One Saturday in June of last year, six months before we closed our beloved restaurant, Tawla, we said goodbye to our lead line cook — one of the last three people left from our original 25-person team when we opened in the Mission two years prior.
I had watched him grow and take on more responsibility, got to know his family — recently celebrating the arrival of his fourth child — and worried constantly after he was forced to leave his rent-controlled apartment, another victim of the loopholes landlords exploit to get rid of tenants under rent control.
Our cook, his wife and their four kids struggled for months to find a place to live, moving from couch to couch. Many of us tried any way we could think to help, from tapping our networks to find more dignified temporary housing to figuring out how to pay him more without having him lose access to various low-income programs his family relied on. We gave him time off to apartment-search and attend city-run seminars that are required for one to qualify for low-income housing. Yet he never found success—there were always higher-priority people in line before him.
I quickly learned that no matter the amount of knowledge or preparation, you can’t fight the desperate realities of San Francisco’s restaurant market today.
This has become almost a cliche story in San Francisco’s food industry. When I set out to open a restaurant in the city in 2016, I intended to successfully employ what I had learned from an MBA and more than a decade of launching and managing successful businesses for Google and other tech companies. But I quickly learned that no matter the amount of knowledge or preparation, you can’t fight the desperate realities of San Francisco’s restaurant market today.
When I opened Tawla, I wasn’t so naive as to think that I knew better than all those tenured in the industry. I actively sought out mentorship from titans, who were generous with their time. I had hoped the restaurant would provide a fresh, more humanizing lens on the culinary cultures of Turkey, Greece and the Levant area. I aspired to present home-cooked food from the region, source local ingredients, create a healthy environment for our employees, maintain reasonable prices accessible to many and be a good citizen in our neighborhood.
In today’s climate, that is a tall order — much taller than I knew at first, and one that I can now say confidently that very few independent eateries can attain. It became quickly apparent that there’s nothing a small, young business in SF can do to make the city a living option for its employees. There is no amount of money an owner can pay an employee within the economics of a small business to allow them to live within the city’s borders or even within a reasonable radius.
This is the reality of where we live. Our cook’s story is one of many we’ve experienced within our business and have heard from others.
We, like others, tried to be innovative. We tried to go the “service charge inclusive” route, automatically including a 20 percent fee on every check. Unlike a traditional tip structure, the service-charge model allowed us to distribute supplemental pay more equitably. It also allowed us to give our employees private health care instead of relying on the broken Healthy SF system, which proved difficult to navigate for our staff and applies only within the San Francisco city limits, which means no health care for most of our employees, who lived across the bridge. We also subsidized commuting expenses and offered healthy staff meals to all employees while they were at work. Our hope was that at least by doing these things, we’d help our team keep more of the money they made.
However, the front-of-house staff hated the new pay scheme — they were also struggling, maybe not as badly as our back-of-house employees, but they still found it difficult to afford SF’s high cost of living. With the service charge and their hourly rate, our servers were making roughly $38 per hour, or the equivalent of $70,000 to $80,000 a year full-time.
If we assume that the average person spends about 36 percent on rent after taxes (generally considered a healthy amount on housing) that would mean they had about $1,460 available for rent per month.
What we thought would be a welcome, steady pay— independent of the whims of diners—wasn’t welcome at all.
Cheryl Young, an economist for Trulia, found that in San Francisco, only 0.1 percent of restaurant staff can find affordable housing in the city, with the average monthly rent for a one-bedroom apartment coming in at an insane $3,447, according to a 2018 rent report by Adobo. The US Census revealed in March of last year that the median rent in San Francisco in 2016 was roughly over $1,600/month.
At this rate, you would need two roommates to be able to barely afford a one-bedroom apartment. What about that is dignified, when you’re an adult and you have to share a room or be the one who sleeps in a living-room-turned-bedroom? Even if they could find that unicorn one-bedroom, what about saving, investing in a 401k, having a family and — God forbid — planning for old age?
This brings us back to why our servers were so opposed to our service-charge scheme — they weren’t getting all the tips like they once had. What we thought would be a welcome, steady pay, independent of the whims of diners, wasn’t welcome at all. This has been a classic struggle even in pooled houses that tip out the back-of-house.
We were astonished when employees asked if we could pay them a better wage if they went without health insurance. But we realized that when you’re struggling to live paycheck to paycheck, it’s hard to prioritize planning for the possibility of a health emergency.
Due to incessant requests from our team, we eventually moved to a hybrid model: a more moderate 6 percent service charge on every check, which allowed us to supplement the back-of-house’s pay, plus pool other tips only among front-of-house employees. We stopped paying for health insurance completely, instead subsidizing about half of it to kick more of that money back to the team.
It seemed like a good compromise. But in reality, the move yielded unexpected outcomes. To get more dollars in their pockets each pay period, most of our staff opted out of health insurance, which they now could do since our team had shrunk to fewer than 20 employees, making employer-mandated health insurance no longer required. With this change, our servers were now making $42–$48 per hour ($85,000–$95,000 per year). And yet we were still losing staff to other jobs, more schooling or a different geographic location.
