Tag Archive for: Restaurants

California Restaurants Closing Fast — Communism Does Not Work!

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The Communist government operating out of Sacramento California is following the Hugo Chavez/Maduro playbook the former and current installed presidents of Communist controlled Venezuela.

My beautiful Venezuelan wife left Venezuela and was granted asylum in Colombia before relocating to the United States as a permanent legal resident.

She has watched her former country slowly succumb to the intentional collapse of its once thriving capitalist free market economy.

She commented to me that the Government of California and the current installed Marxist occupying the White House are no different in ideology than that of Maduro and Chavez.

She warns all freedom loving Americans to pay close attention to the unconstitutional Marxist actions of Governor Newson and his intentional destruction of free markets in California.

First the restaurants in Caracas Venezuela went out of business after government interference in the wages and Venezuelan labor market.

In Los Angeles and Beverly Hills like Caracas Venezuela restaurants are closing and laying off its workers. As 2023 ended and 2024 commenced the following restaurants went out of business.

West Third Street gastropub and wine bar 3rd Stop in Los Angeles closed its doors after 29 years in business.

The famous music venue Conga Room closed after 25 years in business in Los Angeles due to massive inflation and government interference in running its operation.

The famous restaurant El Torito’s in Santa Monica frequented by Hollywood movie stars closed permanently on March 9th 2024.

A popular daytime restaurant the Farm Of Beverly Hills closed on March 3 2024 after 26 years of business.

The Mezcal bar and taco cantina Mezcalero closed permanently on Broadway in Downtown Los Angeles in early March 2024.

Nic’s on Beverly a plant based restaurant closed permanently on March 31st due to massive inflation on the rent and the mandatory $20 an hour minimum wage unconstitutional mandated by Governor Newsom’s Marxist government.

The Culver City bar closed permanently on March 16 2024 after 18 years of operation due to razor thin operating costs created by Governor Newsom’s anti capitalist idealism.

Ten Seven rolls a Vietnamese eatery in San Gabriel California that served delicious food like chả giò, bánh xèo, rice rolls, and smoked brisket pho went out of business on March 17th 2024.

Western City Bagel in Redondo Beach California closed permanently on March 31st 2024 in order to protect itself from the $20 an hour minimum wage debacle. It was in business for 30 years.

All of the following restaurants have also permanently closed in response to the Marxist ideology of Governor Newsom.

Josiah Citrin’s West Hollywood location of restaurant Charcoal permanently on February 17th 2024.

All the restaurants inside Downtown’s historic Hotel Figueroa closed permanently in February 2024 including Bar Magnolia, Cafe Fig, the Cafeteria, La Casita at Driftwood, and Sparrow Italia.

For 45 years, Caffe Roma has been a go to place for Italian food and coffee in the Golden Triangle of Beverly Hills.

It was frequently patronized by Sylvester Stallone and Arnold Schwarzenegger. The restaurant announced its closure on January 1, 2024.

My friend, an immigrant from Germany moved to Venice California 30 years ago and he made his fortune there.

He walked around Beverly Hills yesterday April 2nd 2024 and he commented to me the town is slowly becoming an empty “For lease” town going bankrupt.

Beverly Hills Stores are closing and some entrepreneurs posted notices on doors and windows stating they have relocated to Nevada and Texas or they have permanently closed.

LA Eater’s Matthew Kang, Mona Holmes, and Rebecca Roland reported, “Los Angeles’s restaurants continue to face difficult headwinds that picked up in the second half of 2023 and led to an industry-wide slowdown. From the lingering impacts of the Hollywood strikes to adverse weather and increased costs (labor, rent, ingredients, etc.), a plethora of variables continue to batter restaurant owners who operate on razor-thin margins.”

Here is LA Eater’s running list of restaurant closures beginning from the last days of 2023 to March 2024.

