Is San Francisco killing its restaurants?
Recent labor mandates cut dangerously close to the heart of their businesses, say many of San Francisco's most respected restaurateurs, and some are seriously questioning how much longer they can afford to cook here. Could this be the beginning of the end for one of the world’s great dining cities?
Jan Newberry
Back in 1998, Craig Stoll was working on the line at Oliveto, making $10 an hour and picking up some consulting gigs on the side. He’d been cooking for 18 years by that point, working in kitchens since he was 15—and like a lot of cooks, he’d always wanted a place of his own. One day, his friend Sam Mogannam, the owner of Bi-Rite Market, showed Stoll and his wife, Anne, a space on 18th Street. On a napkin taped to the window, someone had scrawled, “Restaurant for sale.”
That was more than eight years ago, and today the Stolls’s Italian-influenced restaurant, Delfina, is among the most popular in the city—and enjoys a huge national reputation as well. (Smart tourists book their table before they buy their plane tickets.) Reservationists at Delfina recommend that you call four weeks in advance to eat there on a weeknight; for a Saturday night, the wait is six weeks. In 2005, the Stolls opened a pizzeria next door, where you can stand in line for an hour or more for a chance to enjoy some of the best pizzas outside of Naples.
The Stolls’s story is a familiar one in this city, where a cook or waitress with little more than that classic recipe of ambition, talent, and luck can turn a vacancy sign into a success story. Charles Phan could tell a similar tale about finding a space on Valencia Street, cajoling a few family members to help out in the kitchen, and growing a neighborhood Vietnamese joint, the Slanted Door, into one of the best-known restaurants in the country.
Elisabeth Prueitt and Chad Robertson used to sell bread and pastries off a truck at the Berkeley Farmers’ Market; today their Tartine Bakery is a local institution. The two shared a James Beard nomination for Outstanding Pastry Chef this past spring, and their Bar Tartine on Valencia Street is one of the liveliest spots in the city. Ask Shelley Lindgren about her years of waiting tables before teaming up with Victoria Libin and Christophe Hille to open A16, which focuses on food from southern Italy, three years ago. Or talk to Mike and Lindsay Tusk about how they came to be the owners of the highly regarded French-Italian Quince in Pacific Heights. The accounts are much the same.
But stories like these haven’t been heard so often these last couple of years. Opening a restaurant in San Francisco is becoming prohibitively expensive, and it’s tougher than ever for untested talent to strike out on its own. Even well-established chefs are beginning to question their future here. A widening rift between city hall and the local restaurant community has pitted two of San Francisco’s most cherished institutions—its culinary soul and its social conscience—against each other, and more and more restaurateurs are feeling like they’re losing the battle.
“We’ve been hit by a trifecta,” says Kevin Westlye, executive director of the Golden Gate Restaurant Association, a trade group that represents the industry. He’s referring to a trio of initiatives put forth by the San Francisco Board of Supervisors and endorsed by voters over the past
three years: a minimum wage hike that went into effect in 2004, the mandatory paid sick leave bill approved on the ballot in the 2006 election, and the widely praised San Francisco Health Care Security Ordinance endorsed by Mayor Newsom and passed unanimously by the supervisors a year ago.
You’ll search a long time in this city before finding a restaurant owner who claims to be against a living wage or a more equitable health-care system. The fact is, cooks have migrated to San Francisco not only to work in some of the best restaurants in the world, but also to live in a place that shares their progressive ideals. The city that champions gay rights and banned Styrofoam and plastic bags has been a natural home for the restaurants that turned organic produce and humanely raised meats into a regional cuisine. Cooks learn quickly that a pro-labor attitude comes as naturally to most people here as composting kitchen scraps, and that our Board of Supervisors, among the most progressive in the nation, isn’t particularly sensitive to “downtown business interests,” a label it uses to describe just about any concern that isn’t a nonprofit. As David Gingrass, a co-owner of Two, puts it, “Getting people in San Francisco to vote against labor is like getting people in the Bible Belt to vote for abortion rights. It’s just not going to happen.”
