Comment by u801e | Hacker News Reader

Comment by u801e | Hacker News Reader

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According to this source[1], the labor cost for a restaurant is 20% to 30% of gross revenue. If a restaurant decided to double the pay for their employees, then their costs would go up by 50% (25% * 2). If they increase their prices by 50% and customers still provide them business, then they won't go under.

If for instance, a meal costs around $25 today, then they would have to increase the price to $37 (or a $12 increase). Looking at one regular dish I get at a chain restaurant, I've seen its price increase from $23 to $32 in in the last year. I still eat there about as frequently as I used to. Would I still get it if it was $34.50 assuming the same labor cost? I most likely still would.

On the other hand, if the restaurant decides not to increase pay and has trouble with staffing, along with increase wait times, errors in fulfilling the order, food not prepared well, then I most likely won't eat there as often, if at all.

[1] https://www.lightspeedhq.com/blog/labor-cost-guidelines-rest...

Restaurants are notorious for being among the most difficult small businesses to keep afloat. Unless you’re a big fast food franchisee, you were lucky to make it through COVID without going under. I can’t tell you how many local family-owned and operated restaurants disappeared in my area alone during COVID. At the same time, McDonald’s and Starbucks were busier than ever cranking out orders for Uber Eats.

The biggest cost for small restaurants is rent. During COVID all of their dine-in traffic disappeared. At the same time, they got zero breaks on their rent so they ended up paying out the nose and getting nothing for their money. They could’ve handled the same orders operating out of a cheap ghost kitchen in some warehouse district.

Even outside of the black swan that was COVID, running a restaurant is skating on thin ice. Most don’t make it and those who do tend to be high-end restaurants with longstanding wealthy clientele. These fancy places haven’t had any trouble at all hiring servers because the tips are very generous. But for mom and pop taco shop? That’s a tough one!

Extra fun in California is Prop 13 for businesses that basically caps their property tax at 1975 values thereby making any meaningful new competition impossible to establish at the same rates. This is why you see quite a few “old school” restaurants still around in the Bay Area while new places must charge much more for the exact same product, in the same market, possibly right next door: they’re paying a ton more in property tax.

Raising prices by 50% and expecting little-to-no dropoff in traffic is a blatant violation of the law of supply and demand (which has a very good track record). Perhaps you personally, with disposable income, or for your favorite restaurant, might not reduce your visitation, but the overall public certainly would.

That really depends on the make up of their customer base. Most people who decide to eat at restaurants have some disposable income. Those that don't would be eating at home anyway.

How many of those customers would switch to eating at home? If a single restaurant changed their prices like that, then they would certainly lose business, but if every restaurant in the area did it, then people would have to collectively change their eating habits. My guess is a lot of them may not.

Plus, the 50% increase doesn't happen all at once. It happens over a longer period of time, meaning that prices will gradually increase. That gradual increase won't drive customers away as much as a sudden price increase should.

Yeah, no. This is a non-starter. Restaurants have high price elasticity of demand - higher menu prices cause a significant fall in demand because there are alternatives to dining out (you can choose to eat at home for food, you can choose to see a movie for date night; even if you still decide to eat at the same restaurant after they jack up their prices, you can still make choices to lower your bill, such as not ordering drinks or appetizers).

Compare this to food you buy in the grocery store - you still need to buy food, even if food prices double overnight. You may buy less of it and pick cheaper brands, but your fundamental consumption habits will not change much.

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