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Local restaurateurs battle labor challenges

Owner: 'We're competing as much for staff as we are for customers'

Last year, Omar Piña's Menlo Park restaurant, Mama Coco, was so short staffed, he had to return to the kitchen for several months. His wife often came in to help serve food.

Finally, he hired two people to fill the gap -- people who had no prior restaurant experience but had worked at Mexican markets. He spent about a month teaching them how to cook and was eventually able to return to his primary responsibilities as a business owner.

But the economic pressures impacting his and many other Midpeninsula restaurant owners' ability to hire and hold onto quality staff a regional labor shortage, the increasingly prohibitive cost of living in the area and higher minimum wages, among other factors -- persist.

Restaurants up and down the Midpeninsula are understaffed, with consequences for both owners and consumers. At some restaurants, service has been affected: Some days, Pizzeria Delfina in downtown Palo Alto doesn't have enough staff to open its outdoor patio, owner Craig Stoll said. Owners are raising menu prices more frequently to be able to pay their staff competitively, afford hours of overtime and achieve already razor-thin profit margins.

Longtime owners who have run restaurants here for decades say they've never seen labor costs become so acute, and they fear a breaking point is on the horizon.

"We're competing as much for staff as we are for customers," Stoll said in an interview with the Weekly. "The cost of living goes up, and we continue to have to pay more, and our margins shrink, (and) our prices increase. It's kind of a vicious cycle."

An 'evaporating' labor pool

For Michael Ekwall, who with his wife co-owns La Bodeguita del Medio, a longtime Cuban restaurant on California Avenue in Palo Alto, affordability is not only the No. 1 issue driving the local labor shortage but also "No. 2 and 2.5."

"The labor pool here -- because it's so expensive, the cost of living is so high -- is much shallower than say San Francisco or even San Jose because the cost of entry here is so much higher," he said. "When you're talking about a one bedroom apartment for $2,000, not a lot people can afford that."

Owners say the problem has become more acute in the last two years or so. At one local restaurant, line cooks make about $2,600 per month; bussers, about $3,000; and servers, about $4,500. (Line cooks, however, work the most hours.) Employees can get additional compensation from overtime pay, and servers also earn more from tips. However, the median rental price for a one-bedroom in Palo Alto currently sits at $2,700, up 8.7 percent from last year, according to a report compiled by rental website Apartment List. The median cost to rent a one-bedroom in Mountain View is just below Palo Alto's at $2,680, according to Apartment List.

Owners said they see many staff living with multiple people in apartments -- three people in a one bedroom, for example -- to afford rent.

Most restaurant staff still live in the area, in relatively more affordable cities like Redwood City, East Palo Alto or San Jose, owners said. Workers don't tend to come from areas that are cheaper but farther away, like the East Bay or Gilroy, given the added expense it would take to commute.

Yet even Midpeninsula cities with relatively less-expensive housing, like Redwood City, are becoming unaffordable for restaurant workers.

"If you're a restaurant assistant manager or a restaurant sous chef and you wanted to start a family or have a life or buy a house, how could you possibly do that in the Bay Area?" asked Howard Bulka, owner of Howie's Artisan Pizza at Town & Country Village.

"They find an apartment; they find a back house; they live with three people in a two-bedroom apartment or whatever it is. But ultimately, they leave. Ultimately, they look for greener pastures," he said.

"The labor pool is just evaporating," Bulka added.

The cost of living is pricing out not only restaurant employees but owners themselves. Ekwall rents a home in Menlo Park and said he can't afford to buy a house in the city where he's run a restaurant for 20 years. Bulka and Dan Gordon, owner of the eponymous restaurant in downtown Palo Alto, both live in Redwood City and said that they, just like their employees, cannot afford to live in Palo Alto.

Peter Katz, the original Northern California franchisee of burger chain The Counter, said he sees similar issues across his eight locations, but labor costs are highest at his Palo Alto, Mountain View, Cupertino, San Mateo and San Jose restaurants. Labor accounts for from 33 percent to more than 40 percent of total sales revenue at The Counter, depending on the location. It is the restaurants' largest expense category, he said, and itself has risen about 30 percent to 40 percent over the last five years.