The problem, say restaurateurs, is that the new laws put an unfair burden on small businesses—the costs are staggering, says Westlye—and may in fact hurt the very people they were designed to help. While no one is predicting a wholesale slaughter of the restaurant industry, the owners insist the stakes are high. The changes are already being felt on a small scale, as restaurants shrink in size and number and menu prices creep up. But down the road, people fear, many restaurant owners will pack up their knives and head for more business-friendly pastures, and fewer of the type of innovative, independently run restaurants that best define San Francisco’s culinary culture—like Delfina, the Slanted Door, and A16—will be able to afford to open here in the first place.
Already, the city is feeling the loss. Russell Moore, who has cooked at Chez Panisse for 20 years, looked at spaces in the city for more than three years before ultimately deciding to build his new restaurant, Camino, in Oakland. Kiri Eschelle, principal of Levende Lounge in the Mission district, has cited rising labor costs as the main reason she and her partners won’t be looking to develop future projects in the city. Doug Washington, a co-owner of Town Hall and Salt House, says that while he and his partners might consider a casual, takeout business in San Francisco, there’s “no way in hell” they would open another fine-dining restaurant under current conditions. And there are those like Nick Peyton, who, after a long career as a restaurateur in the city, decided to open his four-star Cyrus in Healdsburg. These days Peyton says, “I’m a lucky man not to own a restaurant in
San Francisco.”
Restaurants in this city do a whole lot more than provide a diversion for those who love to eat. They’re also the largest private-sector employer, supplying more than 30,000 jobs, and in 2006 they contributed $255 million to the municipal coffers in sales tax revenues. That’s enough to fund the fire department’s entire budget. In tangible ways, the fate of the city is tied to the fate of its restaurant business.
Despite the strong economy, the industry is already starting to show signs of strain. “It’s like global warming,” says Westlye. “We won’t know what we should have done until it’s too late.
At a public hearing of the Board of Supervisors’ Budget and Finance Committee in July 2006, speaker after speaker came to the railing to praise the supervisors for their work on the San Francisco Health Care Security Ordinance. A man with HIV said that the new bill would mean he could afford the medicine he needs to stay healthy. A kindergarten teacher told of her student who missed class when her uninsured mother was too sick to drive her to school. The mother, the teacher recounted, died soon after from the lack of affordable health care. Next up was Ken Zankel, owner of the Grove restaurants in the Marina and Pacific Heights. He spent the 60 seconds allotted each speaker to explain how the cost of this initiative would prevent restaurateurs from opening new businesses in our city. “Mario Batali is not coming here,” he told the supervisors. The story didn’t elicit much sympathy compared with the others told that day.
Restaurateurs feel the awkwardness, too. “It doesn’t sound good, does it?” says Traci Des Jardins, executive chef and co-owner of Jardinière, Acme Chophouse, and Mijita. And despite their frustration with city hall, they’ve been reluctant to plead their case to their customers. Restaurant owners are in the business of making people feel good. They want diners to have a nice meal and forget about their troubles for a few hours, not to engage in a political dispute. “We hate to sound like we’re whining,” says Stoll, and so the issues have gone largely undebated among the public.
One bit of news that did make the papers was the possibility of a day-long strike. The suggestion was made at one of several meetings held over the past few months where restaurant owners have gathered to discuss ways of handling the increased costs. For the time being, the strike has been tabled.
These costs cut much closer to the bone than you might expect. When a diner makes a reservation weeks in advance to eat at a restaurant where a plate of pasta goes for $16 and a bowl of rice pudding costs $8, it’s easy to get the impression that the owners are raking it in. Stoll has been on the cover of Food & Wine, and just last spring he was nominated for a James Beard Award for the second time. He’s a celebrity much like Des Jardins and Phan, and most people assume celebrity equals wealth. But in the food world, that’s not always the case.
“We’re just so happy to be middle-class and
not living paycheck to paycheck anymore,” says Stoll. “When we opened Delfina, we were living with roommates, and there were nights we slept on the banquettes. Now we have a kid, we bought a house three years ago, and we’d like to retire someday. We’ve worked so fucking hard for this, and now it seems like they want to take it all away.”
Stoll is only slightly exaggerating. He estimates that the new health-care costs will hit him to the tune of $92,400 a year. That’s about half of what he and Anne take home from the restaurant annually. But consider that as two of the most successful and hardworking restaurateurs in town, they could close Delfina (eliminating more than 75 jobs in the process) and each go to work at a hotel or corporate restaurant where their salaries would easily equal what they earn now, and they wouldn’t be required to contribute a dime to the city’s health-care fund.
