Just WHO do They Work For?

According to a Harvard Business Review article a few years back, one out of two new restaurants go bankrupt within the first year of operation.

And four out of five of them go upside down by the end of the fifth year.

And nineteen out of twenty go tits up by the tenth year.*

So why, I would ask, would anyone with even a modicum of horse sense decide to risk all the time, effort, energy and money necessary to open and run a restaurant, if they knew the odds were so stacked against them?

Because everyone wants to own a restaurant, apparently.  And many put their cash on the line to do so.  Historically, the "30-30-30" rule has been operative.  That rule states that restaurants should cough up about 30% of their operating expenses on food and related products.  And 30% on labor and related costs.  And another 30% will be spent on rent, insurance, phone and other overhead.  The last 10% has historically been expected as before tax profits.  Meaning a restauranteur should expect to pocket about 5% net as his operating profit.  

Rigggggttt!

No longer.  The cost of meat has skyrocketed of late, up some 36%.  Resulting in the cost of a steak on the plate costing the diner $60.00 or more.  Often mucho more.  

And labor has jumped up to as much as 38% - 40% of operating expenses, especially in Blue States like Taxifornia, Massachusetts, New York and Illinois.  There's a little town outside of Portland which just adopted a Minimum Wage of $21.16 per hour.  Our Federal MinWage is still $7.50, BTW.

All of this puts extreme pressure on the guy running your local restaurant to try and make ends meet any way he/she/it can.  And one of those ways is to try and shift the cost of labor from him/her/it off to the diner.  By adopting new charges and tipping policies.

Let's take a trip back in time and look at tipping and how it came to be.  The "tip" starting in Merry Olde England back in the 1750's.  If a guy felt his serving wench brought him his cup of mead in a timely fashion, he would toss her a tuppence.  For tipping means "To Insure Promptness."

Now?  A fat tip is now expected.  Nay, DEMANDED!  And the restauranteur has endorsed this expectation.  From 15%, which used to be the tippy top tip, to 25%, 30%, or even more.  The owner pays his wait staff a piddling hourly rate, and then convinces his staff that the diner will cover the rest.  So much has this become expected that the waiter and waitress gets pissed if the diner chooses to tip less than the now expected 20% or more.  And this often results in mediocre service based on that expectation.  There's even a case on the books of a waitress calling the cops in NYC for a diner having chosen not to tip at all.  

Really.

And then the owner is now slapping a charge on the bill of 20% or more so to cover his costs of labor.  Stating it will be spread among the staff to cover "a living wage."  As if that your obligation.  And then stating it's in addition to the tip, which you're expected to pay.

The MickeyD's and Burger Kings and Wendy's will still sell their burgers.  Some will continue to pay $15.00 for a BigMac, even though that number is declining.  

The high-end restaurants will still sell their meals for $100.00 a plate to those celebrating birthdays and wedding anniversaries.  

It's the mid-range restaurants which will suffer.  The Chili's and the Applebees and the Chipotles which used to be affordable, and are no longer.

I predict that the 95% failure rate will increase over the coming months.  The owners will rob peter to pay paul until peter squeals like a stuck hog.  That 5% net profit expectation will evaporate, leaving the owner to head out the back door, throw his keys over his shoulder and head on home.  Wishing he'd never acceded to that universal wish of restaurant ownership. 

Better either head on out to your favorite watering hole soon to get that overpriced steak you love so much as it may soon be unavailable.  The only guy who may win in this situation is the bankruptcy attorney.  But they always win, now don't they?

What a shame.  This has truly become a recipe for disaster...

*  I ran an NCO/EM club while serving in the Army way back when.  It was a converted B-29 hanger, seating 450 hungry, thirsty soldiers.  We had a kitchen and wait staff of 60 on weekend nights.  With a revolving stage, with one band playing off as another played on.  So I have a bit of experience in this whole restaurant managing bizz.  Enough to analyze our current situation and put forth my opinion as to how it's likely to end up.  And it's not good, Fellow Patriot.  Not good at all...