Bulka said he has been raising wages in his restaurant consistently for the last three years.

In the first five years Howie's Artisan Pizza was open, he raised menu prices once. Now, he raises them every year to compensate for the increases in labor and other costs, he said. This is not a simple fix, given raising prices means running the risk of customers ordering less, choosing to eat elsewhere or cooking at home.

Ekwall described the current labor environment as a "staffing nightmare." On a weekly basis, La Bodeguita is down three people out of about 45, he said. Like Piña, there are days when he and his wife have stepped in to fill in as host, food prep or even dishwasher. On a recent week, La Bodeguita racked up 120 hours in overtime -- the equivalent of two-and-a-half employees, he said.

"We're trying to balance this concept, from our perspective, of being able to pay people enough money so they can live around here but also that we can stay in business," Ekwall said. "That's the challenge."

And in an over-saturated restaurant scene, potential hires have a healthy choice of prospective employers. Today, rather than people being desperate for a good job, owners are desperate for good staff.

"Sometimes they get a different offer from a different restaurant -- maybe one more dollar, $2 more -- and then they leave," Piña said.

"I'm always scared. Every time I come in, I cross my fingers and I say, 'Hopefully everyone comes to work,'" he said.

Owners have also had to lower their standards for hiring, particularly for back-of-house positions. Cooks with far less experience have become more attractive in the current labor market, owners said.

Another huge shift for restaurants operating in Silicon Valley: increasingly stiff competition from tech companies and restaurant chains that can offer better pay, benefits and hours. The impact from tech companies is dual: Not only are they drawing down on the local labor pool to staff on-campus eateries, but by providing employees with quality food at the office, fewer people going out to eat on their lunch breaks, local restaurant owners said.

In light of all of this, owners are doing what they can to make their restaurants more attractive places to work. La Bodeguita, for example, has long paid half of full-time employees' health care plans, and offers 401Ks. Asian Box, which operates locations in Palo Alto and Mountain View, pays its staff weekly (which costs the restaurant "substantially more"), offers cell-phone plan reimbursement, helps staff with loans, writes apartment references for staff and has always paid more than minimum wage, owner Frank Klein said. Owners are more flexible with scheduling, particularly given many employees work more than one restaurant job.

Other owners say they are cultivating kinder, more positive kitchens with an emphasis on teaching -- a stark contrast from the traditionally unforgiving, even abusive, environment of kitchens past. At Pizzeria Delfina, Stoll has implemented regular staff reviews to check in not only about performance, but to set and guide staff toward goals.

"Our focus is always on being a great restaurant for guests to eat at," Stoll said. "Newsflash: We have to focus on being great employers now."

Pressures of the new minimum wage

On Jan. 1, restaurant workers in both Palo Alto and Mountain View saw their minimum wage increase -- in Palo Alto, to $12 per hour and in Mountain View, $13 an hour. Both cities are on a path toward phasing in an eventual minimum wage of $15 an hour. California's minimum wage is currently $10.50 an hour, with yearly increases ahead through 2022.

Owners say they support a living wage for their staff, but local cities' accelerated increases are having an intractable impact on their bottom line. They're also frustrated by local elected officials who supported the increases without understanding the effects on restaurants in particular. The low-paid employees who need a higher wage the most, like back-of-house line cooks and dishwashers, are sharing the new increase with waiters who make ample additional income in tips.

This amounts to robbing Peter to pay Paul, Dan Gordon said.

"It's very regressive in terms of the highest-paid restaurant employees are getting a raise and the people that need it the most at the back of the house are going to be left behind," he said.

The new minimum wage also affects restaurants disproportionately, with full-service restaurants bearing more of a burden, Gordon said. The wage increase means less money to go around for the non-tipped employees. One solution owners have called for is an exemption that would apply to tipped employees, most of whom already make more than $20 per hour in tips alone. (The Palo Alto City Council agreed in January to advocate for a state law that would allow cities to do this, in part due to pressure from these and other local restaurant owners.)