March

3rd Stop – Beverly Grove

West Third Street gastropub and wine bar 3rd Stop told its workers this past Monday that it would be closing at the end of the month. Originally opened in 2006, the all-day restaurant served an array of American food, like grilled chicken nachos, burgers, pizza, and sandwiches.

Conga Room – Downtown LA

Legendary music venue Conga Room, which was instrumental in bringing Latin music acts and other performers to L.A. Live, closed after 25 years. The venue was originally located in Mid-Wilshire but moved to Downtown in 2008. Founder Brad Gluckstein told Billboard that inflation, high interest rates, and a drop in Convention Center traffic led to a changing business model. March 27 was the club’s final night.

El Muelle 8 – Downey

Celebrated Sinaloan seafood spot El Muelle 8 opened last February with pristine shellfish, ceviches, and tacos in a small Downey strip mall. The restaurant quietly closed earlier this year, likely in late January, without much notice. However, its new owners have reached out to Eater and confirmed that El Muelle 8 is plotting a comeback.

El Torito – Santa Monica

El Torito’s expansive restaurant in Santa Monica, which was originally branded as Acapulco and operated by Xperience Restaurant Group, closed on March 9, reports the Santa Monica Sun. Santa Monica mayor Phil Brock said on social media that it had been operating month-to-month for a while and that the property had likely been leased to another operator.

The Farm of Beverly Hills

Daytime eatery the Farm of Beverly Hills closed on March 3 after 26 years of business. Founder and owner Kelli Cotton thanked customers and bid farewell in a note, recognizing past and present staff for their dedication and passion. The reliable breakfast and lunch spot was a reasonably-priced, family-friendly eatery in the heart of the Golden Triangle.

Mezcalero – Downtown

Mezcal bar and taco cantina Mezcalero closed on Broadway in Downtown Los Angeles in early March, with a simple announcement that it would be closed for the weekend. However, Mezcalero never reopened and a note on its Instagram profile confirms it is closed. Originally opened in December 2016, the restaurant was opened by Jay Krymis, who also owned Padre in Long Beach and Fubar in West Hollywood, according to DTLA Weekly.

A lush outdoor patio at Nic’s on Beverly.

The patio of Nic’s on Beverly, a plant-based restaurant that closes March 31, 2024. Nic’s on Beverly

Nic’s – Beverly Grove

Plant-based restaurant Nic’s on Beverly opened five years ago in the former Terrine space from restaurateur Nic Adler, who also owns Monty’s Good Burger. Nic’s was going to close last June, blaming increased rent, but was able to make an arrangement with the landlord to stay open for another year. Its last day will be March 31 for Easter brunch.

Mandrake – Culver City

Culver City bar Mandrake closed on March 16 after 18 years of operation, according to the Los Angeles Times. Owners Flora Wiegmann, Drew Heitzler and Justin Beal cited life changes as the reason for closing, with Beal and Wiegman moving out of the state and Heitzler becoming a recent father. Mandrake represented the art scene in Culver City and greater Los Angeles, with a famous art curator coming up with the name for the bar.

Tenseven Rolls – San Gabriel

Tenseven Rolls, a bánh cuốn specialist inside Blossom Market Hall in San Gabriel, announced it would close on March 17. The Vietnamese snack spot also served chả giò, bánh xèo, rice rolls, and smoked brisket pho in the mostly Asian American vendor food hall in the heart of SGV. The stall originally opened in December 2022. The Klaude family said on Instagram that it hopes to appear at another venue in the future, with plans to serve at community events in the meantime.

Western City Bagel – Redondo Beach

Not to be confused with the much larger and still-in-operation Western Bagel, Western City Bagel in Redondo Beach announced that it will close on March 31 after 30 years. “While this chapter may be coming to a close, the memories we’ve shared and the connections we’ve made will forever remain close to our hearts,” the shop wrote on Instagram.

