
Why Restaurants Are So Fucked - paulpauper
https://medium.com/@joelleparenteau/why-are-restaurants-so-fucked-ca07c4624745
======
simonebrunozzi
I really dislike the way in which this article has been written - it reads as
the typical piece from the "bro culture" that massively ignores the rest of
the world. Besides this, which is not the point...

1) most restaurants in US and high-end Europe that survive and thrive do so by
having big margins on alcohol. Their margins are not single-digits. (edit:
just saw other comments mentioning this).

2) Many restaurateurs don't have the skill or knowledge to run a restaurant,
and yet they do so because it's often one of the few options left (if you
can't land a high-paying job, and don't like a low-pay one).

3) What she describes in the article is very US-centric. Most of Europe, or
Japan (where I am currently sheltering before returning to the US soon), have
a very different restaurant landscape. Most are small mom-and-pop shop, they
have very low ops costs, and can do not too bad in a time like this one. I
spoke with a few owners recently (in Italy and Japan) and they all confirmed
it. They mostly don't have personnel, or if they do, their relationship is
flexible enough that they can quickly react to 2-3 months of 50-70% less
business than usual.

4) For the long term, nobody knows what's going to happen. Are we ever going
back to pre-covid levels? Don't know. Probably not. Some restaurants will
close, sure, as well as car dealers, etc. Good restaurateurs will manage to
find a way, IMHO.

~~~
willvarfar
Re point 1, there has been a major change in pubs in the U.K.

All are trying to migrate into dining, as the margins on alcohol have fallen.
Those that didn’t become restaurants have basically gone bust. There are no
longer any normal classic pubs in England!

I know a couple that tried to rejuvenate a failing “free house” in a tourist
hotspot and failed. Passing the spot recently I saw it is now a pub restaurant
like all the rest.

I also once talked with the owner bartender of a very trendy micro brewery
pub. The beer was their hook but the money came from food and the stables
converted into b&b.

It doesn’t invalidate your point at all, I’m just adding detail to a very
varied landscape.

~~~
andybak
> There are no longer any normal classic pubs in England!

A slight exaggeration, no? Whilst it's uncommon to find a pub that doesn't do
food, I can think of several not far from me. (just outside Brighton).

And "a pub that does food" is still quite far from being a restaurant. Some
only do food on Sundays, some have limited menus run by guest kitchens and
some get the food cooked by a nearby takeaway with whom they partner.

~~~
willvarfar
“Pubs that do food” is the kind of thing I’m talking about! :)

It starts with Sunday lunches, and slips into weeknights.

It starts with order at the bar, and slips into little “reserved for diners”
signs on most of the tables.

It starts with the barman working the sandwich toaster and slides into
teenagers in white blouses and knee length black skirts with name tags saying
“trainee” asking you to wait to be seated as you enter.

Pubs used to be adult domains where people went to drink and chat in the
evenings. Now pubs put playgrounds and bouncy castles in the car park to bring
in families to dine.

Of course there might be some classic true pubs left? Perhaps someone should
make an app ... arrrgh!

~~~
mgkimsal
I'd think the Rovers Return would count, no? They do the odd hotpot, and they
do event catering, but other than that it's pretty much just drinks and darts
;)

~~~
ironic_ali
> it's pretty much just drinks and darts ;)
    
    
       And drama!!

------
supernova87a
I'll make another observation about the landscape of restaurants.

You may notice that in Europe, Asia, the demographics of restaurants are
noticeably different from the US. There are far more hole-in-the-wall mom-and-
pop restaurants in those places compared to the US, running a small and
seemingly profit-thin but subsistence restaurant for the neighborhood. Think
of a suburban neighborhood in Madrid or Rome, where a small restaurant is just
as common as a tabacchi / corner convenience store.

I believe (have not seen a careful study yet) that the rent-seeking / zoning
policies of our cities in the US increase greatly the cost of running
restaurants. And incentivize / prohibit anything but large commercial / chain
places from surviving as a rule. It makes it very hard for small experiments
or small-time mom-and-pop shops to survive and stay in a community for decades
at the low profits those places are willing to accept. There may also be
something about the small square footage of typical shops in such cities being
unfavorable towards chain restaurants which seem to require a certain size
(like hotel properties).

The landscape of our policies for cities, neighborhoods, plus the way they
interact with our corporations, directly translates into the kinds of
restaurants that we get as a result.

~~~
alexashka
I want small restaurants as much as I want shoe makers instead of automated
Nike factories.

The way forward is not by enabling people who can serve 500 people/day to
exist when we can have a robot serving 5,000.

We want automation, we want people doing what they _choose_ to do because
we've automated away things they _had_ to do, such as work for a living.

The way to get there is more automation.

Restaurant cooks/servers are the equivalent of hand washing clothes. We have
washing machines - technology has enabled humanity to do a great deal more
with their life, let's move in that direction please.

The other piece of the puzzle is this - technology alone is not enough -
technology alone is why we have nuclear weapons and idiots with nuclear codes.
The time will come soon, when we have to have a frank conversation about the
number of idiots inhabiting this Earth and that it's not climate change, it's
idiots, that will be the end of all of us if this keeps up.

Anyhow :)

~~~
pbourke
We have this today - McDonald’s, Chipotle, Jimmy John’s, Dominos, etc. Sure
there are some humans, but there is also an optimized supply chain and in the
case of McDonald’s, a fair bit of automation.

> Restaurant cooks/servers are the equivalent of hand washing clothes

Both are a skilled trade. Can you not tell the difference between the best
meal you’ve ever eaten at a restaurant and a cup of fried cheese balls from
Sonic? If not, then your post is entirely logical.

> technology has enabled humanity to do a great deal more with their life

More than cook good food for people? Are you surprised that there are people
who dream from a young age of cooking, or cutting hair, or working on a
construction site? That people have different skills, aptitudes and interests?

I’d rather see people flourish while doing what they love to do - especially
if that thing is as central to the human experience as preparing a good meal.

~~~
goldenkey
Actually, some of the best food I've had has been frozen but cooked correctly,
ie. using convection. For example, Healthy Choice used to have a Marsala Pasta
steamer in a balsamic wine reduction. If microwaved properly it was tastier
than 90% of the expensive pasta meals I've had at 4 and 5 star Italian
restaurants. And I live in NYC so I know good food.

That said, it's very possible healthy choice employs very skilled chefs to
either do small batch production or has figured out a way to do large batches
without sacrificing quality.

Their microwave steamer container technology also factors in, since most
microwave meals taste bad due to excess moisture.

I don't think automation and quality have to be mutually exclusive. The same
goes for spirits. Some small batch Icelandic vodka I had was absolutely
horrible compared to the mass produced Grey Goose, despite costing more.

I see the benefits of covid. Culling the inefficiencies in our markets. Shale
fracking, unnecessary luxury services like mid-tier restaurants, etc..

------
every
I worked bar and restaurant for 25 years. I would never, ever open or own a
restaurant voluntarily. The margins are minuscule and require huge up-front
costs with micro-managed inventory, labor and quality control to break even.

Bars however are a dream. Inventory control is simply tracking portions and
comps. Outside of garnishes nothing rots or goes bad. And assuming tips are
good, labor is no worry either. We had a saying: "In good times the bar
business is good. In bad times it's even better because everyone needs to cry
into their beer..."

~~~
JackFr
Yeah it’s funny that she ever mentions booze, where the markups are 200-500%.
If you can use your tables and food to sell bottles of wine, you can really
improve your bottom line.

~~~
hnick
Now that just makes me wonder how the economics pans out in an Islamic
country.

~~~
apta
There's always a way to make healthy profits without dealing in immoral and
despicable practices.

~~~
ric2b
It's not immoral to sell someone a drink that they want to have with their
meal.

~~~
apta
It's been proven what the dangers of alcohol are. Practically the only
benefits are monetary for the seller.

~~~
hnick
I don't drink much these days but I think that's taking it a little far. You
could make the same argument about fatty foods and many other things.