Gordon and other local owners are also watching carefully as Bay Area restaurants experiment with different solutions, such as replacing tipping with a mandatory service charge.

While the full impact of the minimum-wage hike remains to be seen, Gordon is already worried about the jump to $13.50 coming next January. He predicts "dramatic" closures are ahead for full-service restaurants.

"There's a lot of uncertainty and there's a lot of panic in the air. Restaurateurs are all talking about it. The initial nail into the coffin was Jan. 1, and now we're worried about next January and how to survive," he said.

New trends in dining

As the full-service neighborhood restaurant struggles to survive, less labor-intensive concepts are taking hold. The rise of fast-casual dining, in which customers order at the counter, their meal prepared assembly-line style, is gaining in popularity.

This trend is apparent in Palo Alto's and Mountain View's dining rows. In 2016, Palo Alto saw the opening of numerous fast-casual eateries, including Sweetgreen, Lemonade, Tender Greens and three poké eateries. Sweetgreen is planning another location for Mountain View's Castro Street, which is also home two fast-casual poké spots, family restaurant-turned-fast-casual Asian-fusion eatery Srasa Kitchen and Asian Box, among others. Service is less central to their concepts -- and, thus, to their success.

And at some restaurants, such as Calafia Cafe and Yayoi in Palo Alto, tablet computers are helping to take orders, split checks and calculate tips.

While owners hope diners still value the touch of a human server and the full-service experience, the appeal of the cheaper, fast-casual model is undeniable.

"We think that our staff, hopefully, represent us in our vision and enthusiasm to the guests. You don't get that from a tablet," Ekwall said. "But at the same time, if you have overhead of labor of several hundred thousand dollars a year and you can buy an iPad for $500 -- less than a week's worth of wages -- and you don't have to pay that tablet workers' compensation insurance and you don't have to pay it health care ... a lot of people are doing that."

The one guaranteed protection against this perfect storm of economic challenges? An informed, spending customer. Restaurateurs hope to educate diners about why their hamburger might cost $12 instead of $10 now, about the nuanced impact of minimum wage increases and how the ever-rising cost of living in the Bay Area is affecting their bottom line.

Peter Katz of The Counter, for example, said he's been working with a City of Cupertino small-business economic-development group that recently sent information out to residents about the impact of the city's minimum-wage increase on restaurants. He said like to see this kind of an effort replicated in Palo Alto and other cities he operates in.

Now, more than ever, Katz said, it's important for local diners to patronize their favorite restaurants.

"Eat out more," he said. "If restaurants are successful, we can better afford to pay the wages that we need to pay, the guests are happy, the employees are more successful and happy and the owners can afford to stay in business."

Despite the local labor shortage, restaurants of all kinds -- mom and pops, fast-casual, high-end, local and national chains -- continue to open on the Midpeninsula, though owners say it is easier for chains with deeper pockets to risk the high labor costs, high rents and limited return on investment than independent owners.

Bulka recently closed his second Howie's in Redwood City temporarily to retool the concept and eventually reopen -- a fun creative endeavor but with practicalities that give him "enormous pause."

"It's fun to think about a new concept; it's fun to think about a new design and a buildout of a restaurant ... but I know there comes a time in the future where I have to hire 40 or 50 employees," he said, "and I'm not sure how that's done."

Comments

11 people like this
Posted by Martin Lamarque
a resident of Menlo Park: Belle Haven
on Mar 11, 2017 at 8:39 pm

Great article. Thank you.

Unfortunately, for the restaurant industry so much development has been a double-edged sword: Scores of tech employees with lots of money to spend, and lots of new restaurants competing with each other to cater to them.

If owners of restaurants themselves are having a hard time affording housing, it is easy to imagine what low-wage employees are going through.

An article focused on those employees would be a good follow up to this story.