Bicyclette and Manzke – Pico Robertson

Manzke and its sister restaurant Bicyclette will close on March 1. Manzke opened in 2022 as a bastion for fine dining in the former Picca space serving a $225 10-course tasting menu and earning a Michelin star; Bicyclette transformed Sotto into a French bistro in 2021. With these latest closures, acclaimed chefs Walter and Margarita Manzke operate only one LA restaurant: the powerhouse République. Previously, the Manzkes closed Petty Cash Taquería after 10 years in October 2023, followed by the abrupt shutter of Sari Sari Store after seven years of business inside Grand Central Market in December 2023.

Banh Oui – Hollywood

Hollywood banh mi spot, Banh Oui, closed on February 13. The restaurant, which started as a pop-up, moved into the space in 2018. Over the years, it was known for its non-traditional takes on the Vietnamese sandwich, as well as its burger, fried chicken sandwich, and more.

Charcoal Sunset – West Hollywood

Josiah Citrin’s West Hollywood location of Charcoal suddenly closed on February 17 after less than a year in operation. Citrin attributed the closure to a rise in the costs of business in the neighborhood, and in a statement to Eater said that it was “a real bummer, to say the least.”

Flore – Silver Lake

Silver Lake’s 16-year-old plant-based restaurant Flore closed for good in late December and announced the closure via Instagram. Owner Miranda Megill opened the restaurant when Silver Lake’s was full of mostly independent businesses. After facing eviction from its original location in Sunset Junction in 2019, Megill moved the business into the shuttered Local space in 2020. Flore’s original location now houses mostly retail shops including clothing brand Maison Kitsune.

Hotel Figueroa (restaurants and bar) – Downtown

All the restaurants and bar inside Downtown’s historic Hotel Figueroa will close in February including Bar Magnolia, Cafe Fig, the Cafeteria, La Casita at Driftwood, and Sparrow Italia. The Los Angeles Times reported that Noble 33 (Casa Madera, Taco Madera), the third-party restaurant group that operates the hotel’s bar and restaurants, announced the closures in December, six days after its workers notified management that they intended to form a union.

Hyperion Public – Silver Lake

Silver Lake pub Hyperion Public closed on January 26. The owners shared via an Instagram post that the California Department of Alcoholic Beverage Control shut down the bar on January 16 and that they were unaware that the business was operating illegally.

Pearl River Deli – Chinatown

Chinatown’s modern Cantonese spot Pearl River Deli is no longer serving its beloved Hainan chicken rice, char siu pork belly, and Macau pork-chop bun. After opening in January 2020 in Far East Plaza and relocating to Chinatown Central Plaza, chef and owner Johnny Lee announced that Pearl River Deli will be on hiatus indefinitely and possibly forever.

Sakai Ramen Bar – Central LA

After nearly five years in business, Sakai Ramen closed on February 19. The restaurant announced the closure in an Instagram post and shared that the owners would be taking a break for the time being.

Shin – Hollywood

Hollywood’s decade-old Shin restaurant closed on February 4. Though best known for its ramen, the restaurant also prepared sushi and yakitori, including a $175 omakase option with cocktails.

Tokki – Koreatown

After 15 months inside Koreatown’s Chapman Plaza, Tokki closed on February 18. The modern Korean tapas restaurant opened in 2021 with chef Sunny Chang (Quince SF) at the helm, but she departed after just a few months. A part of the team then went on to open Liu’s café, which will remain open.

January

Atrium – Los Feliz

A dimly lit modern restaurant with pattered walls and dark green banquettes with some foliage.

Los Feliz restaurant Atrium, which opened in 2018 from Beau Laughlin and Jay Milliken, closed without warning on December 23, 2023. The stylish Los Feliz restaurant offered versatile dishes with international flavors in a high-ceiling space in a neighborhood that sorely lacks quality dining. Staff was notified of the closure just a few days before Christmas though outwardly Atrium hinted that it would reopen in the new year. Atrium has not reopened though its sister lounge space Pinky’s continues to operate.