There are non-drink culinary uses for it too. The wholesale banning of alcohol
misses the point a lot of the time. I had a friend who taught cake decorating
and it's common to mix high concentration alcohol with coloured dust to paint
on sugar flowers because it's a great solvent, evaporates quickly, and doesn't
soak into the sugar. No one eats this part of the cake. But in some countries
with Islamic students they were so unwilling to be anywhere near alcohol they
used water. Perhaps I'm mistaken but I thought the original intent of those
commands was regarding intoxication (which I don't fully disagree with) so
this seems odd to me.

~~~
apta
Correct, it's mainly to avoid intoxication and the ramifications that come out
of it. However, I agree with what those students did. They have principles and
they stuck to them. The alcohol could have mixed with the food for instance,
even though it wasn't meant to be consumed directly. Secondly, someone could
unknowingly consume it thinking it was edible.

As to your first point, highly processed foods are definitely something to
watch out for. However, the effects of alcohol are immediate, and can be seen
in a single sitting. Countless instances of rape, drunk driving, and homicides
that come out of it. You won't see someone consume a couple of meals at a fast
food place then lose his decision making ability for instance.

------
mikekchar
I suspect some of these prices are generously rounded up. I think there is a
very good possibility that the author doesn't actually track costs down to
that level. They are probably looking at their overall costs and extrapolating
downwards to the one item. Possibly a good review of their spending could save
them a lot of money.

Yes, I realise it is Ottawa and CDN, but I lived in Ottawa for over 10 years
and these prices don't really line up for me. $2.50 for 125g of protein.
That's $2 per 100g -- without labour. I understand going for high quality, but
there is high quality and there is needless spending. I should introduce them
to some good butchers... Tofu should be bought from the tofu maker in Ottawa
(forget the name). It is awesome (and cheap).

And $0.50 for sauce? I don't know what sauce they are using and the amount
they are using, but donair sauce is primarily yogurt, mayonaise and sour
cream... (condensed milk if you are going for Halifax style, apparently...)
The ingredients should be on the order of $1-2 per _liter_.

The "toppings" appear to be cucumber, red pepper, red cabbage and lettuce.
$0.50. Looking at the amount there, I'm guessing it should be about half that
price.

~~~
indecisive_user
$2 per 100g is about $8.50 per pound.

I don't know what prices in Ottawa are like but that really doesn't sound that
outrageous for a high quality beef depending on the cut, whether it's grass
fed, etc.

~~~
carlob
Maybe it sounds good to you, but I'm assuming that if you have some economy of
scale you are going to pay less than what the general population does. Also
that should be the average between beef, chicken and tofu, and if you take
that into account, it's crazy expensive...

------
supernova87a
Unless you're a really special restaurant with significant differentiation
capabilities and people come to eat at your place irrationally, here's a tip:

Restaurants are never the ones making the money. They enable others to make
money. Usually, landlords.

And generally, be cautious about going into a business where people want to do
it because it's their passion. It means you're going to competing with people
who are willing to work for nearly $0 because it's their passion.

~~~
kinkrtyavimoodh
I don't think the passion argument is that valuable. For a LOT of people
programming is their passion. Yet they command some of the highest salaries.
The labor market doesn't care about passion. It will settle where it needs to
based on demand and supply.

~~~
gambiting
May I introduce you to the video games industry? While there are good paying
jobs out there, I'd risk saying the vast majority of people working in games
are hugely underpaid. At my first job I was literally told "yeah the pay is
crap, but you get to work on big titles so it's fine". And it's not just
demand and supply - we're having a very hard time recruiting for senior
positions as there just aren't any candidates around, but the pay is still
very poor compared to other industries.

~~~
kinkrtyavimoodh
If you are not able to recruit then that pretty much proves you are
underpaying, right? If you pay market price for devs you would not have
trouble recruiting, well, devs.

~~~
gambiting
Yes, seems obvious, right. But every time I tell HR that we have to pay more
or we won't find candidates it's always the same - "that's the standard
industry pay, there's nothing wrong with it, we've done our research and
programmers in comparable positions are paid this much or less"

~~~
jlokier
Both statements are true at the same time.

So my answer to HR's answer is:

If we offer industry standard pay for games companies, we get industry
standard hiring crisis and candidate quality, as seen at other games
companies. Have you researched hiring success at other companies and not just
salaries?

Experience suggests the answer to that from HR would be cultural inertia
though, so it's not really them you'd need to persuade. It's a strategic
decision for the company leaders, whether they think it's worth spending more
to attract hires of the type who get better offers elsewhere.

~~~
kinkrtyavimoodh
Right, HRs exist to do the bidding of the execs, not be independent critical
thinkers. They couldn't personally care less how much people are paid, they
only need to be seen as doing broadly what the execs have approved.

~~~
jlokier
I think it's not quite that simple.

Individual HR people may not all be critical thinkers, but HR people do salary
research and keep up with trends in hiring. They have their own professional
communities where they discuss this stuff. Even if they aren't all
individually doing it, some within the HR communities look at such things and
talk about it with others. They use this to advise each other and their execs
if nothing else.

HR industry groups could, as a body, look into whether "the industry standard"
is getting hiring results as well as employee churn, satisfaction, and
company-reported satisfaction with their hiring outcomes and make that
information available to HR people and then to whomever needs to take it into
account in strategic decisions.

------
thinkingkong
Restaurants are fucked but the underlying costs associated with real estate
are insane. Where I live, treasured restaurants close at a regular cadence due
to rent hikes. Nobody can afford to run a restaurant at the prices being
charged here. The end result is a cocktail that is $25 or a pint thats $10.
High real estate prices are essentially forcing every commercial space to
become a chain restaurant unless they can be just a super busy bar in a
controlled neighborhood.

~~~
nradov
The bizarre thing is that even before the pandemic I've seen popular Bay Area
restaurants close down due to huge rent increases and then the spaces are
still vacant years later. I don't understand what commercial landlords are
thinking?

~~~
Melting_Harps
> The bizarre thing is that even before the pandemic I've seen popular Bay
> Area restaurants close down due to huge rent increases and then the spaces
> are still vacant years later. I don't understand what commercial landlords
> are thinking?

If its anything like what I saw in Boulder, most are held by large companies
(TEBO) who can write off the losses come tax year because they have other more
profitable locations/sites.

The restaurant I came out of retirement on in 2018 has been vacant since
Summer of 2018, just to give context that building was $13k/month before
operational costs, which were immense due to it be an incredibly old building.
I personally had to patch up the pipesdue to massive leaks as our dishwasher
wasn't getting enough pressure and my station was getting all the run off I
had run to FOH get some wine cork to plug the holes and used a bunch of duct
tape until the plumber could get there for the next week of service.

I think I overheard the Sous and Execs saying where I last worked that rent
was 20k/month for the flagship, which on a busy night we could clear in a
single days (day/night) service.

The further this has gone on, Colorado only just lifted its stay at home order
today, the more I think I've hung up my whites and knives professionally for
good this time.

By contrast, this is what is happening in Hong Kong, as they have captured the
loyalty of their patrons and are months ahead of most country in terms of
Covid19 recovery [1]:

1: [https://www.reuters.com/article/us-hongkong-protests-
mayday/...](https://www.reuters.com/article/us-hongkong-protests-
mayday/business-booms-for-yellow-firms-backing-hong-kong-protest-movement-
idUSKBN22D577)

~~~
djrogers
> most are held by large companies (TEBO) who can write off the losses come
> tax year because they have other more profitable locations/sites.

That’s not how taxes and “write-offs” work. You deduct your expenses from your
income, and pay tax on a percentage of what’s left. Having more income is
_always_ better than having more expenses.

~~~
_nalply
You can game taxes.

I learnt about two ways, but I am sure there are many more. First you can
manage the losses of selected businesses of yours such that you break the tax
progression and second if you own the property you rent to yourself (this
means to your company) such that the deduction of rent leads to a higher
reduction of taxes than the increase by the rent income.

------
causality0
>Let’s aim for 19%

I love the cojones in this post. The argument isn't "pay more so we can pay
our staff more, so we can buy better ingredients, so our restaurants can be
cleaner." No, it's literally "pay more so we have a bigger profit margin and
as a side effect we might not go under when the next economic collapse
happens."

The author literally wants society to agree to a massive price-fixing scheme
where instead of them competing with other restaurants we all just agree to
sacrifice some other part of our budgets so we can afford to pay more for the
same dining experience we're getting now.