17 people like this
Posted by Local
a resident of Menlo Park: other
on Mar 12, 2017 at 8:08 am

FYI. You don't just have to be in the food business to feel the pain. Most shop owners work in their stores anyway, sometime without any pay, If you own a business you can't just sit at home & watch the money roll in. Not only are pay scales going up, but also are rents, health insurance, workman's comp. etc !! With parking at a premium in some of the towns, no wonder people are finding shopping online easier. Where does this circle end ? I think it is important for people to support their favorite local shops, food or otherwise or we will lose out "downtowns"


4 people like this
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Mar 12, 2017 at 8:26 am

Peter Carpenter is a registered user.

Very informative article - Thanks.


8 people like this
Posted by local
a resident of Menlo Park: other
on Mar 12, 2017 at 7:09 pm

I agree. It's a shame that workers need to live so far away from their places of work and that many of them are paying bridge tolls. I don't have a solution but certainly would like to see a few more restaurants opening in Menlo Park. We desperately need a really good seafood restaurant...not just a place which simply sells fish retail. What can we do to those greedy retail property owners in Menlo Park??? Do they really need the money?


10 people like this
Posted by Srini
a resident of another community
on Mar 13, 2017 at 12:52 pm

Good article. A real dilemma. The came the comment from "local". Imagine, a landlord charging market value for rent. Hey, local, go out and buy a property, and then you can subsidize the rent for your tenant. You can be the martyr you want everybody esle to be. I'm sure if you were in business, would you charge market value for your products or services?


6 people like this
Posted by Greedy Property Owners
a resident of Atherton: other
on Mar 13, 2017 at 12:57 pm

Maybe Local can take out a loan, mortgage everything he/she has in the hopes to turn a profit on your investment. Better yet, how about overtipping so that workers can leave in the area. No one is stopping you from giving away your money. Why not try it?


8 people like this
Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on Mar 13, 2017 at 12:59 pm

"Local" seems to feel strongly that property owners are greedy and their money should be taken from them and used in ways that "Local" approves of. I, in turn, feel that "Local"'s money should be taken from him or her, and used in ways that I approve of. For example, we could mount an educational campaign about why socialism and communism are harmful to society.


7 people like this
Posted by MPer
a resident of Menlo Park: Central Menlo Park
on Mar 13, 2017 at 1:16 pm

@local here's the solution, Build more housing. It is the one thing no one really wants to do, but that is the solution. The Peninsula has courted offices and their workers for decades without building enough housing or infrastructure. This is one the consequences.

side note - no one 'desperately' needs a seafood restaurant. What people do desperately need are affordable (not low income) housing and decent wages.


6 people like this
Posted by Legalize Housing
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Mar 13, 2017 at 9:48 pm

How is retail rent even related to this article? The whole point is about the high cost of living of the employees themselves. Build more housing, at all levels!


9 people like this
Posted by market rent
a resident of Menlo Park: Central Menlo Park
on Mar 14, 2017 at 12:18 am


I rented a 3 bedroom one and a half bath house 7 years ago to a young lady who supports her child and mom. She owns a restaraunt, works many hours and mom takes care of her daughter. They keep the house clean and have only complained once about a clogged drain. While the rent is way under market I see it as a win win. BTW I am not wealthy and if I charged more 50% would go to the government automatically, I think this is money better spent.

I know a couple other people who do the same thing

Just saying if you can afford it pay it forward.


2 people like this
Posted by PV resident
a resident of Portola Valley: other
on Mar 14, 2017 at 6:31 am

There are 2 "local" comments. They don't even sound like the same person who wrote the comments. #1 is in touch w/ reality & #2 sounds like one of those landlords. I think #1 makes more sense.


2 people like this
Posted by pogo
a resident of Woodside: other
on Mar 14, 2017 at 7:33 am

pogo is a registered user.

We are fortunate to live in an area that is thriving.

Facebook, Apple and Google are the most successful companies in the world. They are growing at fantastic rates. They are hiring people and the surrounding communities will grow and expand with them.

As people flow into our region to fill these jobs - and fill the jobs that service these new employees (like restaurant servers, line cooks and bussers) - it obviously puts pressure on housing prices. It would be difficult for anyone to miss the massive buildings being constructed to house this influx of new residents. Rents rise as this demand outstrips our supply. But eventually, supply catches up and we will witness a correction.