Caffe Roma – Beverly Hills

For 45 years, Caffe Roma has been a streetside destination for Italian food and coffee in the Golden Triangle of Beverly Hills. The restaurant announced its closure on January 1, 2024, though its sister restaurant Café Amici will continue to operate, which means longtime fans will still have a place to get eggplant parmigiana and lasagna with beef ragu. Eater spoke with a representative from Caffe Roma who said the landlord had doubled the rent, which made it more challenging to operate despite nearly half a century of history in the neighborhood.

ETA – Highland Park

Jazz bar and cocktail lounge ETA, which is a sister restaurant to the Greyhound sports bar, closed on December 30, 2023 after initially opening in 2016. Owner Mateo Glassman said part of the reason for the closure was that his partners James and Ryan had moved farther away and that Glassman’s recent addition to the family had made it difficult to sustain operations. Glassman said the Highland Park and jazz community were a huge part of ETA’s success and was thankful for both.

Jeni’s Ice Cream – Venice

Rose Avenue ice cream parlor Jeni’s has closed since around the end of December, though word is that the artisan scoop shop has reopened as a stand on Windward Avenue closer to the Venice Boardwalk. Jeni’s still has locations in Larchmont, Beverly Hills, the Runway in Playa Vista, Calabasas, Los Feliz, and Highland Park within the LA area.

Skylight Gardens – Westwood

Westwood Italian restaurant Skylight Gardens had just celebrated its 12th anniversary when it quietly closed in recent weeks (it originally opened in 2012). A tipster says the signage was taken down and that multiple Yelpers have reported it closed, though the restaurant’s website — which announced the restaurant’s 10th anniversary — is still up at the time of publication.

Spartina LA – Melrose Avenue

A wood-burning grill at a LA restaurant. Spartina LA, which opened in 2015 by chef Stephen Kalt, announced on social media last week that it would close on January 28. Kalt has had a nearly four-decade-long career in restaurants spanning New York City, Atlantic City, and Las Vegas. Spartina was originally named for a restaurant he helped open in the early 1990s in Tribeca before that neighborhood had become one of the hottest in Manhattan.

Spartina in LA was his ode to California Italian food, preparing shareable pizzas, handmade pastas, and seasonal produce. Kalt told Eater that from Memorial Day onwards, sales had dropped off about 40 percent from expected, blaming the writer’s and actor’s strikes. “In 40 years in this business, I’ve never seen anything like it before,” said Kalt. The last day of operations will be this coming Sunday.

Wine House Kitchen — West LA

Located on a West LA rooftop blocks away from the bustling Sawtelle Japantown, Wine House Kitchen closed late last year after more than a year in business. Maiki Le’s Vietnamese French and California menu was a favorite among Eater’s editors with dishes like bún bò Huế spiced elk strip loin, which combines different meat with a central Vietnamese beef noodle soup.

When Governor Newsom and his Marxist thugs finally bankrupt California and collapse its economy as they grasp the handle of socialism and poverty perhaps then the citizens will remove this cockroach parasite from the state government and hire free market capitalists to save what’s left of this crumbling dumpster fire.

©2024. Geoff Ross. All rights reserved.

RELATED ARTICLE: California Ice Cream Parlor Forced to Close Over Minimum Wage Hike

There Ain’t No Such Thing as a Cost-Plus Lunch! Who’s really to blame for rising prices?

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Why are restaurants adding “inflation fees” to their checks?

A group of friends had just finished a meal at Romano’s Macaroni Grill in Honolulu when one of them noticed something odd about the check. As a local television news station reported in April, a “Temporary Inflation Fee” of $2.00  was nestled inconspicuously between the $4.50 Flavored Tea and the $14.00 Spinach & Artichoke Dip.