According to the census bureau in the last ten years spending at restaurants
has grown twice as fast as ALL other retail spending. Fast-casual dining is
experiencing a 9% yearly growth rate. There are too many people in the market.
So the question is, where is this cut in the number of restaurants to create a
19% margin going to come from?

~~~
kinkrtyavimoodh
First, I don't see how you can call it price-fixing given that we are talking
of an industry with thousands and thousands of isolated players.

But even going with the sentiment behind your claim, it's not unfair to say
that if you like the restaurant eating experience it is in your benefit that
it remains profitable enough for people to open restaurants.

~~~
Causality1
Any agreement between competing sellers to maintain prices at a certain level
is price fixing. That's the dictionary definition. Any restaurant or group of
restaurants who heed her call to collectively raise prices to create a higher
profit margin are engaged in price fixing. Perhaps morally justifiable price
fixing, but they're still opting-out of competing with each other on price.

I'll pay higher prices for restaurants who pay their employees better than
minimum wage. I'll pay higher prices for restaurants who use higher quality
ingredients. I sure as shit am not going to pay higher prices just to take the
owner's profit margin from 9% to 19%.

~~~
smabie
Her writing that restaurants should raise prices and another restaurant owner
reading it and deciding that's a good idea doesn't constitute price fixings,
as there is no agreement or dialogue in place. She's merely putting out
information that is being read and acted upon by someone else. For it to be
price fixing, her and the other restaurant owner would need to mutually come
to some agreement to both raise prices.

~~~
kinkrtyavimoodh
Also accusations of price fixing just break apart when you literally have tens
of thousands of uncoordinated players. The generic restaurant gets as close to
a commodity product as it can get while still being a pretty large
undertaking.

------
triceratops
> Drinks for instance cost us more than at the grocery store — but we can’t
> exactly go get 20 cases of pop per day, so we don’t have much choice.

I didn't understand this. It may not be feasible to buy 100 cases of pop at a
regular grocery store, but isn't Costco/Sam's Club set up for that?

I do think it comes down ultimately to real estate prices. Major metros in
North America have gradually become unaffordable for the middle-class over the
past 20 years. It's not surprising that it's the same story for small
businesses such as restaurants. Businesses have to pay workers more (because
housing is expensive) and they have to pay their landlord more (because
commercial rents are high). All that profit margin is ending up in landlords'
pockets.

~~~
WalterBright
> All that profit margin is ending up in landlords' pockets.

The landlord's costs go up, too.

~~~
TheOtherHobbes
Not nearly as much. If at all.

This is what killed retail in the UK. Amazon certainly made a difference, but
given a choice, some people actually enjoy mall shopping and eating.

But between huge hikes in business rates (commercial operating taxes) and rent
increases, retail simply isn't as profitable as it was in the 90s.

The rent increases are pure greed and predatory extraction. There certainly
hasn't been any correspondingly huge explosion of costs for landlords.

~~~
WalterBright
> Not nearly as much. If at all.

Have you looked over their books?

Landlords have to pay:

1\. taxes 2\. maintenance 3\. insurance 4\. mortgage costs (they're usually
leveraged) 5\. legal and lawyer fees for contracts and disputes 6\. costs of
unrented space 7\. accounting costs 8\. costs of just keeping track of all the
changing laws 9\. depreciation

In Seattle, landlords are considered an unlimited source of funds for social
programs by the City Council. For example, if the spouse of a tenant damages
the apartment, the landlord has to pay for the damage, not the tenant.

~~~
jlokier
>> [Cost have not risen] nearly as much. If at all.

Your counterargument:

> Have you looked over their books?

> Landlords have to pay:

> 1\. taxes 2. maintenance 3. insurance 4. mortgage costs (they're usually
> leveraged) 5. legal and lawyer fees for contracts and disputes 6. costs of
> unrented space 7. accounting costs 8. costs of just keeping track of all the
> changing laws 9. depreciation

I think your argument is "there are lots of costs", which is true and people
don't appreciate that a landlord can have a hard time.

But it doesn't work as an argument about how much costs have risen or fallen.

Most of the costs you listed have either stayed the same or gone down in
recent years, so it doesn't appear to support your side of that argument.

Mortgage costs in particular have gone down a lot in recent years. Mortgages
are great if you can get them, because they are so cheap now.

6 has gone up but that one is cheating. It's like saying landlord's income is
lower than the amount it "should" have gone up, which does not work as an
argument that landlords actually have to pay out more. If 6 has gone up due to
longer voids, those voids (until recently) are usually due to raising the
rent, their own decision, so again do not constitute landlords paying out
more.

9 is an interesting mixed bag, as depreciation is only relevant as a true
outgoing cost if you're going to sell the property someday, in which case you
should only be counting the interest component of the mortgage, which has gone
down, as well as the change in property price, which has probably gone up by
more than depreciation (until recently).

~~~
WalterBright
You can't know these costs have not risen by guesswork. You have to actually
look into the business and their P&L statements. And I was responding to a
line of "if at all".

Dismissing depreciation is a serious mistake. All buildings deteriorate,
become obsolete, become inefficient and maladapted to modern conditions, and
simply "wear out" over time. It's pretty obvious if you look at a city and
notice that there aren't many old buildings. Old buildings get knocked down
and replaced all the time.

Just think what happens when the city says you have to install fire sprinkers.
Or do earthquake upgrades. Or tear all the cladding off because it's been
ruled a fire hazard. Or your HVAC system is obsolete. Or the wiring isn't up
to code anymore. These all happen.

The generally accepted rule is buildings have a 30 year life.

But think of it another way. Businesses are subject to supply&demand, too. If
there was some high margin low risk business, entrepreneurs would rush into
it, thereby erasing the high margins. If this is not happening, it's usually
because the government via regulation or law, has prevented competition.

There's nothing about property management that suggests it is immune from
these forces.

~~~
jlokier
> Dismissing depreciation is a serious mistake. ... > The generally accepted
> rule is buildings have a 30 year life.

I think you are saying "there are substantial costs" again.

It only works as an argument about rising costs if backed up by "and the real
costs to the landlord caused by depreciation have actually risen".

Do you have anything to back that up?

I think most people take the view that landlords have generally benefitted,
until recently, from steadily rising property prices, and this nearly always
greatly outweighs depreciation over 30 years. I.e. the cost of property
doubles more often than every 30 years, so you can use the bonanza to buy
replacement buildings which offsets the cost of old buildings being taken
down.

And that doesn't even consider cost of the land, which does not suffer
depreciation even if a building has to be replaced, and is often the majority
of the cost of purchase.

> There's nothing about property management that suggests it is immune from
> these forces.

But there is a very significant obstacle to these forces acting fluidly
according to the ebb and flow of commercial forces! I would happily be a
landlord (until recently and maybe even then) on the basis of commercial
thinking, but the avenue is not open to me because I don't have access to
capital. Capital is around, but it will tend to be allocated first to an
entity with an existing portfolio.

Also, in the town where I live, even if I had a few million, I would struggle
to become a landlord of commercial property larger than a tiny corner shop,
because very few units are for sale. When one comes up, which is not often,
there's a secret bidding war because pent up demand exists as does the money
behind it, and buyers simply cannot find something. This is despite a very
large number of empty units, with owners who seem to be happy keeping them
empty (I know several companies that have tried renting be turned away on
various grounds, sometimes "we are not interested in renting it at all, we
have plans for it in 10 years", others "we want personal rent guarantees from
all the directors as well as a large deposit".) Heck, even renting is subject
to bidding wars and personal interviews to decide which company should be
allowed to rent among several candidates (I've been involved in this twice as
a business tenant, and several times for residential, so I'm not speculating.)

~~~
WalterBright
I've actually been in the commercial property management business for a while.
I can assure you that the notion that you can charge whatever rent you like is
false. That it's a magical money machine is false. That you don't have large
and ever-growing expenses is false. That landlords don't go bust is false.
That you make money with an unrented property is false. That there is some
secret cabal of landlords is false.

I lost money every year in it, and finally gave it up before it crushed me.

Sure, I stink as a businessman. But that's also my point. It ain't an easy
business to make money in.

------
nickff
This post misses the forest for the trees. The reason for the low margins in
the restaurant business is the lack of differentiation. Their products are
largely commoditized, so they have no competitive advantage or market power.
Peter Thiel discussed this in a lecture for YC, where he said that you can
work very hard to make the best restaurant in a city, but it doesn't give you
much pricing power, because the second best is still pretty good.[1]

[1]
[https://www.youtube.com/watch?v=3Fx5Q8xGU8k](https://www.youtube.com/watch?v=3Fx5Q8xGU8k)

~~~
jariel
The issue is not 'why they have thin margins' \- the issue is their inflexible
operating ability mostly due to fixed costs, specifically rent.

