Future of restaurants in SF (and beyond)

Via David Lebowitz on Facebook, I clicked on a Medium post by Richie Nakano on how San Francisco is killing its restaurants. Although focused on the restaurant scene in the Bay Area, many of his observations can be applied anywhere.

We’re trying to make things right and fix kitchen culture, and make things not toxic, and refocus our efforts into organics and sustainability and things like that, but the costs of actually doing the business aren’t gonna be making sense for a lot of restaurants anymore.

The quote above is one example. We see this struggle here as the minimum wage increases and diner's expectations for local/sustainable/etc. grow. He also talks about the food delivery business (GrubHub, Caviar) is often damaging to the participating restaurants. Sobering thoughts on the future of the restaurant biz.

Would love to hear your thoughts.

The GP wrote:He also talks about the food delivery business (GrubHub, Caviar) is often damaging to the participating restaurants. Sobering thoughts on the future of the restaurant biz.

When Louisa Chu and Monica Eng presented recently at Culinary Historians, the economics of these delivery businesses was highlighted. A $30 take-out order might have $10 profit for the restaurant. If a delivery service is used, this $10 goes to the service. The restaurant earns nothing.

How long could anyone keep that up?

Regards,
Cathy2

Cathy2 wrote:

The GP wrote:He also talks about the food delivery business (GrubHub, Caviar) is often damaging to the participating restaurants. Sobering thoughts on the future of the restaurant biz.

A $30 take-out order might have $10 profit for the restaurant. If a delivery service is used, this $10 goes to the service. The restaurant earns nothing.

I don't quite understand. Why would a restaurant participate if there were zero opportunity for it to profit or benefit at all? Yes, the restaurants give up something but they don't give up all of that $10 (the linked piece suggests 30% of the ticket, so $3.00). And clearly, they get something in return for what they're being charged, like extended geographical reach, a larger pool of potential customers and significant savings on payroll (and associated taxes), insurance and other expenses. Don't these benefits offset at least some portion of that 30% commission? Working with delivery services may be less than cash-neutral for some restaurants but I don't believe that their existence innately spells doom for the restaurants, either.

As for the rest of the piece linked above, not to minimize the issues but I'm not sure there's much new there:

Operating a profitable restaurant is extraordinarily difficult
Rents in SF (and other major cities) are high
Investors can be difficult to work with
Restaurants often misrepresent their commitments to organic, sustainable, seasonal, etc.
Chefs have difficult lives. They work very hard and make very little money
Customers are fickle
Social media sucks

Other than the last one, aren't these the same issues that the restaurant industry has been dealing with for the last couple of decades? In fact, the late Tony Bourdain (referenced in the piece) wrote about most of them in Kitchen Confidential, a portion of which originally appeared in The New Yorker in 1999, and was published in full in 2000. Theses issues are real and they're serious but they've been here for a while and they're here to stay. However, there are enough successful restaurants -- even in between fast-casual and high-end -- to surmise that while difficult, running a successful restaurant in the current climate is not impossible.

Personally, my culinary concern is about the rapidly diminishing availability of real, genuine food in our world. Foodstuffs that were readily available just a few short years ago are becoming harder and harder to find. And very little that is currently happening in our world appears to have much chance of reversing it. You want to complain about the brutish tactics of the billionaire financier who funded your restaurant's opening? Or about chefs "who just don’t give a fuck"? Or about why some 9-year-old kid has a cell phone? Fine. But at the end of the day, that's all back-burner bullshit, compared to the real, fairly dismal big picture.

=R=

Ah, Ronnie, they aren't talking about 30% of the $10 profit, but 30% of the $30 food ordered. Which, if I remember my math correctly, is $9. That leaves them with $1 profit.

Xexo wrote:Ah, Ronnie, they aren't talking about 30% of the $10 profit, but 30% of the $30 food ordered. Which, if I remember my math correctly, is $9. That leaves them with $1 profit.

Yep, you are correct (30% of a $30 ticket is $9, not $3). I accidentally conflated the two figures from Cathy's story and the linked article. But I still stand by my basic contention. Believe me, I'm no fan of grubhub, caviar and the like (I've ranted about them here, in fact) but it's reasonable to concede that they provide something in return for what they charge the restaurants, though I suppose it's arguable whether it's a value or not.

In any case, that's only a small portion of the linked piece, which essentially contends that the sky is falling hard, right now. I'm not saying it's not but whether it is or is not, nothing in the piece is much of a newsflash. And there are bigger and more fundamental problems facing the (culinary) world than the financial viability of hipster ramen in the Bay Area.