The restaurant chain’s website explained that the charge was added to “partially offset… operational cost increases” due to unusual economic conditions including “global supply chain shortages and ever-growing pressure from inflation.” The statement said, “we believe these burdens will eventually pass,” which is why they resorted to a temporary surcharge instead of simply raising the listed prices. An alternative explanation is that surcharges that show up on the check but not the menu are a sneaky way to try to raise prices without losing customers.

The Wall Street Journal recently cited this incident as part of a general trend:

“Lightspeed, a global developer of point-of-sale software, said fee revenue nearly doubled from April 2021 to April 2022, based on a sample of 6,000 U.S. restaurants that use its platform. The number of restaurants adding service fees increased by 36.4% over the same period.”

The Journal cited industry analysts who basically agreed with Romano’s, explaining that:

“…this wave of surcharges is mostly being driven by restaurants trying to cope with the impact of rising inflation and a tight labor market on their bottom lines.” (…)

“​​Inflation and the pandemic posed particular challenges for the restaurant industry. The average price of supplies for a restaurant operator increased by 17.5% since last year, according to NPD Group. By comparison, consumer spending at restaurants rose 5% during that time.

The increase in surcharges is a way for businesses to recoup at least some of those costs, said David Portalatin, a food-industry adviser with the group.”

In media coverage of today’s rising prices in general, this has become a prevailing narrative: “businesses are passing their rising costs onto consumers.”

While superficially plausible, this gets the economics of prices the wrong way round.

The explanation refers to “cost-plus pricing,” which is the business practice of setting prices by starting with your costs and then adding a markup.

Of course, nothing in economics says that a business owner cannot use this method to decide on a price to quote. Surely, some do exactly that. But it is only a heuristic and it is not what fundamentally drives price changes.

Just as “there ain’t no such thing as a free lunch” (TANSTAAFL), there ain’t no such thing as a cost-plus lunch.

To explain price increases as resulting from “passing costs on to the customer” is to implicitly embrace a “cost of production” theory of value and prices, which, in a nutshell, maintains that costs determine prices.

Of course, costs are prices, too. A business’s “costs” are the prices it pays for factors of production (land, labor, and capital goods). So, in a bigger nutshell, this theory posits that “factor prices determine product prices.”

But this is the exact opposite of how an economy actually works. As Murray Rothbard wrote in his economics treatise Power and Market, “Prices, however, are never determined by costs of production, but rather the reverse is true.” In other words, it is anticipated product prices that determine factor prices: prices that determine costs, not the other way around.

This insight was one of the great discoveries that resulted from the “Marginal Revolution” of economics in the 1860s and 70s. This was a literal “revolution” in the sense that it showed the old economic paradigm to be upside-down and then turned it right-side-up.

Before the Marginal Revolution, the “classical economists” largely subscribed to Adam Smith’s cost-of-production theory of value or David Ricardo’s labor theory of value. The latter, like the former, derived the value of products from the value of factors: specifically the factor of labor. (Incidentally, Karl Marx largely based his exploitation and class war theories on Ricardo’s labor theory of value.)

For example, classical economists might have traced the high value of a bottle of fine wine to the high real estate value of the vineyard and/or the amount of labor that went into producing the wine.

But the Marginal Revolutionaries—William Stanley Jevons, Leon Walras, and Carl Menger—upended that paradigm. They and their followers (especially the Austrian school of economics, founded by Menger) explained that the value of a good is based on its “marginal utility,” which is the usefulness for want-satisfaction of an additional unit of a good. And what’s useful about a factor of production is that it can help produce useful products.

For example, the utility of a wine vineyard is that it can yield wine grapes. The same goes for the utility of a vineyard worker’s labor. And the utility of wine grapes is their contribution toward producing enjoyable wine.

So Austrian economists do the opposite of what the classical economists did. Austrians trace the real estate price of the vineyard and the wages of the vineyard worker to the anticipated value of the wine at the end of the production line.

The insights of the Marginal Revolution made it clear that prices determine costs (product prices determine factor prices), not the other way around, and that ultimately consumer preferences determine all prices.

