren't either regardless of how much they want to eat out. I love restaurants and it has been sad to see some of my favorite ones shut down -- hopefully they'll be back!
But in many ways, the government is contributing to this via:
- Government benefits competing with wages
- Government-imposed shutdowns / reduced-capacity.
And there are zillions of restaurants, grocery stores, gas stations, etc.
Maybe a few of 'em tried that strategy, and found that it usually didn't work out so well.
We know that's not the case because if there was even a shred of data driving this decision they would have been crowing about it. This happens every time someone proposes that businesses be better members of their communities — some reactionary will say that they'll be unable to create all of those jobs, but they're never asked why they're less wrong than everyone who very confidently said the same thing on the previous iteration. You can copy-and-paste that for so many issues — wages, benefits like sick leave or health insurance, pollution, banning indoor smoking or serving drinks to obviously intoxicated people, etc.
The flip side of this is that it only looks at a single part of a complex system: for example, how much does staff turnover cost the average business? You'll never, ever hear someone whining about the prospect of paying a living wage acknowledge the businesses who've found that treating their workers better saved them money because they saved money from not having to constantly be hiring and people were more productive.
Most of the teens are probably in school and working part time. Are such employees eligible for unemployment benefits? I do like the royal "we".
The problem is aggregate demand across the entire economy. Consumers are getting squeezed by inflation for, well, everything. Quicker than wages are going up in the economy. So overall demand isn't rising as quickly as restaurants need to raise prices.
Consumers are still eating out and paying those higher prices, they're just doing it less often or, even worse, ordering less per visit.
This isn't necessarily the death knell for restaurants with a specific competitive advantage but it does mean lots of restaurants won't make it.
Labor force participation has not collapsed, the population pyramid is simply aging.
The trend was clear since 10 years ago, but pandemic accelerated it for some people, but still not a collapse.
Also, over 20 also includes people over retirement age, so they have stopped working.
See graph labeled "age ratio". If you hover your mouse over it, you will see working age portion of population starts to decrease after 2010, and had flatlined prior to that.
https://population-pyramid.net/en/pp/united-states-of-americ...
Here is more information, but large portions of the population aging out of working years is one of the reasons mentioned:
https://www.thebalance.com/labor-force-participation-rate-fo...
https://www.economist.com/christmas-specials/2021/12/18/an-e....
Archive accessible https://archive.fo/zaHMc
One interesting quote from the end appropriate for HN:
What does the history of the restaurant say about its future? People have relished their reopening. In recent weeks global restaurant reservations have been near their pre-pandemic levels. The best ones are booked up for months: Silicon Valley nerds have created automated bots which instantly reserve tables.
But of course someone is botting their way to reservations...
Shipping difficulty: Increased costs passed down to consumers.
Restaurant difficulty: Increased costs passed down to consumers.
Cry me a river.
The problem is that the bulk of businesses have grown fat and lazy on the good times that have lasted seemingly forever. It’s time for a reset. This time we won’t be able to be bailed out - interest rates are already rock bottom and inflation is at a 30 year high. We are in for massive upheaval.
The same type of people in the US pretended not to notice price increases directly caused by the trade war. They even defended it because they had their guys in charge: “need some pain for some gain”
There was a constituency for a trade war, a very powerful one. And NOW they want to blame their opposition for the logical outcome of those cost increases, more cost increases!
There’s a constituency for UI benefits, the “nobody wants to work” crowd has lost all good will with workers for the whole industry.
Any critic of “defund the police” will tell you not to bash a social service that is so damn popular.
Whether it’s a social service that offers free policing or direct checks, people LOVE free stuff from the government.
They had two production lines: one for in-house shoppers, and one for the delivery services.
What shocked me is that the in-house consumer experience was AWFUL. The Burrito was bad even for Chipotle, they were slow.
The other production line was cranking away and of course the burrito was "better".
Yet they are making, what, 30% more on me? And I have a chance of buying a fountain soda which is pure fucking profit to a fast food joint.
Truly an example of misaligned incentives. I'm not saying to short the delivery services, but at least provide a bit... extra... for the people that are delivering good margins.
You know, the margins that are the difference between the restaurant staying open and not?
I get that the UberEats supply is ... some money ... and it is kind of advertising, but why not offer ... something ... ANYTHING to reward people that get out of bed and give you 30% more money.
They're a huge employer, particularly of some of the lowest paid sector. Why didn't the government consider tax subsidies to restaurants that kept 80-90% employees on to help keep food and other costs down?
If takeaway costs could have stayed the same or even lower, it would have pushed people to keep patronizing restaurants at the same level, and keep staff employed (re-purposed somewhat to support takeaway from in house service) but keep that tax revenue + light CERB load (this is in Canada) and the whole industry could have hopefully weathered this better.
Seems doable? Also, seems like a model that could be potententially used in other businesses too, particularly smaller ones.
Incredibly lucky that we were able to sell both remaining businesses in NOV-DEC/19. Dodged a bullet, buyer has since closed down and gone out of business. I predict that 90% all the restaurants (privately owned) in Toronto will be out of business in the next year. Corporate owned have incredibly deep pockets and will survive. Complete slaughter.
And yeah, it's probably going to cause some people to reevaluate going to restaurants. They might cook more at home, and better appreciate the higher cost when they do eat out, and in turn, the world moves forward.
It's pretty hard to be hospitable to your guests when you aren't treated hospitably by your employer. Inhospitality trickles down too.
