San Francisco Chronicle - (Sunday)
Rising wages, rents threaten to curb growth of restaurants
It’s hard to have a conversation with San Francisco restaurateurs that doesn’t circle around the problems the industry faces: Rising minimum wages that, while necessary, push menu prices up beyond diners’ comfort levels. Rents zooming northward. The difficulty of finding and retaining staff.
These challenges may all be valid, yet sales tax revenue data now available from the San Francisco controller’s office offer a counter-narrative. While the city’s retail sector has seen sales drop 10 percent from 2013 to 2017, in inflation-adjusted dollars, the restaurant and hotel industry has experienced 18 percent growth. The figures show that restaurants have particularly benefited from San Francisco’s flourishing economy, rising wages and record low unemployment.
Yet the same numbers also indicate a general
slowdown may be at hand.
In 2013, restaurants and hotels paid $43.4 million to the city in sales tax, 10 percent less than the consumer goods sector, which paid $47.8 million. By 2017, those industries had essentially swapped dominance: Retailers paid the city $45.3 million in sales tax, while restaurants and hotels paid $54.2 million (figures for 2018 will not be available until well into 2019).
What’s remarkable about this growth is that San Francisco businesses must pay minimum wages that are now double the national minimum wage ($7.25 an hour) as well as provide health care coverage, paid sick leave and family leave. Restaurants in other cities complain that adding even one of these benefits to their payroll would have disastrous consequences for the industry. This city offers proof that it may not.
A growing and increasingly wealthy San Francisco is clearly feeding the hospitality industry’s growth. According to a City Planning Department report released in early December, from 2016 to 2017, the population of San Francisco increased 1.1 percent, and the number of jobs, 1.6 percent. The average wage in San Francisco was $109,000 by 2017, up more than 4 percent from just the year before.
Why are those increases benefiting restaurants and not retail shops? “People don’t shop in brick-and-mortar stores every day, but they do eat every day,” said Gwyneth Borden, head of the Golden Gate Restaurant Association, who pointed out that tourism spending is up, too, which Travel San Francisco data confirm.
For many aspiring chefs and restaurant owners who have made a name for themselves through pedigree or pop-ups,
“They’ve pulled up the prices to cover that growth in operating costs, and not because there’s a growth in demand. They’re pricing as high as they can to stay in business and be profitable.” Helen Bean, director, Tenderloin Equitable Development Project
the city’s tech wealth has made it easier to secure the money to open a new restaurant. “Most people don’t realize the market of investors there are in San Francisco,” Borden said, noting the people interested in supporting the city’s world-famous dining culture.
Borden and many other industry watchers caution that sales growth does not necessarily translate to wealthier business owners. Helen Bean, director of the Tenderloin Equitable Development Project, says that the restaurants she works with, many of which are inexpensive, immigrant-owned places, have raised prices simply to compensate for the minimum wage, which increased from $10.55 an hour in 2013 to $14 in July 2017, and is currently $15.
“They’ve pulled up the prices to cover that growth in operating costs, and not because there’s a growth in demand,” Bean said. “They’re pricing as high as they can to stay in business and be profitable.”
The consumer goods industry faces some of the same economic pressures as restaurants — higher labor costs, higher rents — and yet brickand-mortar shops must compete with online merchants, limiting their ability to raise prices.
Nationally, retail is growing in terms of both employment and sales, albeit at a slow rate, said Joaquin Torres, director of the city’s Office of Economic and Workforce Development. “The retail growth you’re seeing is being driven by online sales,” he said.
“When we talk about retail sales growth between 2014 and 2016, non-store (online) retail accounted for 40 percent of that growth.”
Local entrepreneurs, as well as Torres, describe a San Francisco retail sector in the midst of rethinking how it does business. It must respond to customers who will go to brickand-mortar stores for experiences, not just goods. In early December, Mayor London Breed announced that she would ease permit requirements to give businesses more flexibility in how they operate — perhaps letting clothing stores sell coffee or host events.
Clement Street Merchants Association president Cynthia Huie says that sales tax revenue figures along one of the Richmond District’s major corridors may mirror citywide trends, but numbers are not the only story. “On Clement, we do appreciate that a lot of people do seem to want to shop local, or there’s still this sense of community,” she said. “Even though it looks like receipts are down, the feeling is that we’re appreciated.”
A closer, year-by-year look at San Francisco’s sales tax revenue sounds a warning. In 2016 and 2017, restaurant sales growth slowed, and the shrinking of retail sales increased.
According to the Golden Gate Restaurant Association’s Borden, fast-casual restaurants are doing much better than full-service restaurants, which have more staff and are harder hit by wage increases.
Restaurant owners are telling her, too, that when they raise menu prices, customers compensate by ordering less food and wine.
The rising popularity of delivery services such as Caviar and Postmates offer a mixed benefit as well: increasing sales, perhaps, but at a cost. “Delivery is massively cutting into people’s traffic,” she added.
Delivery companies take a cut of each order, she said, and restaurant staffers don’t have the opportunity to persuade diners to buy more.
“For business, you’re really looking at profitability,” Huie said. Great sales just can’t compensate for high overhead costs. “What I do hear from my restaurants and shops, everybody doing business, is that it’s just harder.”