(Note: Alfred Marshall tried to reconcile the classical cost-of-production theory with marginal utility theory in a “neoclassical synthesis” that has influenced mainstream economics to this day. See here for Murray Rothbard’s Austrian critique of that attempt.)

So the “cost passing” explanation of rising prices is a retrogression to a long-overthrown economic paradigm: the economic equivalent of forgetting the heliocentric Copernican Revolution of astronomy and explaining planetary movements using the archaic geocentric model of Ptolemy. Just as the sun does not revolve around the earth, consumer prices do not revolve around producer costs: quite the opposite.

Many on the political left blame corporations for “price gouging” in order to fatten their profits. But blaming rising prices on profit-seeking is like blaming a plane crash on gravity.

Gravity is always pulling down on planes. To explain a plane crash, you have to explain what happened to the factors that had previously counteracted that downward pull. Why did gravity yank the plane down to earth when it did and not before?

Similarly, businesses are always seeking profit and are always ready to raise prices if that is what will maximize profits. To explain precipitous price hikes, you have to explain what happened to the factors that had previously put a lid on that upward price pressure. Why did profit-seeking propel prices skyward recently and not in 2019?

This question is also tricky for those (including some on the political right) who blame rising prices on rising costs. If businesses can preserve profits by raising prices now that their costs are higher, why wouldn’t they have increased profits by raising prices before when their costs were lower?

A business’s customers don’t care about that business’s costs. They care about value. Based on the value they expect from a product, there is a limited price range they’d be willing to pay for any given amount of it. That translates into the market demand for the product: the quantity of a good that would be bought at any given price point. The value of, and demand for, a product does not fluctuate with its production costs.

Even businesses don’t (or at least shouldn’t) really care about past costs when it comes to pricing. Past costs are sunk. Whatever was spent to produce it, at any given moment a business has a given inventory. Its best interest is to price that inventory so as to maximize revenue given current demand. Based on that definite demand, raising prices past a certain point will result in less revenue, regardless of past costs. If the most revenue they can hope for is less than their past expenditure, that’s just the way things turned out. They can learn from that error and from those losses by spending less and/or differently in the future. But they cannot change the past or defy the economic reality of the present.

As economist Jonathan Newman told FEE in an interview:

“There is no change in costs that directly affects the revenue-maximizing price. If the prevailing market price is one that maximizes revenue for the firm, then it is impossible for the firm to ‘pass on’ costs to the consumer by increasing prices, because this would result in less revenue.”

Newman reminds us that, “factors of production are valued because they help us make consumer goods, not the other way around. What consumers are willing to pay for consumption goods determines what entrepreneurs are willing to pay for land, labor, and capital goods.” He offers an extreme example to make this point:

“Suppose that tomorrow the government decides to tax the sale of ink for ballpoint pens at $1 billion per mL. Would pen makers be able to carry on as usual and pass this increased cost on to consumers? Would consumers be willing to pay $1,000,000,000.25 for a pen? Of course not. Anticipated consumer demand is a limit on what producers will pay for inputs. More expensive inputs does not mean consumers are ready to pay a higher price for outputs.”

So if “cost passing” isn’t what’s driving up prices, what is? Newman points to monetary expansion by central banks, especially the Federal Reserve:

“I suspect that many firms will be able to get away with increased prices because of this. Even if their stated intention is to ‘pass on’ or share costs with their customers, the increased demand from the trillions of dollars that have been injected into the economy over the past couple years is what really makes their price increases both necessary and feasible.”

It is important to note that monetary price inflation is also not “passed on” from suppliers to customers, as “inflation surcharges” might lead you to believe. Again, the reality is the reverse of that. Extra money enables customers to bid up the prices charged by their suppliers, who in turn use the extra money to bid up the prices charged by their suppliers, and so on. That is how new money raises prices across the board (although, unevenly) as it circulates through the economy.