It’s this health-care ordinance, say many restaurant owners, that promises to deliver the hardest blow yet to their bottom line. The law created the Healthy San Francisco program, which has attracted the attention of politicians and policymakers around the country as a local experiment in providing universal access to health care. Michael Moore, director of the new documentary Sicko, stopped by to praise Newsom for pushing it through.
The clinic-based aspect of the program rolled out July 2 with just a few hundred patients in Chinatown, but the plan will be open to all uninsured residents by January. And in April, all businesses with 20 or more employees will be required to pay a minimum amount for health benefits for every employee who works more than 10 hours a week. Employers who provide private insurance at a lower rate than that mandated by the legislation will either have to spend the difference on additional health-care services for their employees or pay that amount directly to the city, which will use the funds to pay for the access program for the uninsured.
A business owner like Mark Pastore, of Incanto, who already pays close to $30,000 annually for health insurance for his full-time employees, will owe an estimated additional $25,000 to meet the mandated minimum for all his employees. And that, say Pastore and a lot of other restaurant owners in similar straits, is awfully close to the difference between making a profit and packing up the pots and pans.
Last November, the GGRA filed suit against the city regarding the initiative’s Employer Spending Requirement. The group contends that the Federal Employee Retirement Income Security Act, which restricts local governments from administering employee benefits, supersedes the city’s program. And in a move that surely makes many of the city’s liberal-minded restaurateurs cringe, their case draws on a strategy parallel to one used by the mother of all antilabor companies, Wal-Mart Stores, in a successful battle against a Maryland law.
“I hate suing against this,” says Westlye, who spoke at 18 public hearings against the ordinance. “We strongly
support health care for all San Franciscans,” he told the members of the Budget and Finance Committee. “It’s just the funding mechanism we object to.”
As an alternative to the city’s plan, the GGRA proposed hiking the local sales tax by a quarter of a cent, which would bring it to 8.75 percent, the same amount that Oakland residents pay. Since everyone, not just business owners, pays sales tax, it would be a more equitable way to fund the health-care plan, and it would bring about $40 million to the city coffers, says Westlye. But not even our progressive supervisors like to vote for tax hikes, so they opted to hold the employers responsible for the costs instead.
The new legislation comes at a time when restaurant owners are still struggling with the costs of Proposition L. Passed by voters in 2004, it gave the city the second-highest minimum wage in the country. Currently $9.14 an hour, it’s adjusted every year in accordance with the consumer price index. Labor leaders and the Board of Supervisors, led by Matt Gonzalez at that time, hailed the new rate as a boon for low-wage workers in all industries. But restaurant owners insist that in their case the bill is sorely misguided and in effect takes money from the very workers who need it the most.
At many midsize restaurants, the only employees earning minimum wage are the servers. The market rate for dishwashers, bussers, and cooks runs between $10 and $13 an hour. But because waiters pocket the tips, they rank among the highest-earning workers in the industry, making anywhere from $25 to $30 an hour at a modestly successful restaurant. Al Petri of Alfred’s Steakhouse, a popular spot for the tourist and convention crowd, recently told a room of restaurant owners that his servers can make as much as $60 an hour.
So while waiters get annual raises and see their tips increase as menu prices go up to cover the cost of those raises, wages for dishwashers, bussers, and cooks have remained fairly stagnant. This growing disparity between the front and the back of the house is a source of enormous tension in restaurants and one of the principal complaints of owners. Cooks and other kitchen workers, who are more likely to be minorities, are not pleased with these misguided attempts to better their situation. Shuna Lydon, a pastry chef who’s worked in many San Francisco restaurants over the past 15 years, including LuLu, Aziza, and Citizen Cake, says, “The supervisors and labor leaders who say they’re on my side are sorely mistaken.”
Even some workers who’ve benefited from the wage increase feel it’s unfair. “Everyone knows that waiters make a killing at these midrange restaurants,” says Rose Gray, who waited tables from 2003 to 2007 in San Francisco, at Absinthe and later at Delfina, before moving to Los Angeles earlier this year. “It’s ludicrous that we’ve earned such a high minimum wage in addition to our tips [up to $300 on a good night at Delfina, according to Stoll], while the kitchen staff barely gets by.”