And let’s go back to my talented, hard-working line cook, who is his family’s breadwinner and made $24 per hour (base pay plus his share of the service charge), or a little shy of $50,000 a year, working full-time for us. How could he possibly find a place to live, send his kids to school and feed them? He couldn’t, despite trying very hard, so he packed up and moved.
After reflecting on these past two years, this is what I’ve observed about why restaurants in SF are suffocating.
Astronomical turnover pushes labor costs even higher.
The situation in this industry has created a mercenary frenzy whereby everyone is running around trying to maximize what they’re able to make per hour. According to culinary hiring service Instawork, annual turnover in the restaurant business in San Francisco has reached as high as 90 percent, and operators pay about $3,000 to rehire and train a new hourly employee. For context, the national restaurant industry turnover was a little over 70 percent during the last two years.
When restaurants are desperate for anyone to fill a role and are constantly concerned about losing people, the staff has little incentive to do good work.
From our experience, the associated cost of turnover for an employee who left came in at about $2,600–$3,200. This cost included sourcing a new employee, training them until they were able to be independent contributors and paying any overtime associated with another staff member covering the labor shortage. In total, our business saw a 10 percent increase in labor costs due to turnover alone.
The quality of the labor pool has quickly dwindled.
The mass exodus of individuals from the industry has left fewer people to choose from and fewer reasons for the people remaining to excel. Financial woes make it even harder to focus on one’s job and do good work. Plus, when restaurants are desperate for anyone to fill a role and are constantly concerned about losing people, the staff has little incentive to do good work. This, of course, has a big impact on the quality of service and customers’ experiences. It also means needing more managers to ensure training and quality, and to pick up the pieces.
What was once a celebrated culinary city boasting creativity and innovation is no longer so creative or innovative.
Not surprisingly, the most celebrated new restaurants right now are yet another ramen, pizza or pasta shop. This state of the industry has arguably resulted in the unoriginal “beet and goat-cheese salad” showing up on 5,000+ restaurant menus in the city, a phenomenon brought to light by the San Francisco Business Times. Restaurants are creating simpler and less-inspired food items that don’t require highly trained or talented kitchen cooks to execute.
We, like many others, have suffered from employees with substance-abuse problems, employee theft, and the frequent “no call, no show” occurrences. We had an employee who was terminated for embezzling thousands of dollars to pay for his cocaine debt, only to go on and be rehired into important roles at four other prominent restaurants that each, in turn, fired him for similar offenses. Restaurants are so desperate for talent that no one is going through the proper channels to reference-check or validate a new hire’s performance history.
There’s no organizational headspace in which to think about growth or innovation.
In a people business, your team is the oxygen that allows your business to function and grow. That’s the case for any business in any industry. In tech, where I started and built my career, we understood that well — it’s about not only getting the daily operational work done but also giving enough room to innovate. In the industry’s current state, that isn’t possible.
If the economics are such that you’re trying to keep a small team so that you can do better by them, then you never have any slack to grow beyond the “survival” stage. And the city doesn’t help. Small businesses are highly taxed, with little value offered. When you take note of the extensive tax breaks given to large companies in this city, it gives you pause. The tax code is also incredibly complex and allows the state to disregard certain federal tax benefits available to small businesses. Lastly, the minimum-wage hikes, though necessary to allow people to earn a livable wage, end up being ineffective without holistic programs to address housing and health care.
The service-charge model will work only if all restaurants take part, but everybody is scared of the diners’ wrath.
When it comes down to it, diners today don’t care. Really.
Today’s SF is in love with the idea of “local,” “small business” and “economic diversity.” But few are doing the work to support those ideas. To be fair, the average San Francisco resident has changed. Natives have moved away in droves, and they are the ones who grew up learning to appreciate the role small businesses play in defining SF. These folks have been largely replaced by younger, wide-eyed, high-earning transplants, many of whom don’t understand the history of small businesses in San Francisco and why they’re so integral to the makeup of this special city.
Today’s San Francisco pretends to be a liberal city, but when it comes to having a real impact on people who work in small businesses, the majority are not willing to put their money where their mouth is.
We saw this firsthand impact when we tried the “service charge inclusive” model. Diners were so dismayed by it. We often heard, “Why should I be putting money toward your employees’ health care?” or “How come I no longer have a choice in deciding how I pay tips?” It was always the more affluent who complained, the ones who bought that $200 bottle of wine. This disconnect pained us. The service-charge model will work only if all restaurants take part, but everybody is scared of the diners’ wrath. We know it works because that’s how it works in the rest of the world, but it works only if the whole industry runs that way.
If small businesses are the backbone of our economy, employing more than half of our workforce, then what impact do these challenges have on the labor economy and this city that we love, economically and culturally, as we move into the future?
I was asked recently, “If you could do it all over again, would you?” Given the circumstances, where the core principles behind what I had hoped to accomplish are in question, I don’t know if this would have been an endeavor I could comfortably and confidently pursue again — at least in San Francisco.