This growth, while inconvenient for many, is certainly preferable to the depression that many cities and towns in our country are experiencing. I'd rather be building apartments to accommodate new, highly trained and well paid software engineers than figuring out what to do with abandoned KMarts and their laid-off employees.


5 people like this
Posted by My 2 cents
a resident of Menlo Park: Downtown
on Mar 14, 2017 at 6:12 pm

It's obvious that supply has not been keeping up with supply, as the housing crisis has been mostly increasing for over 20 straight years (with a dip in each recession).

How long are we supposed to wait for housing supply to catch up? Another 20, 50, 100 years? Can my young kids ever afford to live here? Doubtful, even with a great education. Privilege passes to those that inherit.

Society needs contributors across all industries and pay grades, not just highly trained engineers. Who will teach, serve, protect, build and far more if all we have are engineers? I prefer a society with artists, writers, craftsman, chefs, and more in the mix.

The greedy landlord title applies primarily to long-term owners that have small fixed costs, low taxes, and yet increase residential or commercial rents to rates far above what most people can pay. They're cashing in. I understand why they do it, but it has a huge, negative cost. In such cases the title is deserved. It's within their rights, but it's still greedy.


4 people like this
Posted by pogo
a resident of Woodside: other
on Mar 14, 2017 at 6:38 pm

pogo is a registered user.

"Who will teach, serve, protect, build and far more if all we have are engineers? I prefer a society with artists, writers, craftsman, chefs, and more in the mix."

I agree, of course and fortunately, economics and the laws of supply and demand apply equally to them. As these people become more scarce, their wages will increase as we have to pay more to get them to do these jobs.


2 people like this
Posted by Srini
a resident of another community
on Mar 15, 2017 at 12:46 pm

My 2 Cents: Many landlords go for many years without a positive cash flow, hoping that both property values and rents increase in their later years. If they do, their gamble paid off. If not, are you willing to subsidize their miscalculation, just as you are suggesting they do for their tenants now?


Like this comment
Posted by Many?
a resident of Atherton: other
on Mar 15, 2017 at 12:50 pm

"Many landlords go for many years without a positive cash flow"

Many? Can ya get a little more specific?

Many people say....


2 people like this
Posted by SteveC
a resident of Menlo Park: Downtown
on Mar 16, 2017 at 3:19 pm

SteveC is a registered user.

If true, why have so many vacant spaces in the downtown?


10 people like this
Posted by Hmmm
a resident of another community
on Mar 20, 2017 at 4:49 pm

What Pogo calls a housing "inconvenience" has been negatively life changing and devastating for many thousands of residents and former residents in this area. I'm a residential landlord that has been happy to not charge market rate rent. Some of the worst commercial and residential landlords I've had to do business with are in Menlo Park and Palo Alto.


7 people like this
Posted by My 2 cents
a resident of Menlo Park: Downtown
on Mar 21, 2017 at 2:05 pm

Yes, landlords that have extremely low fixed costs should NOT be charging market rent and driving people homeless or out of the region.

Unless they want to be known as Trumpettes. Profit at all cost. Humans are disposable.

We are in a crisis. This is NOT business as usual.


Like this comment
Posted by Housing glut will fix it
a resident of another community
on Mar 30, 2017 at 12:25 am


What we have is a jobs glut with respect to housing. We need a housing glut.

Unless and until more of us adopt a YIMBY (Yes In My Backyard) attitude, this problem will only get worse.

It's hard to do, but imagine a housing glut ... prices and rents are forced down.

Contrary to concern-troll NIMBYs that scream about anything that isn't below market rate (i.e. subsidized by someone) ... even upscale apartments help. It's easy to see why: without new housing units to absorb people with money, those people are going to live where they want by outbidding those with less for the existing housing stock. Voila, you get rising rents and displacement of the lowest income tenants.

Build, baby build! Redwood City is the shining example of what needs to happen up and down the Caltrain/ECR corridor.


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