Another contributing factor to rising prices, at least in many specific industries, is today’s supply chain crisis. To an extent, Romano’s and industry analysts are right to blame rising restaurant prices on supply constraints. But they are wrong to characterize it as a matter of “passing on” or “recouping” costs. Rather, it is a matter of greater scarcity translating into a higher marginal utility of certain goods and thus higher prices.

For example, a major factor in today’s high food prices is undoubtedly the war in Ukraine. Both Ukraine and Russia were major exporters of grain. But, owing to Russia’s blockade of Ukraine and the West’s sanctions on Russia, grain exports from both countries have been throttled.

As a result, food processors have less grain to produce foodstuffs like, for example, macaroni. And as a result of that, restaurants have less macaroni to produce macaroni dishes. And when there’s less of something, its price tends to go up. That is probably one of the reasons why the Honolulu diners at Romano’s Macaroni Grill discussed above paid $11.00 for “Signature Mac & Cheese Bites.”

This phenomenon is not “passing on costs.” It is the rippling repercussions of economic destruction and impoverishment. The word “passing” implies that consumers are impoverished while producers are not. But that is not the case. Diminished production and greater scarcity impoverish everyone involved.

It is also confusing to call that “inflation,” although both academia and the media tend to lump all price increases together under that term. For any given increase in prices, part of it may be caused by monetary expansion, and another might be due to supply constraints. Personally, I think it would be clearer to call only the former, and not the latter, “inflation.” Price increases due to an increasing abundance of money should be distinguished from price increases due to a declining abundance of goods and services, although the former very frequently causes the latter (especially by creating economic bubbles and crashes).

Especially since the advent of the Covid crisis in 2020, we have suffered plenty of both. Central banks have been driving up prices with money printing sprees undertaken to finance government spending sprees. Governments have also been driving up prices by sabotaging supply chains through lockdowns, business shutdowns, wars, trade restrictions, and other policies of mass economic destruction.

As prices continue to rise and living standards continue to drop, it is important to understand how it is happening, why it is happening, and who is truly to blame.

AUTHOR
Dan Sanchez

Dan Sanchez is the Director of Content at the Foundation for Economic Education (FEE) and the editor-in chief of FEE.org.

EDITORS NOTE: This FEE column is republished with permission. All rights reserved.

“Restaurant Recession” Hits NYC Following $15 Minimum Wage

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This will be a rough year for full-service NYC restaurants as they try to navigate a future with significant economic headwinds and significantly higher labor costs from the city’s $15 an hour minimum wage.

An article in the New York Eater (“Restaurateurs Are Scrambling to Cut Service and Raise Prices After Minimum Wage Hike“) highlights some of the suffering New York City’s full-service restaurants are experiencing following the December 31, 2018 hike in the city’s minimum wage to $15 an hour, which is 15.4% higher than the $13 minimum wage a year earlier and 36.4% higher than the $11 an hour two years ago. For example, Rosa Mexicana operates four restaurants in Manhattan and estimates the $15 mandated wage will increase their labor costs by $600,000 this year. Here’s a slice:

Now, across the city, restaurant owners and operators are reworking their budgets and operations to come up with those extra funds. Some restaurants, like Rosa Mexicano, are changing scheduling. Other restaurateurs are cutting hours and staffers, raising menu prices, and otherwise nixing costs wherever they can.

And though the new regulations are intended to benefit employees, some restaurateurs and staffers say that take home pay ends up being less due to fewer hours — or that employees face more work because there are fewer staffers per shift. “The bottom line is, we have to reduce the number of hours we spend,” says Chris Westcott, Rosa Mexicano’s president and CEO. “And unfortunately that means that, in many cases, employees are earning less even though they’re making more.”

In a survey conducted by New York City Hospitality Alliance late last year, about 75% of the more than 300 respondents operating full-service restaurants reported they’ll reduce employee hours this year because of the new wage increases, while 47% said they’ll eliminate jobs in 2019.