Restaurant owners
say that a tip credit would go a long way toward helping them address some of these inequities. A provision allowed in 43 other states, a tip credit lets employers count gratuities as a portion of a tipped employee’s wages, rather than as something he or she receives on top of a base salary. Under a tip credit, tipped employees in other states receive $2.90 an hour in wages, instead of the higher rate mandated by the government.
Supervisor Tom Ammiano, who didn’t respond to requests for a phone interview, expressed his concern in an e-mail that a tip credit would hurt the majority of tipped workers who can’t rely on having a busy shift and end up taking home little over their hourly wages. “We all know no San Franciscan could live on $2.90 an hour,” says Ammiano.
Westlye says that’s one point on which he agrees with Ammiano. “$2.90 is an unreasonable wage for a worker in a city as expensive as this.” Instead, the GGRA proposed that tipped employees receive the state minimum wage of $7.50 an hour, in addition to their tips.
But the idea of a tip credit has never gotten very far in California, where labor unions are strong. And last August, when the U.S. Senate voted on a Republican-sponsored federal minimum-wage law, which would have permitted a cap on the minimum wage for tipped workers in the seven states that don’t have tip credits, its fate was the same. Senator Barbara Boxer said, “Only this Republican Congress could figure out how to turn a minimum wage increase into a pay cut,” and the bill was defeated. Our Board of Supervisors responded by approving an emergency resolution decrying any effort to limit the pay of any minimum wage worker in the city, regardless of how much money they actually make.
The restaurant owners weren’t any happier when Proposition F passed in the November 2006 election. That was when San Francisco became the first city in the country to require all businesses to offer paid sick leave to their employees. Though it felt like one more blow at a time when costs were already becoming unmanageable, the GGRA knew better than to campaign against it. “To be honest, if we fight it, we look like complete jerks,” Dan Scherotter, owner of Palio D’Asti and vice president of the association, told an interviewer on the American Public Media radio program Marketplace.
As they struggle to absorb the costs of the minimum wage and sick-pay legislation, owners say the cost of the health-care program is effectively eliminating a large chunk of their profits, along with their incentive to stay in business. According to Bill Berkowitz, who owns Max’s Opera Cafe near the Civic Center, as well as two other restaurants in the city, says the new health-care costs threaten to take his profit margin from 3 percent to -4 percent. “We just won’t do business here anymore,” he told the Budget and Finance Committee.
At Town Hall, Washington puts the cost at close to $210,000. “That represents about half our profit, before we pay out to our investors,” he says.
“We’re
not some big corporation, just a mom-and-pop restaurant,” says Stoll. “Is Tom Ammiano going to give up a piece of his salary? That’s why I feel this is personal.” (For the record, the supervisor will take home $95,875 this year.)
Along with Stoll, Westlye, Scherotter, Pastore, and other restaurant owners have become familiar faces at city hall over the course of the past three years, as they’ve stated their case at public hearings. But little affection has developed between the supervisors and the restaurateurs. Ammiano, who supported all three bills, has likened the restaurant owners’ protests to a “tantrum.” Earlier this year, Ammiano was escorted out of a Valencia Street restaurant when the owners there refused to serve him.
For restaurateurs, the supervisor’s more-progressive-than-thou attitude is difficult to take. “For years I was a cook who rode a motorcycle, read the Bay Guardian, and got stoned at concerts,” says Stoll. “Now I own a business and employ people and suddenly I’m the man?”
Pastore agrees. “What burns us restaurateurs,” he says, “is that we work shoulder to shoulder with our employees 16 hours a day. We care deeply about issues like wages and health care, but instead of being asked to contribute to the solution, we’ve been made scapegoats for a political agenda.”
Despite the financial hit they’re taking, most restaurant owners aren’t quite ready to move out of town, so instead they keep crunching the numbers and looking for creative ways to keep expenses down. Raising prices is not a solution that many of them turn to easily, since they worry about alienating diners if the cost of a meal rises too high. The strategy can also backfire. “When prices go up, people order less, so it doesn’t always translate into profits,” says Stoll.
But Two’s David Gingrass says he’s no longer going to be shy about how much he charges. Before opening Two, he held a series of private dinners at his former restaurant, Hawthorne Lane. “I polled diners about these very issues, and what I heard was that people here are in favor of these progressive labor laws and that they expect to pay for them through increased menu prices.”