If restaurants had 20% margins they would still be facing collapse.

Rent is a huge portion of costs vis-a-vis most other businesses that can be
run 'anywhere' whereas restaurants need prime locations.

~~~
paypalcust83
My great-grandfather was in the restaurant business back east, but my
grandfather saw how unprofitable it was and became a mechanic rather than
continue the family business. (He got fired once as a short-order chef in the
50's from a Howard Johnsons for cooking _too well._ )

Restaurants must relocate to cheaper areas like warehouses and shift to a
delivery-first distribution model, which Uber, Lyft, and Google Express could
help dispatch. It sucks from a customer-interaction perspective, but it's
necessary. Other businesses like Pret in London were already using a hybrid
centralized preparation with small, hyperlocal retail sales model.

If you want to make money, you can't think and do what everyone else is doing
in all respects.

~~~
Gollapalli
>Restaurants must relocate to cheaper areas like warehouses and shift to a
delivery-first distribution model, which Uber, Lyft, and Google Express could
help dispatch. It sucks from a customer-interaction perspective, but it's
necessary. Other businesses like Pret in London were already using a hybrid
centralized preparation with small, hyperlocal retail sales model.

Yes. Let's just kill all community space. Great idea. I too enjoy being a pod
person.

~~~
MattGaiser
> Yes. Let's just kill all community space. Great idea. I too enjoy being a
> pod person.

The problem is that a heck of a lot of people are ok with that. I'm one of
them. When I went to university, the delivery apps arrived in the middle of my
time there. I think I went to a restaurant a 5-6 times in the remaining two
years after UberEats and SkipTheDishes arrived.

I lived in the centre of downtown my final year and I didn't go to a
restaurant downtown once.

I'm an extreme case of wanting to be at my computer to be sure, but it only
takes a small percent opting out to make slim margins go to zero.

A lot of the demand for community type space was under a certain logistical
duress. I either had to go to a restaurant, choose from a limited selection of
delivered foods, or order takeout (and I may as well just eat it there if I
have to make the journey anyway). That no longer exists and instead of paying
for the overhead of the restaurant, my money goes to UberEats.

~~~
distances
I also want to be on my computer, but I have never ordered food delivery and
don't plan to change that. I'm lucky to have a wealth of restaurants nearby
and I like it that way, so it's eat out or take-away when I don't feel like
cooking. The price premium alone for delivered food makes the whole concept
unappealing to me in inner city.

------
virtualritz
Amazing. 11 USD for a döner!

A döner is between 2.5 and 5.0 EUR in Berlin (roughly 2.75 to 5.5 USD).

That's takeaway or eat in at a place with a few tables but w/o table service.

Meraba, which uses high quality organic meat from the region, comparable to
the quality of the protein stated in the article, asks 4.5 EUR. A whole plate
is 10 EUR.[1]

If order to your doorstep it's 6.5 EUR.[2]

[1] [https://www.top10berlin.de/en/cat/eating-257/kebab-
shops-230...](https://www.top10berlin.de/en/cat/eating-257/kebab-
shops-2303/meraba-neuland-doner-2801#1)

[2] [https://www.lieferando.de/en/meraba](https://www.lieferando.de/en/meraba)

~~~
Schweigi
I would argue Berlin has some of the cheapest food in Europe. Though to be
honest the food quality of the 2.5 EUR Döners is usually questionable and I'm
not sure how they can turn any profit or actually live from it.

~~~
dimatura
While on a work trip to Berlin, I walked into a random lebanese place in
Neukolln to get a quick bite. Looked at the price of a shawarma - 2 euros -
and thought, damn, this is going to be awful. But I was in a hurry and got one
(actually two, in case they were tiny) anyway. Not only were they not tiny, to
this day the best shawarma I've had.

------
dehrmann
> So, why are the margins so bad anyway? Well, it starts with the fact that
> the industry as a whole shot itself in the foot when it started competing on
> price.

Started? You're always competing on price until you hit a certain status.
Restaurants are low-margin if they offer a commoditized product.

They're also up against time. People lose interest in restaurants, and if they
can't maintain enough business a few years after opening, they're not going to
make it.

~~~
PaulDavisThe1st
And yet this is not (so) true in Europe, where (1) people eat out less but (2)
people pay more for restaurant food.

What's the difference? Is it really just too many food vendors thinking that
the $1 happy meal is their competition? Or what?

EDIT: a better formulation, from a reply I wrote below: I'll restate it
somewhat differently: eating out in Europe more accurately reflects the full
cost of everyone involved making close to a living wage.

~~~
adrianN
Is restaurant food really more expensive in Europe? I only ate in San
Francisco, so my perception is probably warped, but there at least eating out
is significantly more expensive than in Germany. The prices on the menu are
maybe comparable, but they don't include tax and tip.

~~~
Rebelgecko
Using SF prices to represent the US would be like using Swiss prices to
represent Europe.

------
sleavey
Something's up. In Germany in a normal city I can get a döner the same size as
the one in the photo for €3 ($3.50?). It's not sourdough nor high quality
protein but that can't explain the $7.50 difference.

Edit: as the commenter below reminded me, it's actually more like €4-5 but my
point stands.

~~~
Tomte
That's uncommonly cheap. East Germany somewhere? Those Döner prices are
usually found in Berlin itself.

I live in a cheap part of Germany, and our Döners have gone up from 4.50 or
4.70 Euros to about 5 Euros everywhere.

But let's not forget that even 5 Euros is an insane price for that much meat.

It works out because (a) the meat isn't great to begin with and (b)
Dönerstuben are hotbeds for tax evasion. Many many Döners never make it into
the cash register.

~~~
tiborsaas
Budapest: 2.2 EUR for a nice Doner.

The best shawarma I was able to find costs 3 EUR in the innermost district.

------
jariel
The article kind of misses the point, it's not 'margins' it's about the
variability of costs.

If a restaurant has x% less business, they can buy x% less 'proteins' and x%
fewer servers.

But they are screwed on the fixed costs, which is mostly rent.

The thing is, these are not normal conditions. Real-estate owners everywhere
are as worried as anyone about their business.

If restaurants and other such businesses start collapsing - they will take a
whole chunk of businesses with them - and maybe even risk the viability of
some banks.

If one major bank has been doing stupid things, like Bear Sterns, and
collapses, it could take the whole system down.

(Don't want to chastise but HNers could develop a stronger appreciation for
how all of this stuff is connected and there are some _really scary_ outcomes
from this economic meltdown)

So - there might be a kind of reckoning.

Restauranteurs could legit approach landlords and say: "If my rents stay the
same, we go bankrupt, you won't see a dime, and you will _not_ rent this place
for a year, and when you do, it will be for 20% less"

That's a credible premise.

In other words - the property is really worth a lot less.

So it's hopefully an opportunity for some hard bargaining.

~~~
rdtwo
It is but it doesn’t matter, unless the rent is 20% less in the future because
next year a restaurant just as good will pop up and they can charge 10-15%
less because their rent is lower and the original restaurant is still screwed.

------
talentedcoin
People love food, but eating out at restaurants to the extent that happens in
the modern world is a historical aberration. It’s not just other restos you’re
competing with but a home-cooked meal too.

I get the sense from the tone taken here that this owner is going to be in
trouble down the line. It’s good to be passionate but their objectivity is
clouded. The restaurant with the really expensive donair is indeed likely to
find itself in trouble ...

~~~
nickff
Home-cooked meals are actually the aberration. Back in the old days (before
the 1950s), the poor didn't have kitchens, hence the proliferation of street
foods such as pizza and their ancient Roman antecedents.