Note also that the survey also reported that “76.50% of respondents report reducing employee hours and 36.30% eliminated jobs in 2018 in response to mandated wage increases.” Those staff reductions are showing up in the NYC full-service restaurant employee series from the BLS, see chart above. December 2018 restaurant jobs were down by almost 3,000 (and by 1.64%) from the previous December, and the 2.5% annual decline in March 2018 was the worst annual decline since the sharp collapse in restaurant jobs following 9/11 in 2001.

As the chart shows, it usually takes an economic recession to cause year-over-year job losses at NYC’s full-service restaurants, so it’s likely that this is a “restaurant recession” tied to the annual series of minimum wage hikes that brought the city’s minimum wage to $15 an hour at the end of last year. And the NYC restaurant recession is happening even as the national economy hums along in the 117th month of the second-longest economic expansion in history and just short of the 120-month record expansion from March 1991 to March 2001.

Here’s more of the article:

“There’s a lot of concern and anxiety happening within the city’s restaurant industry,” says Andrew Rigie, executive director of the restaurant advocacy group. Most restaurant owners want to pay employees more, he says, but are challenged by “the financial realities of running a restaurant in New York City.” Merelyn Bucio, a server at a restaurant in Soho that she declined to name, says her hours were cut and her workload increased when wage rates rose. Server assistants and bussers now work fewer shifts, so she and other servers take on side work like polishing silverware and glasses. “We have large sections, and there are large groups, so it’s more difficult,” she says. “You need your server assistant in order to give guests a better experience.”

At Lalito, a small restaurant in Chinatown, they used to roster two servers on the floor, but post wage increases, there’s only one, who is armed with a handheld POS (point of sale) system, according to co-owner Mateusz Lilpop. Having fewer people working was the only way for him to reduce costs, he says. Since the hike, labor costs at Lalito have risen about 10 percent — from 30 to 35 percent to 40 to 45 percent of sales, he says.

These changes get passed onto the diner, some restaurateurs argue. Service can suffer due to fewer people on the floor, or more and more restaurateurs will explore the fast-casual format over full-service ones. Some restaurants are also raising prices for customers. According to the NYC Hospitality Alliance’s survey, close to 90 percent of respondents expect to raise menu prices this year. Lalito’s menu prices have increased by 10 to 15 percent. Lilpop says, and it’s not just the cost of paying his staff driving prices up — it’s a ripple effect from New York-based food purveyors’ own labor cost increases.

“If you have a farmer that has employees that are picking fruit, he has to increase his labor costs, which means he has to increase his fruit prices,” Lilpop says. “I have to buy that fruit from him at a higher rate, and it goes down the chain.”

A few economic lessons here.

  1. A reduction in restaurant staffing that results in a decline in customer service (e.g., longer wait times, less attentive wait staff, etc.) is equivalent to a price increase for customers.
  2. The increases in the city minimum wage to $15 an hour, in addition to directly increasing labor costs for restaurants, also affects the labor costs of companies that supply food, liquor, restaurant supplies, menus, etc. and causes a ripple effect of indirect higher operational costs throughout the entire restaurant supply chain as described above.
  3. Even for workers who keep their jobs, a higher minimum wage per hour doesn’t necessarily translate into higher weekly earnings, if the reduction in hours is greater than the increase in hourly wages. For example, 40 hours per week at $13 an hour generates higher weekly pre-tax earnings ($520) than 33 hours per week at the higher $15 an hour ($495).

Prediction: This will be a rough year for full-service NYC restaurants as they try to navigate a future with significant economic headwinds and significantly higher labor costs from the city’s $15 an hour minimum wage.

This article was reprinted from the American Enterprise Institute.

COLUMN BY

Mark J. Perry

Mark J. Perry

Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

EDITORS NOTE: This FEE column with images is republished with permission. Image Credit: Wikimedia Commons | CC BY 2.0