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Can San Diego's Small Restaurants Survive the Restaurant Boom?
San Diego is experiencing a food renaissance, having attracted big-name chefs, Michelin ratings, and, of course, money. But that could be a problem.
Having lived all over the world, from New York City to Seattle, North Carolina and to Ft. Lauderdale and Miami, China, Japan, and Indonesia, I’d seen this before. And having worked in almost every restaurant position, from server to cook to management, fast-casual to the ultra-high-end, it excites me to see San Diego finally come into its own.
I witnessed the boom in other cities, and the retail deserts and empty storefronts, chainification and whitewashing, with even the best venues closing after being priced out of their own neighborhoods by the money machine that followed.
So, it’s natural for me to feel nervous about this rise, given the recent closures of beloved neighborhood joints like the Land & Water Co. in Carlsbad, the Wooden Spoon in Escondido, and others.
I started asking people on the front lines about their current challenges: small business owners and operators that have solid establishments providing value and character to the neighborhoods they serve including Eddie Okino of health-focused Second Nature in Pacific Beach and Chicago-style Working Class in North Park, Francis Weidinger and Natalie Buczkowski of quirky University Heights Mystic Mocha, and a handful of other San Diego-based restaurateurs.
For most of them, the bust seems precariously near.
Margins are thinning, rents are climbing, and landlords are holding out for chains that pay more. Third-party delivery services like Doordash disrupt service, erase margins, and constantly screw up orders. Prices are too low and labor costs too high.
“That’s the elephant in the room,” says Okino, “Labor [costs] chipping away versus people wanting to be fair [to their staff].”
In part, this is because California has taken a peculiarly myopic stance on labor with a one-minimum-wage-fits-all approach. Restaurants get taxed on tips that aren’t counted as wages, and until recently, restaurants couldn’t pool and share tips with kitchen staff.
Weidinger explains, “In this industry model, most of your people are working for tips, so therefore they get minimum wage. When we started, it was $9 and now it’s $12, soon to be $15. That’s about 30%–40 of our bottom line just gone.”
Furthermore, labor costs are passed down the supply chain.
“When these warehouses get hit again with minimum [wage increases]—it’s all getting passed off. That could single-handedly change the entire restaurant model. That scares me,” says Okino.
Costs, then, will disproportionately pass onto smaller restaurants and groups that lack the economy of scale of conglomerates. Smaller establishments have narrower profit margins, and those costs will be passed onto consumers, causing demand to suffer. When high-profile restaurant groups in larger markets attempted to eliminate tipping and pay all staff fair wages by raising prices, sales declined, servers left, and most restaurants quietly returned to tipping within a year.
Rents have also increased, and an unexpected rent increase or refusal to renew a lease can be devastating to a small business. Weidinger says if rents go up much more, he might be forced to move. Because of these trends, restaurants are partnering and becoming their own landlords by purchasing their spaces when they can.
“I’ve seen a very big trend towards corporate and franchising, all groups, low-end and high-end,” says Weidinger.
Okino is one such example. He partnered up after opening his first venture, Turquoise Coffee, and created Working Class and Second Nature with that partnership. Soon they’ll open another concept in Clairemont.
Although diversifying and partnering reduces risk, it sacrifices autonomy and creates another barrier to entry for new players.
There are other creative solutions at work, including small service charges, rents based on sales, handheld POS systems, and even call buttons that support staff efficiency without replacing all of them. Touch screens have replaced counter staff at chains and even some private restaurants. In Las Vegas, two robot arms mix a variety of cocktails from 100 different liquors while patrons order from tablets surrounding their glass enclosure. There’s a tablet in front of every seat in every restaurant and bar, replacing most of the waitstaff in the Philadelphia International and Newark Liberty airports.
Owners will tell you these devices can work nonstop and never screw up an order. These devices also don’t talk or ask questions. They don’t give you the methodology behind why they added an ingredient, and they don’t joke. They don’t foster the socialization that humans crave most.
What 20th-century author William Burroughs referred to as the money machine lends a metaphor for the modern perils of owning a restaurant in 2020. The money machine extracts wealth, treats humans as data, and lures people with the convenience of quantity over quality.
Surviving as an independent restaurant takes guts, blood, sweat, tears. Some owners might say they’re crazy for doing so. All the inputs are increasingly expensive and the competition for customers is more fierce. Talent, passion, and drive are necessary ingredients for success. Still, these die-hards are tackling the intricacies of new labor laws and the promises of technology, somehow managing to source locally as much as possible, cooking from scratch, and trying to price dishes right.
While you’re a commodity to the money machine, to local establishments you’re a person, maybe even a friend. They love doing what they do—for you. That’s the difference.
“We’re not here to make it rich,” says Weidinger. “It’s a lot of work. A lot of fun. But you’d hate yourself if you didn’t do it. I love these people.”
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