~~~
x86_64Ubuntu
My family had kitchens. They were black southerners living in rural hog and
tobacco land. But still, they had means to cook their food.

~~~
ardit33
We are talking about Roman era urban setting. A kitchen was a luxury for most
common folks in urban eras. Most poor people would go to a local shop, and eat
cooked millet/grains or rarely meat (usually chicken, as beef was a luxury),
and lots of local fruit/veggies.

In the country-side, yes, there were kitchens/places to cook home, or often
outside the main home. (barn style of a place, dedicated to cooking).

------
moltar
If we want convenience and scale, we need more cafeteria style restaurants.
Everything is cooked in bulk, you walk in and choose visually what you want.
This is very popular in post Soviet countries.

There doesn’t need to be a compromise on quality and taste either. Maybe
presentation only. Won’t be able to get an instagram shot out of the cafeteria
portion.

Analogous to that are food markets in South East Asian countries. Each stall
just does one thing. You walk thru the market and just grab what you want.
It’s like micro services of food.

~~~
MattGaiser
Isn't this just a buffet?

~~~
gambiting
Buffet for me means one of these restaurants where you pay a fixed price and
then eat as much as you like. That's not the kind of restaurant that is common
in Central/Eastern Europe(in fact those all-you-can eat restaurants have never
caught on here)

~~~
MattGaiser
So what are they like?

~~~
Falkon1313
Cafeteria style means you pick what you want as you go down the line, and at
the end of the line you pay for what you picked.

------
teddyh
> _It’s very simple: let’s reset our expectations and restore respectable
> margins._

If restaurants in general raise their prices, what’s to stop landlords from
doing the same and raise rents to match?

~~~
8f2ab37a-ed6c
Or, who's going to pay $15 or $20 for a sandwich? Most people will pass.

~~~
PaulDavisThe1st
Why will they pass? What's the calculus? "I could make it myself for less" ?
"It used to be less" ? "It shouldn't cost that much <handwave>" ?

Isn't it more likely to be true that they will pass because they've become
accustomed to crazy low prizes for prepared foods?

~~~
chii
why should consumer over pay for anything?

If another restaurant can make a profit by increasing efficiency and keep
prices low, they win over one that doesn't. And restaurants have no real
business moat - recipes for most things are known, and it's mighty hard to
invent something totally new.

Let's imagine that all restaurants raise their prices like the article claims.
Suddenly, the margins at 19%. Let's also assume that consumers are willing to
pay, but if they find something of similar quality but cheaper, the will move.
Then one self-interested restaurant owner could simply lower their price by a
bit, and they will make more money than their competition.

And so all restaurants have to do the same. So the margin of 5-9% is what you
end up with.

TBH, as an investor, if you're given a 9% return on investment, i think they
would be ok. It's not great, but it's not the worst. 19% margin is too high:
most junk bonds are returning something like 8-10% (sure some are like 20%).
Is running a restaurant riskier than junk bonds?

~~~
PaulDavisThe1st
The main way businesses that use labor reduce cost and/or increase profit is
to reduce the cost of labor. Efficiency wins are generally small compared to
labor costs.

So the reality is that, as the article noted, restaurants have been in a
battle for a decade or two focused on cost reduction, which means mostly labor
cost reduction.

In short: the cost of eating out is relatively low because we pay most of the
people involved as little as possible. That might be good for our eating out,
but it's far from clear that it's good for the rest of our lives.

------
_hardwaregeek
Gabrielle Hamilton had a good op-ed about this topic as well:
[https://www.nytimes.com/2020/04/23/magazine/closing-prune-
re...](https://www.nytimes.com/2020/04/23/magazine/closing-prune-restaurant-
covid.html)

As Hamilton notes, even before coronavirus restaurants were facing
increasingly tough financial situations. I agree in principle that restaurants
should raise their prices. There's really no other option. But it's a tough
pill to swallow. Especially with the stagnation of wages. People aren't making
more money and yet everything is getting more expensive. Of course if we raise
minimum wage, this also hurts restaurants because they rely on cheap labor to
keep their already thin margins.

Unfortunately it appears that delivery is part of the solution. Restaurants
can do more volume with fewer staff and smaller spaces with a proper delivery
presence. But the prospect of turning a full fledged restaurant experience
into eating another meal from a plastic container just makes me sad. It's not
the same.

~~~
MattGaiser
> Unfortunately it appears that delivery is part of the solution.

Not with the current fee structure. Delivery costs the restaurant 30% through
the apps. And even then, the delivery service is not profitable.

~~~
locallost
[https://www.facebook.com/100001668520076/posts/2990762630989...](https://www.facebook.com/100001668520076/posts/2990762630989325/?d=n)

~~~
MattGaiser
36% for the restaurant. Yep, that basically aligns with food costs.

------
torgian
I wish opening a business was easier in the states. You want an office
location or want to sell something? You have to rent a commercial place. You
can’t operate out your front door.

Meanwhile, in Asia, many cafes and bars and other types of industries are run
downstairs from their living room....

~~~
mirimir
In small rural Mexican villages, you can use your dining room as a cafe.

------
fouc
I eat out every meal in thailand, but I eat at small mom'n'pop shops, fresh
cooked meals for $1 each.

It would be nice if we moved away from the big restaurants and moved towards
smaller shops that are more kitchen than restaurant.

Restaurants should stop wasting money on signage, interior design, and fancy
tables or dishes. Let's go back to simple, plain, and cheap.

~~~
542458
A few things here:

\- In NA, if you’re “just a kitchen” you’re essentially fast food/takeaway -
and putting myself directly into competition with McDonalds+etc doesn’t sound
like an awesome proposition to me. (Obviously this will vary by culture and
local competition)

\- Signage, fancy tables and dishes are way cheaper than you’d expect at
commercial scales, especially once you amortize them over their estimated
lifespans. And on the flip side, it allows you to charge significantly more
for the fancier experience.

\- I don’t think the “simple and cheap” restaurant actually works that well
economically. My litmus test here is when an area gets gentrified, often these
hole-in-the-wall places are first to go.

\- Most restaurants are lifestyle businesses, so normal business logic breaks
down a little. In many cases, the owners _want_ the prestige of running a nice
place.

~~~
fouc
Yeah I'm really talking about a sole proprietorship/self-employed sort of
restaurant. The owner is also the cook. (that level of scale)

Would be nice if there were more smaller businesses. And less barriers to
entry.

~~~
2019-nCoV
The food truck would be the closest NA incarnation of that.

~~~
mtrower
They exist as described (family owned/operated restaurants; owner is the cook;
relatively small building with small dining area). I personally know a family
which owns/operates one in my hometown, and also know of a few here in
Wisconsin's capital. They don't seem to be too hard to find if you look.

It's probably location dependent, so I don't know about major urban centers
like SFC. But it's definitely not fair to say that NA doesn't have these;
there's a _lot_ to NA outside of major urban centers.

------
creato
I think at least the more casual/lower-end restaurants are fucked because a
lot of people probably learned how to cook in the last few weeks and realized
that it isn't hard to make food that is pretty good, and it's a lot cheaper
and easier to do when doing it regularly.

I'm sure the "fine dining" restaurant business will pick back up again, but I
think the medium tier restaurants will be hurting for a while. I'm certainly
going to be buying a lot less Thai, Mexican, Chinese, etc. food and making it
myself instead. It's almost as good if not better and I tweak dishes to make
them how I prefer.

~~~
kevindong
After cooking almost every meal for the last month (in comparison to before
when my office would cater every lunch and I'd usually do take out for
dinner), I've come to appreciate that yes: ingredients are expensive and
cooking is laborious. At the lower-end of the industry (<=$10 per meal),
prices are low. Perhaps lower than what I could make it myself just due to
ingredients/spoilage costs.

At the lower-end of the medium-part of the industry ($10-$30/meal), I think
the prices are a ripoff. For instance, I've been making a lot of ramen (akin
to what you find in dedicated ramen shops a la spicy miso tonkatsu ramen with
a soft boiled egg) lately. I spend probably ~$6~8 for the ingredients for a
bowl (not incl. ingredients that I buy but end up spoiling before I can use
them) that I previously wouldn't have blinked twice to spend ~$20 on at a
ramen shop (incl. tax/tip). Yes it takes me a solid 15-25 minutes to make it
myself, but my subway ride to/from the restaurant takes about that same amount
of time.