"Dozens of big companies headed by top-paid CEOs collected COVID-19 government benefits" https://www.cbc.ca/news/business/ceo-pay-covid-19-1.6303304
"Canada’s top CEOs saw average pay increase of almost $100k in 2020" https://www.thestar.com/news/gta/2022/01/04/canadas-top-ceos...
Reduced staff can hurt the service and quality of the product.
Both are a problem for the consumer.
All of this combined to create a world where #1 forced many restaurants to become dependent on #2 and #3 to be profitable - which was clearly unsustainable, but no one was willing to recognize that.
Part of the dynamic for #1 is that you had a flood of first-time operators coming on the market with lots of capital and a long runway for profitability. Restaurant concepts that make no sense if you're a traditional owner/operator might be fine if you have cash to cover the losses for 1-3 years. There was also a huge shift from solo location operators to people with "concepts" that are built out of the gate with dreams of building an empire - everyone saw Shake Shack and Chipotle and said, "How hard can that be?"
All of these well-funded, inexperienced operators got their restaurants out the door, optimized for growth rather than sustainability, and then the pandemic hit, and suddenly the sand that their business was built on began to slide out from underneath them.
This is a generalization, of course, and only reflects a subset of the restaurants that have been hurt/closed by the pandemic. I'll absolutely say that another big swath of restaurants that closed are restaurants that have been around a long time and were probably running on fumes already, and unable to adapt.
But at the heart of both groups are businesses that were built on unsustainable foundations and poor business practices. Running a restaurant is _hard_ - comparing it to running an accounting business is laughable (as the author did in their first essay). The best restaurant operators can look at a menu and know_ exactly how much they are going to make on each dish, have a professional level nderstanding of electrical and mechanical maintenance, understand a forest of local laws and regulation, and can hire and attract quality talent AND keep them interested and engaged. On top of that, in major metro areas, they also have to be branding, social, and marketing experts.
Covid has been hard for everyone, especially restaurants, but the best-run restaurants were able to dig in and adjust and adapt, because they had a solid foundation and a strong leadership team. Complaining that teenagers don't want to work a shit job for low pay and terrible hours totally misses the point.
You mean you exploited 1.7M teens, and they figured out it's not worth it, not worth getting long covid and not worth it for the "wage" they're paying. Large parts of the US economy worked simply on the threat of your existence ceasing if you run our of money. Turns out it's not that bad.
Blaming teenagers for not wanting to work if you barely made it worth their time is pretty disgusting. Maybe your industry needs to thin out and raise prices.
I have the feeling that is actually their point. Perhaps they did not consider the thinning out part but the last part is clearly their point.
Edit: I’m calling the restaurant owner greedy for not wanting to pay decent wages. Why is that controversial?
Running a household on a poverty budget isn't labor free.
The work it involves is even much like that of a restaurant.
The author should also mention another factor limiting the number of patrons who show up, and aggravating those that do: turning the restaurant into an enforcement arm of The State in demanding proof of vaccination.
--
In the end, maybe the writer, is just a bad operator and being in an unsustainable business. Being a restaurant operator is not for everyone.
Not everyone wants what you want as an operator. In the previous article, he went on about how much more protein his meats have over whatever next door restaurant had and that there was a labor cost of $2.58 per sandwich made. Even at $15/hr wage, that means en employee was expected to make shy of 6 sandwiches an hour at $60/hr gross revenue for $6 in net profit.
Personally, once an item surpasses $15, I will go and make it myself in my kitchen from grocery goods. Scale of Economy is supposed to reduce labor, cost and make a product consistent. Even before pandemic, I don't like not being aware of everything in my food and hidden sugars in sauces. I even think $10 is expensive per dish when compared to wholesaling shopping and making my own food - but I understand, this is a food business.
I don't understand why I, the reader, am supposed to feel sympathy for a poor business operator, especially when the new article linked above writes:
"For context, when I wrote the first post, we had just the one Wolf Down location in Ottawa. We’ve since opened our second location, in Vegas of all places (we raised funds for this, that’s another story for another post), and launched ghost kitchens in Toronto and Calgary (in partnership with REEF, no upfront cost to us)."
They essentially limited liability on opening a restaurant, crowdsourced investors who bought into the sympathy scheme and then continue to write about how unsustainable it is running this sort of business.
I still don't get it. Are these articles just an excuse, to mitigate liability and risk to the investors and saying "Hey guys, thanks for believing me in - but today's market circumstances are x,y,z - no profit but thanks for the money!"
Then with the conclusion:
"But I can’t do it alone. We have to do it together as an industry. And we need you, our guests. I ask for your help."
Why? This is the same mantra that /r/WSB has been sprouting about pubic companies, privatize profits, publicize debt and liability.
While it goes on to blame customers - a business itself survives on customers.
Restaurants aren't a right or a guarantee. Customers vote with their money and social media reviews. Owning a business isn't a right or guarantee to make a profit or living.
All in all, learning to cook for yourself is simply the best. Fast food, restaurants and related food companies really do seem overleverged right now in terms of the debt they've taken on for the profit potential. High risk and low reward,
But here's the kicker, the same author also wrote this just right after publishing "Why Restaurants are fucked."
https://joelleparenteau.medium.com/why-restaurants-are-not-f...
lol back and forth.
"COVID-19 was a wake up call. A catalyst for change. We were caught in a vicious cycle. Now our day of reckoning has arrived. And I, for one, am optimistic we can come back stronger than ever.
Besides low margins, there’s another critical issue we ignored for far too long: the restaurant industry is over-saturated. And too many restaurants cause hyper-competition and undercutting — triggering the race to the bottom. "