So he scrapped costly ingredients like foie gras and caviar in favor of a menu that features marrow bones, fried potato skins, and pizzas. “I’m looking to offer good value to my customers, but at the end of the day, I need to go home with money in my pocket. Otherwise, why bother? I’m sick of beating my head against the wall,” he says.
In the new economic reality of running a restaurant in San Francisco, less definitely equals more. At A16, Victoria Libin, who handles the financial end of the business, says she’s constantly pitting one vendor against another as she haggles for the lowest prices. “The only costs we refuse to compromise are for ingredients and the quality of people that we hire and the benefits we offer them. Everything else is negotiable.”
The business plan for her new restaurant, S.P.Q.R.,
which is opening soon, is being laid out with a keen eye on the numbers. It will have no tablecloths, says Libin, and no reservations either. “Holding a table open while waiting for a party to show costs money,” she says, and isn’t practical at the type of small restaurant she’s got in the works.
Libin predicts that in the future there will be fewer fresh flower arrangements, and those waiting too long for a table or served a dish that arrives lukewarm instead of hot will be less likely to be offered a free drink or dessert. In a time of razor-thin margins, business owners will look to shave costs however they can. Stoll used to set a dish of olives down on every table. Now he charges $4 for a larger portion than he used to give away. That’s saved him roughly $6,700 a year.
Dennis Leary, who has just eight people on the payroll at his popular 20-seat restaurant, Canteen, says that as he looks to new projects, he’s most interested in those that will require fewer than 20 employees so that he won’t have to contribute to the health-care fund. Though Leary, who was once the executive chef at Rubicon, would very likely be successful with a large fine-dining restaurant, labor costs make it more profitable for him to employ fewer people.
Others say that because of the new charges they’ve had to eliminate some non-mandated benefits. Des Jardins used to pay for English classes for her Spanish-speaking employees at Jardinière. She’s had to cut them to afford the new labor costs. At Foreign Cinema, Gayle Pirie and John Clark say they may no longer be able to offer bonuses to their kitchen staff.
Some are taking a more direct approach to increase revenue. After the minimum wage increase in 2004, Pastore added a note to the bottom of the menu stating that a 5 percent service charge would be added to the bill. Unlike tips, a service charge is collected by the house, and an owner may use it as he or she sees fit. Pastore deliberately set the percentage low so that diners could deduct it from the amount of the tip. The money collected from the charge is used to pay the entire health-care premium for his full-time staff. At Coi, chef-owner Daniel Patterson has gone even further and added 18 percent to every check, which he divides among the entire staff. Any additional tip is the property of the waiter.
Though Pastore insists that no amount of legislation will drive restaurants out of this city, he does worry about a long-term restructuring of the industry that some say has already begun. When the market takes a dip, as it inevitably will, there could be a bloodbath.
Imagine a worst-case scenario in which Stoll packs up his pasta pots and moves his restaurant to Portland, and an Olive Garden takes over his lease on 18th Street. Those who’ve grown fond of his grilled calamari with white beans would surely mourn that day, but one could argue that Delfina would be replaced by a risk-averse corporate business that provides jobs and can afford city labor initiatives. If this seems like a viable solution, though,
consider that profits from chains are shipped home to headquarters (in this case Orlando, Florida) and don’t funnel back into the community the way they do when a business is locally owned.
Ultimately we have to ask ourselves what’s at stake when a city like San Francisco turns its back on its restaurants. The question may not be as poignant as the one of how we care for our sick, but the two are tied to each other in important ways, and some of these new mandates have strained that connection. Surely the workers the supervisors say they’re protecting will lose jobs and benefits as the cost of these mandates puts restaurants out of business. And their health-care program will find itself losing funds just as it’s hit with a surge of newly uninsured clients arriving at its clinics. Tourism, the city’s biggest source of income, will take it in the gut as well. The farmers, winemakers, and purveyors who live outside the city and depend on the restaurants here for their livelihood have an investment in this, too, as does anyone who’s ever slurped down an oyster at the zinc bar at Zuni or stopped by Bix for a martini after work and ended up staying for the steak tartare. Restaurants are vital to San Francisco, as much to its heart as to its stomach, and if we ignore their needs, we stand to lose so much more than dinner.
Jan Newberry is San Francisco’s food and wine editor.