At the higher-end of the medium-part of the industry ($30-50/meal), things
become more debatable since flavors _should_ skyrocket.

I have no qualms about paying for the ingredients for food. But I don't really
care if the restaurant is a proverbial hole in the wall where you order and
pick up your food at the counter. I'd prefer a store where the food is
comparable to another store but at half the price and 0% of the frills of
table service.

------
Tepix
Döner for $11? I‘ve ever seen one sell for more than €5 and €3.50 seems to be
an average price here.

~~~
Symbiote
It looks like it's fancier than average -- bread from a special bakery, "high
quality beef" and so on.

I wouldn't care for a fancy takeaway döner, I think other meals benefit far
more from better ingredients etc. Evidently, others do appreciate it.

~~~
tehlike
There is a saying. If it tastes good, you don't want to know what's in it :)

------
christiansakai
In my opinion. In here (NYC), food quality compared to big cities in Asia (at
least that's what I know, both from 3rd world countries Asia and 1st world
countries Asia) are way better than here in NYC.

It is crazy how bad food quality in NYC for its price. It is so bad that I
almost feel like there is a conspiracy between restaurants in the city that
goes on like this:

restaurantA: "Hey you know, we can make good food" restaurantB: "Yes you are
right, we can, but why should we? Why not just create mediocre food? If
everyone of us are doing it, the customers don't have any other choice, yet we
still charge them expensive price" restaurantA: "You are right, why don't I
think of that? that's genius"

I just don't understand why in Asia food quality compared to its price are
just much much better. At least for Asian food. Maybe I am bias because I am
Asian and used to Asian food. But yes Asian food here in NYC also not great
for its price.

~~~
pacala
The lion share of the price goes for the privilege of eating in a NY
establishment. The rent is too damn high [0]. I bet you can find world class
Asian food in NY, it's just that it's going to be a whole lot more expensive.

[0] 'The Rent Is Too Damn High Party is a single issue political party,
primarily active in the state of New York, that has nominated candidates for
mayor of New York City in 2005 and 2009, and for governor and senator in
2010.',
[https://en.wikipedia.org/wiki/Rent_Is_Too_Damn_High_Party](https://en.wikipedia.org/wiki/Rent_Is_Too_Damn_High_Party)

------
praptak
The author says that restaurants just started competing on price without
stating why. Maybe there is just fewer people who have the money to eat out?

~~~
JackFr
Yeah, there is an assertion without evidence in the article that there was a
golden age of higher margins in the past.

------
JoeAltmaier
Huge mortgage because they build them out like Disneyland? Used to be
restaurants had a couple pictures on the wall, vinyl covered booths and bent-
steel frame chairs/formica tables. Now they've got to have a slice of redwood
tree in acrylic for the party table, antique kitsch all over the walls,
leather seats and a bar that's a cross between a church organ and a cuckoo
clock. A million dollars in 'environment' before you get to the kitchen.

But if the foods good, there's a way. The answer to margins when you've got a
product that people want, is always the same: raise the prices. Value what you
have, and market the hell out of it.

But what do I know.

------
Igelau
If the prices go up, consumers will do it less. Especially after seeing how
much cheaper it was not to go to restaurants for months.

------
baron816
If I were to start a company right now, it would be a restaurant.

Not joking there. The whole industry is begging to shaken up. People are
always going to need to eat, but I'd argue that the avenues they have to get
food on the table are tired and inefficient.

You have grocery stores, which have hardly changed since their "modern"
incarnation over a century ago. Think of all of the inefficients around
grocery stores--you have to travel there, wait in a bunch of different lines,
pick out everything you need yourself, travel home, put a bunch of what you
bought into a big, cold box, and then when you're finally ready to have a
meal, you have to know how to cook everything yourself, and deal with the pain
of cleaning up the mess you made doing so.

Food delivery seems like it should be more efficient--you don't have to waste
time by going to buy ingredients and cooking food, but it's horribly
expensive. That's because there's a lot of middle men in there--the delivery
guy, the cook, the restaurant manager, the restaurant owner, the coders buying
the app you ordered on, the marketeers who you learned about the app in the
first place. All those people need to take a cut of cost of putting food into
your belly.

Meal kits were supposed to be a middle point, but they've all pretty much
failed, unable to bring the cost down much further than restaurant delivery.
And people really just don't want to cook and clean up.

Fast, good, cheap. I think you can get all three if you focus on finding
efficiencies.

1) Only do drive through or walk by pick up. People can pick up food on the
way home from work.

2) Order ahead on an app. Maybe days in advance. That way, food is ready at a
specified time and can be handed off as soon as the custom drives/walks up.
And restaurants will know the exact amount of ingredients they need and don't
need to stock extra.

3) Have a rotating menu of items that people could eat everyday. All of you
working at Silicon Valley tech companies probably love your catering service,
since you're getting different, quality options everyday. It's tough to living
off a limited selection of unhealthy delivery options.

~~~
bobthepanda
1 basically describes a food truck in the US, a deli or hot dog cart in NY, or
hawkers in Asia; low footprint, low startup cost.

The problem that is endemic, is that most retail spaces are far too large for
an operation like that, and you can't just ask your landlord to only give you
20% of the space they're trying to rent. And in most of the US street carts
are illegal, and food truck permitting can be a PITA depending on the
jurisdiction.

------
gbronner
A competitive product is available in midtown ny for six dollars.

Key differences are \- pita vs sourdough \- street meat vs name brand meat \-
lower quality vegetables -served in a foil sheet vs a take out bowl \- lower
overhead since it comes from a cart usually operated by the owner \- they use
cans, not a dispenser system

Gourmet food is a luxury, and expecting people to pay higher margins during a
time of wealth contraction will only work if she can change the narrative and
position her German street meat as being entirely different than NY street
meat.

I think she'll need to downgrade her product

------
8f2ab37a-ed6c
My guess is that moving forward businesses will try to reduce labor and
overhead through automation and centralization in places like cloud kitchens.
Delivery costs to the consumer will eventually be sufficiently streamlined to
be negligible, like they allegedly already are in East Asia.

A $20 kebab is not going to fly. The only other option is to optimize whatever
costs can be optimized.

Unfortunately it's not looking good for people who are currently employed in
the more manual roles. It was only a matter of time before that became the
case in the food industry.

~~~
novok
Delivery food tends to not taste as well as food that come straight out of the
kitchen, and that dynamic is going to be hard to compete with without a much
faster delivery pipeline (drone delivery)?

~~~
8f2ab37a-ed6c
Agreed. I don't think it makes sense to order food from a place that's a 30
minute drive away, but unfortunately in bigger cities with traffic this is the
norm as of today. By the time the food makes it to you, it's lukewarm and has
lost some of its appeal. A first world problem, but also one of the simple
joys of food.

Maybe with cloud kitchens we'll be able to improve kitchen proximity, and
we'll improve the containers that the food is delivered in.

Not to mention that most of the containers used for delivery are not
biodegradable and, I imagine, generate a ton of extra trash.

------
seemslegit
In what major city or urban area have restaurants been competing on price
during the last two decades ? In fact the prices seem to have gone up
consistently far above inflation with the dominant cost component being rent,
local taxes and services.

Profitability is low because consumers reduce visit frequency and money spent
per visit as the prices feel unjustified for value served even when priced at
meager margins above cost, this in turn puts pressure on owners to make more
money per-item further alienating consumers.

------
sklivvz1971
The article does not make much sense, starting with the unsupported statement
that "restaurants have been competing on price." That's really not correct. In
any economy, some actors compete on price, others on quality or other
differentiators.

The competition is on price only in commoditized markets, and even there
margins vary based on demand and offer. If you have a gold mine, you have
fixed extraction costs, but the price of gold is floating.

In the restaurant business, shops have different categories. A Michelin star,
for example, allows you to be in a different "price bracket." Some of this, of
course, is reflected in ingredients, location, and skills, but usually, a
restaurant doesn't need to change location or chef to get an extra star, they
just need to improve quality.

The "street food" or "comfort food" business does compete on price and
generally uses marketing and location as a differentiator. You buy a cheap hot
dog at the stadium because it's there. Competition for the cheapest street
food is what she refers to, assuming that a niche is a whole market.

A market where there's too much competition on price means that there is more
offer than demand. If several restaurants close, it means the number of
restaurants and the number of people that need one rebalance, and this will
mean higher margins for the remaining ones.

------
superzadeh
Wait, $11 for a Doner? It's 3.5 EUR here in Berlin, and there's 2 Doner shops
at EVERY corner. Maybe the issue not just the restaurant price, but also the
underlying system that (doesn't) support them? Even if you double the price,
at 7EUR (which is typically needed when comparing things like Salary between
EU/US), there's still a large difference. I'd be curious to know how German
Doner shops are doing, and what are their unit economics.

------
humanhologram
Quit whining about how your restaurant is going to die, you knew about the
crap margins going into the restaurant business in the first place. Everyone
is fucked. This is life.

