Wages increase bites California’s eateries

Faced with escalating labor costs, restaurateur David Spatafore came up with what he was sure would be a money-saving idea: convert his barbecue eatery in Coronado, Calif., to counter service and let patrons place their own orders. Within three months of launching a service model commonplace in today’s fast casual chains, Spatafore ended the experiment. “Our customer base hated it because they were used to that personalized, full service,” said Spatafore, who owns 12 eating establishments, from an upscale steakhouse to an ice cream parlor. “What we found is that people were spending less money and buying fewer drinks, which all contribute to a restaurant’s ability to survive. We weren’t saving enough in labor to make up for those losses.” At the first of the year, Spatafore and other local restaurateurs had to start looking yet again at more cost-cutting measures as the minimum wage jumped to $12 in the city of San Diego and statewide for California companies employing 26 or more workers. In San Diego, where the minimum wage was raised 50 cents an hour, regular pay increases for low-wage workers across all industries have become the new normal in recent years, thanks to voter approval in 2016. But for restaurants, which tend to have a larger share of such workers compared with other businesses, operators say it isn’t getting any easier to absorb the steadily rising labor costs. In California, the most recent wage increase was the fifth since 2009 when the minimum wage rose from $8 to $9 an hour. In some cities, like San Francisco, the minimum wage is much higher, having reached $15 an hour in 2018. Dining venues have experimented with an assortment of strategies, from raising menu prices, adding surcharges to diners’ bills, restructuring management — and taking lower profits. Restaurateurs say they haven’t reached the tipping point yet, but as California’s mandated minimum wage approaches $15 an hour by 2022 for large employers, they foresee big changes, including more automation and more eateries where you can still satisfy your epicurean tastes but without servers. “If you’re going to be an affordable restaurant, you either have to sacrifice on ingredients or cut labor out of the equation,” said Mike Rosen, owner of the celebrity chef-helmed restaurant Juniper & Ivy in Little Italy and the rapidly expanding gourmet fried chicken concept, Crack Shack. “It’s not getting easier. But I’m still intrigued by concepts that take labor out of the equation. Juniper is supposed to be a full service fine-dining special occasion restaurant, while at Crack Shack we don’t run it with excess labor.” As much as legislation in the state of California, San Diego and other large cities has helped accelerate pay increases for low-paid service workers, restaurant operators acknowledge that in high-cost areas, the minimum wage falls far short of a living wage. In fact, many pay their workers more than the base wage as the labor pool in California has shrunk and competition in the restaurant industry has grown ever fiercer. Then again, the minimum wage job was never intended to be a job for life but a jumping-off point for career advancement, believes Jack in the Box franchisee owner David Beshay. “I feel for my employees. I started out as a production employee, working the grills and doing maintenance work so I know how my employees feel,” said Beshay, who owns 38 Jack in the Box stores in San Diego County. “The cost of living in San Diego has skyrocketed, and most of the increases they get are going to food and lodging and gas. “But I do feel like we’re underestimated in the fastfood industry because we provide some of the essential training in the workforce. Our workers leave with many skills they will need, in guest service, teamwork and multitasking.” At the Brigantine restaurant group, paying closer attention to how employees are deployed has been essential to helping cut costs, says company president Mike Morton Jr. So too have occasional menu price increases, although he says operators have to be wary of boosting prices to the point where customers will simply choose home-cooked meals over dining out. “We’ve deployed iPads in most of our restaurants so that servers can cover a larger section,” said Morton. “This way they’re putting the orders in as they’re taking them and don’t have to go back and forth to a computer in between. So maybe we can knock out a body per shift in the front of house.” Morton estimates that the higher minimum wage will take a bite out of the company’s bottom line profit, although not an unusually large one — about a quarter percent, he said. He estimates the added cost next year to be about $50,000 a month across the company’s 15 restaurants. While the kitchen staff at many San Diego restaurants typically earn more than the minimum wage, tipped workers do not because a sizable portion of their earnings come from tips. For Spatafore’s restaurants, which are full service, the added cost from the wage increase in 2019 could range from $10,000 to $25,000 per venue, he said.