Why Restaurants Are So Fucked | Hacker News Reader

Why Restaurants Are So Fucked

joelleparenteau.medium.com

45 pointssimonebrunozzi42 comments

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"So, why are the margins so bad? Well, it starts with the fact that the industry as a whole shot itself in the foot by competing on price."

"This failure to manage expectations has simultaneously obliterated margins, all the while skewing and reinforcing our perception of what food should cost."

Wait, what? Thin margins are somehow a result of a "failure to manage expectations"? That almost makes it sound like the root of the problem is not enough price collusion among restaurant operators.

If there's a lot of competition, it's because the barriers to entry are relatively low, certainly lower than any of the other higher-margin examples given by the author. That's the boring truth, which is admittedly not nearly as gripping as the narrative that restaurants are victims of a "price war".

“If this pandemic has proven anything, it’s how essential those working in the food industry are.”

Really, I think it’s shown exactly the opposite of that, dramatically. Most people were very willing to forgo eating out when health was on the line.

Nevertheless, I do enjoy eating out, and I was glad when that started to become a good option again.

> Really, I think it’s shown exactly the opposite of that

Check the numbers, the stocks, the car lines. Pizza places have been doing gangbusters for most of the pandemic fervor. Chick Fila is crushing KFC everywhere they coexist.

Many restaurants have been hit hard, but the popular ones have only gotten more popular as many have exited the field. The idea that "restaurants are fucked" is clickbait for a silly notion.

Founder of https://www.waiterio.com which is a B2B SaaS that provides apps to manage restaurants. My perspective is that we should cut most of the 33% of the labor not by reducing salaries but by having more skilled staff but less staff.

The restaurants' industry is one of the most traditional and less tech innovating sectors. At https://www.waiterio.com we made self-ordering software with QR codes NINE YEARS AGO. That's right. Nine years ago we could have already said goodbye to waiters but the truth is few people wanted to use QR code and even fewer restaurants owners wanted to try it out.

We pivoted to POS software on a tablet because that obvious thing already felt like science fiction to most restaurants owners.

Now in 2022 with the pandemic few restaurants added QR codes but did you try to open them? Most of them are a .pdf on a website and many times the .pdf link is broken. We gave another try with the self-ordering and the QR codes: https://www.waiterio.com/en/restaurant-menu-with-qrcode/ hoping this time around is the right time. Yet very few restaurants ever try that feature.

QR codes for menus are inviting more online tracking. Additionally, a restaurant can spend a few cents to print menus instead of paying a provider to host it for them.

>COVID 19 is about to kill restaurants by the thousands.

Nah, governments are. In my experience clients don't care and are more than happy to keep giving money to restaurants and bars. It's government measures that will kill (or are killing) the restaurants.

This was an interesting read, but the aspect I am curious about (which was not discussed) is the Demand Curve [1], which describes how price and demand are related.

The example graphic from the article [2] indicates that a Doner costs $11 and produces $1 profit with a labour cost of $2.50.

If the business is priced to maximize profit, this seems to imply that if the price was raised to $12, the revenue would decrease by 1/2, which is surprising.

Also, if the labour cost is 250% of the profit, then it is surprising that decreasing hours of operation to reduce labour costs would not increase profit.

Does anyone have thoughts or references explaining this?

[1] https://www.investopedia.com/terms/d/demand-curve.asp

[2] https://miro.medium.com/max/700/1*BgXwk5MMwMxqgNGAIxtplA.png

> Also, if the labour cost is 250% of the profit, then it is surprising that decreasing hours of operation to reduce labour costs would not increase profit.

Labor IS one of the most expensive things in running a restaurant but decreasing hours of operation is a dangerous game to play. I've seen it play out where a business says "Mondays and Tuesdays are slow so we are going to close/close-early those days" or "If it's slow we will close early". This is slippery slope that most places don't seem to notice they are on at all or if they do it might be too late. You can lose a customer forever by having non-standard hours just 1 time (even more so if you don't update online to warn people). There are places I have loved that I don't even think about any more because I was burned more than one time by trying to go there when they said they would be open and them not being open. Similarly if I need food/baked-good/etc on a Monday and you are closed because Monday's are slow then I might have to just go elsewhere and I might decide to keep going elsewhere in the future if I like it or if only because I can count on them being open when they say they are/when I need them.