~~~
kinkrtyavimoodh
I guess they also knew about 4 months of 0 to low business thanks to a global
pandemic?

You know it doesn't cost much to be a bit nice to other humans...

------
KenanSulayman
Wow, $11 for a kebab?? I just ate one for 3.50€ around the corner the other
day (Berlin) and the shop didn’t have to close even after all that lockdown.

Maybe the reason the margins are so low in the US is that everyone tries to
rip each other off?

If all the providers of utility services (cleaning, water, electricity, ...)
start to push the pricing limits, no wonder you’ll end up having no margin
left at $11.

I’d rather make the kebabs myself every single day at that price!

------
spyckie2
Look. I know it sounds good to say, hey, there may be a catastrophic event
every 100 years, let's factor that into our costs as a collective industry so
that we don't all die when it happens.

But realistically, you're going to get laughed out of the park. Cheating on
longer term costs to gain competitive advantage in the short term is rampant
and part of how capitalism works.

An example of this kind of thinking - "if I cut my price by 5% by not paying
for 100 year catastrophe insurance, then I will have an edge over my
competitors who are paying that 5% for 100 year catastrophe insurance."

This is actually how all industries are run in the modern era. To compensate,
western companies generally have strong finance functions to find other ways
to survive.

Public companies raise capital by selling shares. You can also take a loan,
reduce opex, or rely on your savings. Relying on your savings is relying on
your past. Everything else is, at least in part, drawing from your future.

It's the private SMEs that have the most risk in this model because they lack
similar access to capital as publicly traded companies. If SMEs do not have
substantial marginal profit, they are playing a very risky game.

------
diebeforei485
I'm starting to think commercial landlords need some competition from local
governments. They could create a privately-run charter corporation that rents
out small amounts of space to local businesses. Not rent control, but
reasonable terms (3-6 month leases, instead of 10-year leases).

There is too much NIMBYism and too many middlemen and archaic expectations in
real estate for any mom and pop business to be viable.

~~~
MattGaiser
> I'm starting to think commercial landlords need some competition from local
> governments.

> There is too much NIMBYism

If you could get rid of the NIMBYism, then the commercial landlords would
compete with each other.

------
MattGaiser
I suspect restaurants just overbuilt and there are too many with eating space.

40% of the population consists of introverts. UberEats lets us eat in the
comfort of our own homes for a $5 premium. I go to restaurants far less as a
result. Problem is, I bet restaurants have lost money on most of my orders
given what UberEats/Doordash charges them so while I spend more on restaurants
as a result, I make them nothing.

------
perlgeek
> Well, it starts with the fact that the industry as a whole shot itself in
> the foot when it started competing on price.

It's not like the industry as whole could decide to _not_ compete on price,
and enforce that somehow. There are regulations against this kind of behavior.

Whenever margins are high and competition is tough, somebody will try to
compete on price, because it's the profitable thing to do.

------
Tomte
I hate the jargon where "protein" means "meat".

It debases the thing. Why don't you sprinkle some whey powder or something
over your Döner?

I know that train has left the station, but damn, why would you willingly
remove yourself from what the food really is? Do you also drink ethanol
instead of wine? Do you smears lipids on your bread instead of butter?

~~~
yung_donair
IIRC the three options at this place are Beef, Chicken and Tofu, so calling it
meat would just be incorrect.

------
learnstats2
Restaurants are always fucked.

It's said that only 40% of restaurants last a year, and only 20% last 5 years.

If a restaurant has proven to turn a profit in normal times, it will likely be
able to survive coronavirus. If not, it will be replaced by someone else who
thinks they can run a restaurant (and is probably wrong). Business as usual.

------
irrational
>The craziest thing to me in all this is, I love food. Like, obsessed. Who’s
with me? My point is: if eating is literally one of our favourite things ever,
are we willing to pay adequately for it? Do we value it sufficiently?
Honestly, seems to me like, if there’s one industry that should be profitable,
it’s restaurants. One, we have to eat. Two, we love to eat!

I'm wondering if there is some personality differences at play here. The
author loves food and probably eats out regularly. I like food, but I see it
as more of a means of sustaining life than something to be enjoyed (I
typically eat the exact same thing every single day). I only go out to eat
about once a month. Am I an anomaly, or is part of restaurants' problem that a
significant part of the population is not in love with food?

~~~
mrpopo
As it's something you have to do, why not at least try to make it enjoyable? I
don't get it.

~~~
ht_th
The whole restaurant experience is not very enjoyable to me. There is a lot of
noise, either because it is crowded and people talk loudly or because of
music. Chairs, tables, and tableware are often not comfortable. Service is not
that great: I have to wait to order, for my food, for my check, and so on.
There are not many options that fit my dietary choices and food is
surprisingly often fat, salty or sweet to the extent that I am not tasting the
ingredients any more.

How am I to make this enjoyable in a restaurant? At home, at least, I can
select ingredients and cook the meal to my taste. I have seats and tableware I
am used to and are comfortable to me. I can talk and _listen_ to the people I
care about. And this better experience is significantly cheaper than in a
restaurant, which means I can have this every day!

------
JSavageOne
I've noticed that in Asia food prices are relatively low and there is an
abundance of options. There are many mom & pop places, whereas in the U.S. it
feels like mostly big chains.

In South Korea and Japan, it's common to order and pay for your machine using
a kiosk. When your food is ready, you pick it up yourself, and when you're
done, you drop off your tray in the designated location. I'd imagine this
saves on a great deal of labor costs.

Other than that, perhaps the rent is too damn high in the U.S. My experience
watching countless restaurants and commercial properties become vacant
storefronts and bank retail branches in Manhattan at least would suggest that.

------
fanzhang
The article claims that 20 years ago, restaurant margins were 3x higher than
today's 3-9% (e.g. 10-25%). I can't find evidence that restaurant margins were
ever that massive. In fact the first few Google search results e.g. [1]
confirms what I suspected: margins were low single digits even 10+ years back.

Therefore, this makes it less likely that there is a paradise lost of high
restaurant margins we can return to, and more likely that some fundamental
parameters that make the economic equilibrium of restaurant margins really
low.

A guess for these parameters include:

\- High competition: there are dozens if not hundreds of different restaurants
I could walk to in 10 minutes (living in a US city).

\- Low barriers to entry: a good minority of the population can learn how to
operate an okay restaurant.

\- A lot of owners get "passion utility" out of running a restaurant -- this
means they are willing to be paid less in cash.

\- Lastly but maybe most importantly, incredibly price sensitive customers.
Just like the retailing industry, individuals are incredibly brutal about
price. We can exhort day and night about the bad practices of Amazon, Walmart,
boycott country X, but at the end of the day price wins. The author here is
making a "boycott low margins" appeal which doesn't seem practical.

Restaurants will re-equilibriate. Likely a bunch will go out of business
sadly. If social distancing requires there to be fewer customers, and
customers are more cautious and eat out less, the bright side of the thin
margins is that the restaurants will just pass this cost onto the customers
since the ones that don't will be out of business.

Since all restaurants will automatically cost more resources (square foot per
customer, overhead) to operate, they will have a common force uniting their
upward push in prices too.

[1] [https://www.forbes.com/sites/sageworks/2014/06/22/us-
restaur...](https://www.forbes.com/sites/sageworks/2014/06/22/us-restaurants-
margins/#1c50df1c3cc3)

------
golergka
By the way, wouldn't it be the best time ever to start a restoraunt
immediately after things get to normal?

