The State of the Industry: An Update from GGRA’s Executive Director

When I think about the state of the Bay Area restaurant industry, I cannot help but think of the famous 1980s Billy Joel song, We Didn’t Start the Fire. The fire is vast income equality, the widening gap between rich and poor, and the explosive growth of the economy that has left many behind.

It is difficult to be in this industry in the most expensive city in the United States as some of the most grotesque examples of the gap between rich and poor are so visible. San Francisco is a compassionate city, as is the Bay Area as a whole. We have an extremely active citizenry and group of politicians fighting for social justice. Trying to solve the inequities, San Francisco was the first city to implement a local health care ordinance, paid sick leave, and now paid parental leave. We were only second to Seattle in the move to a $15 minimum wage, although all of our businesses will get there sooner.

All of this is against a backdrop of the lowest unemployment rate ever, according to the CA Employment Development Department. The unemployment rate in the San Francisco-Redwood City-South San Francisco MD was 3.2 percent in February 2016, below the year-ago estimate of 3.8 percent. This compares with an unadjusted unemployment rate of 5.7 percent for California and 5.2 percent for the nation during the same period.

Wages are rising not just because of the minimum wage, but because there’s an overall shortage of actual people to employ. Employers have to pay more to hire and retain staff. At our job fair last September, it was evident that many who are unemployed had barriers making employment difficult.

According to the National Restaurant Association, the median salary among chefs and cooks is about $50,000 a year. Managers are at about $47,000, and servers with tips make about $16.13 an hour. According for the Bureau of Labor Statistics looking at San Francisco – San Mateo – Redwood City, the following are average salaries:

  • Chef/Head Cooks: $53,412/year or $25.68/hour
  • First line managers: $42,090/year or $20.23/hour
  • Food Prep workers: $24,616/year or $11.83/hour
  • Wait staff: $26,834/year or $12.91/hour
  • Dishwashers: $22,818/year or $10.96/hour
  • Hosts: $24,259/year or $11.66/hour

*Note: San Mateo County has the state minimum wage, which was $9 an hour in 2015, while San Francisco’s started last year at $10.74 and went to $12.25 in May.

So, let’s look at another source for information. According to 2015 numbers compiled by a survey of San Francisco industry professionals by Payscale:

  • Chefs and cooks median wage was $13.30 with $1.00 an hour in tips, reaching a median wage of $14.30. This number is interesting because it is not actually legal to tip the back of house staff.
  • Waiters and waitresses top the list of total median hourly incomes at $21.50 an hour, reporting $13.00 per hour in tips, and earning an average of 55% of their income in tips.

Diners in San Francisco reported an average 19% tip rate. Bartenders in San Francisco have the highest total hourly incomes of bartenders in the US; they reported the highest average in tips at $15.50 an hour, on top of an already healthy median base pay of $11.00 per hour, for a total median hourly income of $26.50. In New York City, where bartenders having a lower base minimum wage because of tip credit, they collected far less tips than any other city at $7.10 an hour.

In terms of overall industry health:

Nationally, the restaurant industry continues to be one of the strongest job creators in the economy, adding jobs at a 3.2 percent rate in 2015, which was more than a full percentage point above the 2.1 percent gain in total U.S. employment.

The industry’s 2015 gain marked the fourth consecutive year with job growth of at least 3 percent, the longest streak since the mid-1980s. With job growth outstripping the overall economy in each of the last 16 years, the eating-and-drinking-place sector saw its employment level jump by 38 percent. In contrast, the total number of jobs in the economy increased by only 10 percent during the same period. In 2016, restaurant and foodservice jobs in California represent 11% of employment in the state and by 2026, that number is projected to grow by 10.1%

According to the Board of Equalization, the San Francisco restaurant industry accounts for more than 5% of the State’s food service and drinking establishment with 4,748 at the end of the third quarter of 2014. This generated 1.1 billion in taxable sales for the quarter. To compare, in the first quarter of 2014, there were 4,663 places that generated $915 million.