=R=

When I did Authentaco we went back and forth on delivery. I was for non, as the commission paid eliminated our slight profit margin. The owner was for it though and jumped in. We ended it a few months on as we felt the costs by far outweighed the advantages. I even suggested a 2nd menu priced 20% above for delivery only, something Grubhub wouldn't allow, so we were done. Equally onerous is Groupon (@ least for participants), which leads me to one of my restaurant 101's "Never mistake busy for profitable".

It still really depends on whether delivery has a parasitic effect on business or increases sales overall. Obviously nobody wants to lose money on a diner who prefers to stay at home over coming into the restaurant (where they'll likely order more), but if you're getting additional sales from delivery then the math is flawed. Your fixed costs remain fixed while your income grows.

Not being in the business I am not sure how these delivery services work. I have noticed that several restaurants that do provide their own delivery have indicated the benefits of ordering delivery from them rather than from the various services. If I order through Door Dash for instance I would assume that the establishment would have to allow this just as if I were picking it up myself. As I said I have no idea how these services work. Someone please enlighten me.
Thanks

I think that there are a lot of issues that are affecting sit-down restaurants these days besides delivery services.

First, the minimum wage increases has forced many restaurants to significantly increase their prices and that trend will continue for several more years. On one hand, the customer's ticket has increased but the expectation seems to be that we also tip the servers the same percentage as if their wages hadn't gone up.

Second, there are a lot of quick service places and even supermarkets that are serving great food options at a very reasonable price to the consumers. Why go to a restaurant when can head down to my local Mexican grocery and select from a steam table full of excellent, prepared in-house entrees and sides.

Third, other than a few meals that I have had in some very fine Asian restaurants in Phoenix and a couple fine dining experience, my wife seems to end each meal with "you could have done better than this at home." With the advent of many great food channels on YouTube, it is pretty easy to replicate those meals at home.

jlawrence01 wrote:Third, other than a few meals that I have had in some very fine Asian restaurants in Phoenix and a couple fine dining experience, my wife seems to end each meal with "you could have done better than this at home." With the advent of many great food channels on YouTube, it is pretty easy to replicate those meals at home.

My parents have the same sentiments as your wife.

If I want to eat out, I have do it with friends or via LTH.

Regards,
CAthy2

Marshall K wrote:Not being in the business I am not sure how these delivery services work. I have noticed that several restaurants that do provide their own delivery have indicated the benefits of ordering delivery from them rather than from the various services. If I order through Door Dash for instance I would assume that the establishment would have to allow this just as if I were picking it up myself. As I said I have no idea how these services work. Someone please enlighten me.
Thanks

Businesses that offer delivery through their website have some control over the process. The current controversy is over delivery services that will essentially offer delivery from any restaurant that offers carry out. They're essentially ordering food and picking it up for you - for a fee.

The controversial part of that is that the restaurants are effectively a third party. If your order is communicated inaccurately to them or if the food arrives cold/late, their reputation suffers even though they were unaware that there was a middleman in the transaction. There's a restaurant in Park Ridge, Holt's, that I've visited a few times - not bad. They do not offer delivery because it's not optimal for their food. They'll do take-out orders because the customer then assumes the risk (that the experience won't be the same at home). However, their menu now appears on delivery sites and they effectively lose control over their product and reputation the minute the order gets picked up.

My son recently dog-sat for us and order delivery from a nearby sushi spot. The order was wrong (delivery service ordered it wrong) and when he called to complain the restaurant said they do not offer delivery and they were very upset that their food was effectively being re-sold by a 3rd party. They apologized for the poor experience even though they fulfilled the order as placed and the delivery service did not offer any assistance.

You may want to listen to this podcast, because it touches on a lot of the financial and competitive dynamics of running a restaurant today. They are presently contracting with DoorDash who takes 31% commission from the total bill.

Chicago’s evolving restaurant scene: How can the cherished small guy survive?

Presented by Master Chef Michael Lachowicz
Owner, George Trois, Aboyer, Silencieux, in Winnetka

Regards,
Cathy2

Cathy2 wrote:They are presently contracting with DoorDash who takes 31% commission from the total bill.

I wonder how that compares to the added cost to serve the food in the restaurant.

Darren72 wrote:

Cathy2 wrote:They are presently contracting with DoorDash who takes 31% commission from the total bill.

I wonder how that compares to the added cost to serve the food in the restaurant.

Interesting question that might be hard for many small places to even calculate.

Obviously, each restaurant negotiates its own deal but fwiw, a friend tells me that his restaurant pays approximately 22% to their online delivery 'overlord.' So, still a chunk but not the 31% cited above. Not sure which service they use, though they have used a few different ones over the years.

=R=

Darren72 wrote:I wonder how that compares to the added cost to serve the food in the restaurant.

To have it delivered, you pay a premium, because they are adjusting prices up for home delivery.

Regards,
Cathy2