While new restaurants have further solidified the Bay Area as a foodie destination in recent years, many others have succumbed to a perfect storm of economic challenges that shows no sign of abating.
Upward of 60 restaurants around the Bay Area have closed since the start of September alone, with many citing difficulties like the cost of finding and keeping good employees, rising rents, new requirements for providing health care and sick leave, and doing it all while competing with the slew of new dining options.
The restaurant industry has always been among the most competitive and challenging to navigate, and failures are nothing new, but the current struggles have left some wondering if the traditional dining model might be headed for an overhaul.
“We’re at this precipice where the model of the full-service restaurant is being pushed to the brink,” said Gwyneth Borden, executive director of the Golden Gate Restaurant Association.
Sal Bednarz, who has owned Oakland’s Actual Cafe for seven years, shut the doors there and at his adjacent Victory Burger restaurant in late December after his struggle to find and keep good employees became “critically bad” in the past two years.
Cafe Rouge, a Berkeley fixture for 20 years, closed Dec. 30, also citing the difficulty of staffing the place. Long-lived eateries like Genova Delicatessen in Oakland, San Jose’s Bold Knight and San Francisco’s Kuleto’s shut down. Pasta Pomodoro, a Bay Area-grown chain, closed all 15 of its remaining restaurants in the region and filed for bankruptcy Dec. 30. Popular Oakland restaurant Hawker Fare announced it will close Feb. 18 due to a change of building ownership.
In an industry where profit margins are slim, making it hard to raise wages or invest in recruitment tools, Bednarz explained, “we have little leverage” when it comes to hiring.
Decades-low unemployment across the Bay Area — 4 percent in the East Bay and 3.5 percent in the South Bay — means that restaurant workers can enter other industries or move to other restaurants. Bednarz said candidates often have not showed up for job interviews.
And the high cost of living here is driving many workers in restaurants and retail (typically lower-wage positions) to other cities and states.
AlaMar, a restaurant that opened on Oakland’s Grand Avenue in 2014, closed temporarily at the end of December to retool its concept from a full-service restaurant with servers tending to tables, to a quick-service model where people order at the counter. It’s a less labor-intensive model, which owners Nelson and May German are using to combat the challenges of hiring and paying staff.
May German said she hopes the new model will also increase the volume of business at the restaurant. Instead of relying on tables to turn over quickly and seat new customers, food comes out more quickly in the quick-service model, allowing the restaurant to serve more customers.
Even fine-dining chefs are exploring the fast-casual concept, as San Francisco chef and restaurateur Daniel Patterson did when he opened up Locol in Oakland with chef Roy Choi. San Francisco restaurant Little Gem has managed a hybrid: counter service during breakfast and lunch and full table service at dinner.
While local and state-mandated minimum wages have risen via legislation in recent years, the so-called labor shortage itself is driving up costs as well, said Borden of the Golden Gate Restaurant Association.
But in one of the country’s most competitive restaurant markets, restaurants do not want to risk shorting customers on good service, particularly because labor is not the only challenge for restaurants.
Both Bednarz and German said the drastic increases in the cost of living in Oakland have put pressure on customers. They had heard from customers who were dining out less to manage their budgets as rents and other costs have risen.
At the same time, restaurant rents have increased. And higher wages mean higher payroll taxes, which are usually taken as a percentage of what employers pay their staff, and higher workers-compensation insurance premiums.
San Jose’s De La Cruz Deli, the last remaining location of a long-lived family of 12 delis, is slated to shut its doors in April after a 41-year run. Randy Nelson, who opened the first of the De La Cruz delis in 1974, said the costs of doing business are tougher than ever. He’s facing a 50 percent rent increase on the deli space when his lease is up, and a San Jose minimum wage ordinance will drive his labor costs up 45 percent in the next several years. Nelson, 73, will close or sell the deli and retire.
Jeffrey Stout, restaurant industry veteran and the chef-owner of Orchard City Kitchen in Campbell, said it’s frustrating to see mandated minimum wage increases without tipped minimum wages, a practice in many states (but not in California) in which tips can be credited toward meeting the minimum wage.
Restaurateurs say they are competing not just with other restaurants — for both staff and customers — but with corporate cafeterias that provide free or discounted meals to employees, drugstores that offer convenient prepackaged fare and grocery stores that host large prepared food sections or cafes inside their stores.
According to the National Restaurant Association’s Restaurant Performance Index, just 30 percent of restaurant operators reported a same-store sales increase between August 2015 and August 2016, while 53 percent reported a sales decline.
Nicole Harnett, a vice president of the International Culinary Center’s campus in Campbell, said she has seen a rise in demand for culinary talent from corporate campuses in Silicon Valley that have only been growing their kitchens. They also often pay competitively and offer full benefits and daytime hours.
South Bay chef-entrepreneur Jim Stump, who owns successful full-service restaurants (The Table and Forthright) but has just closed his burger-hot dog eatery, Stumpy’s, echoed the Silicon Valley concern.
“It’s a challenging time,” he said. “There aren’t any more cooks. The tech industry has taken them.”
The Golden Gate Restaurant Association and other industry groups are working to offer training programs to help put more qualified workers into the pipeline of candidates. But there is also a need to educate customers about the true cost of operating a restaurant, Borden said, emphasizing that it is hard for restaurants to absorb the costs of labor and other things when diners are not willing to pay more.
Until then, she said, communities in the Bay Area and beyond will continue to see changes in restaurant models designed to manage costs — smaller menus and features like electronic ordering. Some restaurants have experimented with posting surcharges on menus, or eliminating tips in favor of service charges they can spread around employees in an effort to keep kitchen staff paid as well as tipped servers and bartenders.
Staff editor Linda Zavoral contributed reporting