You do NOT want to have the reputation of "Great food but they have weird hours", that can disqualify you as a choice even if are currently open. Closing for a few days a week can sometimes work but you need to keep those hours and not deviate. Back when I worked in an office and we would talk about places for lunch you would regularly hear "Eh, the last time we tried, they were closed" or "I can't remember their hours, sometimes they close at odd times" followed by "lets try somewhere else". Right there you have lost out on 5-15 seats (again, even if you ARE open when those words are spoken) and you might never get them back.

"For reference, margins for banking, accounting, and legal services come in around 18–25%, healthcare 12-15%, and software 15–25%. Restaurants? 3–9%. Ya, like single digit."

"let’s reset our expectations and restore respectable margins. Let’s aim for 19%."

Let's just bump up our margins to industries where you have some mix of high barriers to entry, lots of regulation, and highly skilled white collar workforce. Right.

restaurant industry has been doomed for a reset for a long time now. An industry that relies on customers to tip and can't afford to pay their employees fair wages is not one that should be in business. Any other industry, if you can't pay employees you go out of business.

It's a function of cost of operating a business and the cost of living. With rising rents both in commercial spaces and housing, I would assume it's hard to pay a fair wage. Mom and Pop shops are affected but corporate restauranteurs can weather it.

This doesn’t necessarily refute your point about restaurants being fucked, but with tipping, aren’t customers paying the same either way? If I tip $5 on a $20 steak or pay $25 for a steak at a place where tipping isn’t allowed and waiters are paid directly doesn’t that equal out at the end of the day?

I get that the catch is that many people tip poorly, and so for many people prices would in fact functionally increase leading to different decision-making around how much “restaurant” they consume. But that doesn’t feel like enough to say it would be impossible. Plenty of non-American countries have vibrant restaurant culture without tipping.

Tipped employees are legally paid well below the federal minimum wage, as long as their tips make up the shortfall to average minimum wage over the pay period. In theory, if you don’t make minimum wage after tips, your employer is legally obligated to pay you the difference. However, wage and tip theft by employers is rampant, and not all employees which contribute to table service are tipped out by servers. I’ve heard of many employers blaming employees for not making enough in tips to meet the minimum wage, and hold it against them in terms of work performance.

It’s a really sad state of affairs. Tips aren’t the problem. Minimum wage not tracking productivity is a major issue. So is the minimum wage hierarchy where tipped employees are not paid a living wage to begin with, and tips are not going to solve wage or tip theft.

I have a couple of anecdotes here. I was paid $3/hour when the state's minimum wage was around $8/hour (NC, 2010 or so) and the employer did make up those hours where it was < $8/hour with tips, although that was exceedingly rare (generally why front-facing food service workers don't like opening shifts).

Many of my friends now are restaurant workers and all of them are paid state minimum wage. I don't know if it's just California that doesn't allow wages below minimum even for tipped employees, but it was interesting to see the difference because it's a real boon to their pay. If it had been like that when I was in food service, I would've made $5/hour more which is not insignificant at those levels.

> Tipped employees are legally paid well below the federal minimum wage

And there are other ways this plays out like in places that don't normally have tipping (counter sales) or rather their employees aren't classified as "tipped employees". I've seen more and more places adding a tip option to their POS (it's normally just a checkbox on the backend) and it's done to get away with paying a lower base rate (still well above the tiny tip wage which some around $3/hr IIRC, think $13-15/hr) and foist some of the employee's paycheck onto the customers through guilt.

Tipping, as I understand it, was/is supposed to be a way to show how someone went above and beyond. Nowadays it's just a 20% tax you have to pay on top of everything. It's a scam and I hate tipping even more when I'm not being waited on. I still do it because I know how this plays out (re: employees need/rely on those tips) but it always makes me mad to be asked to tip when someone just handed me something from the kitchen/case/etc. I'd much rather all prices go up by 20% instead of the business owner hiding behind guilt tipping so they can make prices look lower and get away with paying employees less.

I don't expect I'll ever see it in the US but I would love for tipping to go away completely.

Restaurants in western countries in general need a reset. In asian countries (even Japan), good food is cheap enough that you can just eat out every meal.

In US, everyone should be able to (and learn to) cook because of high food price (>$10 a dish, really?!?). Eating out every meal here costs a fortune.

Food is cheap in Asia because rice is cheap, there is no tipping, the weather is generally warm year-round and cities are dense (supporting outdoor food stalls).

Anyway, just buy yourself an electric pressure cooker - you can cook 95% of your meals at home easily and eat out for the other special occasions. It just takes additional planning to buy ingredients ahead of time in bulk, and freeze some of them.