A lot of vacant real estate, cheap after-market equipment, desperate
workforce, so you can get the best cooks and waiters for peanuts...

------
commandlinefan
I take my family of four out for dinner and we’re looking at minimum $60 bill.
If that goes up, we’re just going to eat out less - charging more isn’t going
to “fix” the restaurant business.

------
irrational
>we’re so used to free garbage pick-up at home that I never anticipated having
to pay for it

What locales have free garbage pick-up at home? This is the first time I've
heard of such a thing.

~~~
mtrower
Anywhere I've lived in Wisconsin is free* residential, contractual for
business. Basically what PhantomGremlin said, minus the mafia. I'd always
assumed it was this way everywhere in the U.S.

Whereabouts do you live, and what is the situation there with residential
waste and recycling?

* Of course, this is (presumably) funded by city taxes, so "free" means "I don't see the cost explicitly".

~~~
irrational
I've lived in Florida, Indiana, Texas, Colorado, Utah, California, Oregon, and
Puerto Rico. As I recall we had to pay for garbage and recycling everywhere.

------
machinehermit
We basically have had a bubble in restaurants.

Based on Yelp and google we have about 29 Indian restaurants here and 25 craft
beer breweries.

There is not a big Indian population here. I love Indian food but 29
restaurants is absurd.

10 years ago we didn't even have ten Indian restaurants and no craft
breweries.

I wouldn't doubt whenever you have a really long business cycle expansion you
end up with far too many restaurants open.

------
chvid
Midlife crisis hint: don’t ever start a restaurant.

------
andybak
My biggest shock in reading this is that out of the 3 types of Doner mentioned
in the picture, lamb isn't one of them.

------
Waterluvian
I think this can all be collapsed into a very simple explanation. Almost
everyone has a kitchen in their home and practices being an amateur chef every
day.

What else does everyone practice almost every day at home that has higher
margins?

Restaurants are competing with a baseline price of homemade meals. Most other
businesses aren't competing like this.

~~~
IAmGraydon
Most restaurants aren’t just selling food. They’re selling the experience.

~~~
Waterluvian
Yeah. But that's not really the core concept. That's an add on. The core
concept still competes with "anybody can make a version of that doner at home"
so if you want everyone to rethink the value of the experience up to $15 a
pita, it's just going to drive more people to eat out less.

I appreciate that there's more to a restaurant than the literal food on the
plate. But I think it's what oversold that ambience drives such a premium.

------
Corrado
Another way to cut costs (at least in the US) would be to decrease the portion
size. Honestly, food in the US is too big, sometimes comically so. I think I
would be willing to pay the same price for less food; it would help out the
restaurants and help my waistline as well.

------
rmenfj25
I've heard of local stories where restaurants are pairing up to provide meals
- i.e. dinners with a combination of a nearby desert place. This may be
temporary but perhaps will be a model that continues in the future to support
local businesses.

------
_ph_
I am indeed worried about restaurants short-term, because they are one
business difficult to run under the current hygene rules. Many restaurants
here in Germany have switched to offer take-away food, so while drastically
down, their business is not going away completely. And of course, the market
isn't going away. As soon as restaurants can operate mostly normal again, the
demand will be back, if not even much higher at least initially, because
everyone is missing eating out at the moment.

So the question is more, can the restaurants survive the time in between? And
this is not a question of margin, it is a question of fixed costs. The
employee costs are quite reduced, as they are fired or on temporary leave.
Here in Germany, the salaries are covered to large parts by the government and
public insurance in times where there is not enough work for a business as a
whole. This leaves the rent for the restaurant as the big cost factor and the
rent is also the biggest cost factor which makes restaurants struggle in
normal times. Which also kills all attempts an raising the margin as described
in the article. And this isn't limited to restaurants only, the true reason
small shops are disappearing isn't only online purchase, it is the real estate
costs which keep rising until the shops and restaurants are operating at
minimal margin. This is where in this crisis and going forward, the survival
of restaurants and businesses is decided.

For the restaurants themselves, a lot can and should be improved to raise
their margins. First of all, many restaurants are badly run. It is easy to
cook and serve a burger, it is an entirely different challenge to run the
business so that you make a profit. This is why some restaurants are in a
constant struggle while others are hugely profitable. And of course, as with
any lasting business, you have to put money aside in good times to survive bad
times.

The post doesn't talk about beverages. At least here in Europe, the places
often are just making even at the food while earning a lot with beverages.
Especially as in the evenings, people don't leave the restaurant so quickly
after the food has been eaten, but stay for some more drinks and conversation.
This is why I always order a drink even when being out for lunch. When they
serve me a glass of water for 2-3€, that is basically their profit.

But all of that goes to nothing, if all the profit is absorbed by the real
estate costs. Short term, the landlords will have to waive quite a large part
of their rent, or they are going to find out that a bankrupt restaurant pays
no rent at all. Long term, the communities have to work at keeping costs
reasonable.

------
diebeforei485
> Drinks for instance cost us more than at the grocery store

Isn't this what Costco and similar wholesale clubs are for?

------
aaron695
Independent restaurants in their current form I think are interesting, it's
always interesting to see what other people think.

I think it's mostly people who are artistic and creators and have a work
ethic, working massive hours for below minimum wage.

This is not necessarily a bad thing, to create is a reward in itself. And at a
societal level, we all benefit.

But it doesn't change, they are fucked.

Just asking people in the up and coming Depression to eat out more or pay more
money won't work.

C19 has destroyed the restaurants, they won't come back for years, that's all
there is to it. C19 has destroyed a large part of our wealth. Holding hands
together and singing won't help.

There are ways to catch up, they are the same as 40 years ago. Like reducing
environmental restrictions, reduce employee safety. C19 will continue to kill
for decades, even if we get a vaccine or treatment.

------
ggm
People want Bouchon at McDonald's prices.

------
k__
TL;DR The real estate market is shit and should be nationalized.

I'm living in a big city and the rent these restaurants have to pay is
ridiculous.

All new buildings get used as offices.

------
devit
Good riddance!

Restaurants are an horribly inefficient way to eat compared to supermarkets,
and they are a really lousy social environment, where you can only interact
with people at your table, often in very inauthentic (aka "formal") ways.

Not much will be lost if only a few restaurants survive.

------
Alex3917
In NYC a huge percentage of restaurant workers are already dead, so whether or
not the owners remain solvent is kind of moot at this point.

~~~
throwaway17_17
This is just a ridiculous exaggeration. There are at a minimum (the number of
reported and taxed restaurant workers) 302,000 in NYC. There have been 13,500
deaths in NYC. That is less than .5 percent of the number of restaurant
workers in the city.

~~~
sokoloff
One percent of 300K is 3K. Your figure is “less than 5 percent”, not “less
than 0.5 percent”.

~~~
throwaway17_17
Thanks, whisky has apparently made my math skills suffer this evening.

------
troughway
> Wolf Down (quick serve German Street Food)

And yet looking at the picture attached I wondered "That layout looks like
something cliche out of Ontario". Was not surprised to find out it's in
Ottawa.

Not that changing decor in the current climate will do much, but for heaven's
sake, why do so many of these places recycle the same stripped down, soulless
interiors in that province?

To the article's point, doing any back of the napkin (sorry) math on average
rental pricing per sqft, number of employees and so on, would give you a
ballpark number that is borderline insane, and would make you wonder how
majority of these restaurants can afford to stay open (hint: they can't).

My theory, which is not a theory so much as it is fact, is that there is a lot
of dirty money laundering happening through these small "boutique
restaurants". I don't see this discussed anywhere.

~~~
Symbiote
> there is a lot of dirty money laundering happening through these small
> "boutique restaurants".

I don't believe that -- why bother with a boutique restaurant when you can
just run a crappy kiosk / convenience shop instead -- but forced closures
cause an interesting predicament to anyone with a business like this: if their
illegal income is continuing, how can they continue to report it when the
front-business is supposed to be closed?

~~~
thatguy0900
[https://www.latimes.com/california/story/2020-04-29/coronavi...](https://www.latimes.com/california/story/2020-04-29/coronavirus-
slows-money-laundering-to-a-crawl) apparently a hard problem to solve