Using 2014 numbers, the SF Planning Department’s Annual Commerce and Industry Report revealed the following:

  • Leisure and hospitality jobs make up 14% of San Francisco’s economy and 11% of the regional economy.
  • Eating and drinking establishments makeup over 50% of the sales tax generated in the retail sector, with $18.8 billion in retail taxable sales being generated in 2014. This is up 7% over 2013.
  • Employment among eating and drinking establishments rose from 55,312 jobs to 59,203, and the overall number of establishments increased as well.

According to statistics compiled by the National Restaurant Association, Congresswoman Nancy Pelosi represents the most restaurants in California; far ahead of every other member in the House.

According to credit card data collected by First Data Corp, in San Francisco, restaurant sales grew 6.6 % in 2015, which was higher than 2014’s sales growth of 5.4%.

Ten restaurant categories make up the top 80% of total restaurant sales in San Francisco. At the top of the list in terms of the most growth in sales in 2015 was Mexican at 14.1%, fast food at 13.6%, and Asian at 13.5%.

The fastest growing restaurant category in San Francisco was Asian, which leapt from 1.0% growth in 2013 to 13.5% in 2015. Dessert shops also expanded quickly in the Bay Area, jumping from –3.6% growth in 2013 to 8.4% in 2015. Mexican also increased from 8.6% to 14.1% growth over the same period.

At the same time, cafés, French, and vegan and vegetarian restaurants saw the fastest decline in growth rate in San Francisco, indicating a preference on the part of San Franciscans for a wider array of internationally sourced cuisines. Growth of cafes slowed from 19.2% to 5.6% between 2013 and 2015, vegan & vegetarian slowed from 13.1% to 4.9%, and French restaurants experienced negative growth in 2015, down from 8.5% to –0.2% over the three years analyzed.

But even with the rosy outlook, trouble looms over the industry.

With the passage of a $15 minimum wage in not just cities like San Francisco and Seattle, but the states of New York and California, many are worried about what this means for the economic model of a full service restaurant.

The increase in the federal overtime exemption threshold, which will likely go into effect this summer, will raise the overtime exemption from California’s current $41,600 to $50,440. This will have major consequences on restaurant payrolls.

Costs of all types are increasing, including health care, workers compensation, food, rent, an more. In San Francisco, as politicians try to make it easier for lower wage earners to live here, the costs for these programs are being passed along to business. Is there an end in sight?

Additionally, there’s the recent Ninth Circuit ruling, explicitly declaring that tips cannot be shared with the back of the house, devastating tip pools and leaving no clear path for easily increasing back of the house wages that desperately need a boost.

With all of this, the metrics show that San Francisco has still seen record restaurant growth. With all these challenges and a worker shortage, how can all these restaurants survive?

Despite this long list of depressing developments, all national indicators remain optimistic about restaurant industry growth. Part of the trend is tied to the fact that consumer spending in restaurants has grown while retail has become stagnant. Consumers are now spending more money on dine out food than groceries. The rise in food culture — television shows, rockstar chefs, instagramming your food, etc, has led to dining out becoming the new form of social entertainment.

The Bay Area has a penchant for ingenuity and I know if there’s a place that can get creative and tackle the challenges head-on, it’s here. Whether it’s the not-so-beloved mandates surcharge, or adding a kitchen line on receipts, restaurateurs here will figure out a way to re-concept their model to succeed.

In fact, San Francisco is in the best position of all when it comes to dealing with $15 an hour, because we’re so much closer to that number than anywhere else. In actuality we are already there when employers add in health care, paid sick leave, and minimum wage. We’ve had a head start.

While we’ve been raising our menu prices and surcharges, nationally the trend has been the same. Many of these other places in the country will have to make significant price adjustments because of the gap between their existing wages and $15 an hour.

I share the optimism of the National Restaurant Association economist that our industry will continue to prosper in 2016. New restaurants are still opening almost weekly to crowds of eager diners. I know that with our creative, passionate industry, we’ll come through all of these challenges more resilient than ever.  Will there be a few less of us along the way, unfortunately so, but those who weather the fire will be the better for it.

Gwyneth Borden
Executive Director

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