Am I the only one to think that if a pressure cooker can cook 95% of your meals then you're a really boring eater?

I mean you can get 100% of your calorie need but you ain’t making sushi in an instant pot

Who has ever made sushi even with a full home kitchen? Cook and prep times have gone down from about 40 minutes on average to 5-10 minutes. Use that liberated time to find more interesting ingredients. With the saute mode and pressure cooking mode, about the only thing you can't do is bake stuff.

Yep and in Japanese culture, tipping is considered rude. In Taiwan, it is rude to not offer to pay first after a lengthy meal with friends or family and tipping is not commonly observed. In the US, some Chinese restaurants will force you to tip with threats of violence (my personal experience while dining with family in a Chinatown restaurant, in lower Manhattan.)

- Japanese culture's do's and don'ts: https://www.youtube.com/watch?v=c4rLtlx7o1Y

What's with the nerds' fascination with Japanese culture? And those do's and don'ts are either wrong or hopelessly outdated.

$2.50 labour cost per item seems exaggerated. If the worker gets ~$10 minimum wage, that means they are making just 4 sandwiches an hour?

Keep in mind the author is averaging all labor over al sales. So that would include bussing tables, a manager, etc. basically every employee in the store while the sandwich is being prepared is contributing to the $2.50 per sandwich labor cost.

plus the labor cost when the restaurant is empty are amortized into the actual doners ordered. The less popular your restaurant, the higher the unit labor costs.

Or five workers (cooks, porter, front line) making 20+ sandwiches per hour. Not to mention that employee costs are higher than their takeaway pay.

The biggest problem is the value provided by lots of 'so called' restaurants:

They are all doing sandwiches, burgers, or other low effort/value products and expect to have high price and high margin...

If the author is doing what's she describes, Doner sandwich, it is one of the fast food that is expected to be the cheapest. At least here in Europe.

Let's have her cook real and innovative food and then come back complaining about margins.

The great gutting of the middle class. It started with factories, then it was small business and restaurants. We continue to cut out ways regular people can prosper without getting a degree or joining the white collar corporate workforce.

I try to buy made in USA products, but in certain categories, even after going out of your way, it is difficult to find. I am selfish in that the place where I live and call home, I'd rather have the middle class earn a good living here than someone working in Bangladesh. No offense meant to the working class in Bangladesh, but I've become quite anti-globalist in last few years. It's not good for the environment, it's not good for local economy and it is not good for... me, to be blunt. I also try to support small biz over big corps since they're selfish themselves - they have no loyalty to the people they serve, they're all global corporations.

I wish Democrats, the party that I vote for, weren't so blood thirsty globalists.

I understand the insatiable thirst for profits but what saddens me is how people are okay with knowingly destroying the fabric of society for personal gain. Even worse, the average worker who unknowingly cheerleads for these policies without truly understanding how it undermines their and their children's futures.

Eh, this is a pretty weird take on restaurants.....

Going out to eat commonly (in the US) is something that is very modern. Anecdotally when I was a kid it was a once or twice a month thing, now you have people that commonly eat out a meal more then 7 times a week. In the 1950s eating out was around 1/4th of food spending where it is over 1/2 of the average households budget now. This has caused an explosion in the number of places to eat. That's a lot of competition, not only for the consumers, but the low wage staff they pay.

> COVID-19 is about to kill restaurants by the thousands.

Considering the number of human beings COVID-19 has actually--not metaphorically--killed, this strikes me as a poor choice of words.

It’s important to note that restaurants aren’t just competing with other restaurants, but also grocery stores. I wouldn’t expect revenue to increase consistently with menu prices, as people will justify eating out less and less.

I don't buy that the protein costs $2.50. Wholesale chicken is $1-2/lb so this Doner has over a pound of chicken? The calculation might make sense only if more than half their ingredients go to waste.

And $0.5 of sauce for a sandwich. What a joke.

live about 3 blocks from the Ottawa Wolfdown, defs a tasty meal. Too bad Ontario is back in lockdown. Maybe I'll swing by and grab one for a takeout lunch tmrw..

What did he mean garbage pickup is free at home? I've always paid for garbage pickup at home

Depends on where you live?

Do you know where they don't charge? I'd be curious to see how it works there, how they fund that garbage pick up.

Meanwhile restaurants are overpriced, the food is worse than cooking at home, and since the pandemic, the service is universally horrible.

(2020)

She wrote a new article this year (2021) that goes over why restaurants are still in such a mess.

https://joelleparenteau.medium.com/why-restaurants-are-so-fu...

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