Why Restaurants Are So Fucked | Hacker News Reader

Why Restaurants Are So Fucked

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264 pointspaulpauper484 comments

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.

I believe the article is talking about a Canadian restaurant though much of it would apply to the US.

> it reads as the typical piece from the "bro culture" that massively ignores the rest of the world.

Why should articles need to be generalized to the world? It certainly fits the Canadian and US markets. You can't have comprehensive coverage of everything and everyone in an article.

To be honest I thought in many ways it was pretty spot on for the UK as well. The company I work for has a brand tracking product that looks at the casual dining sector[1] from the perspective of consumers: https://savanta.com/product/brandvue-eating-out/.

You can easily find problems around a lot of the points raised in this post in our dataset. If you cut too much around areas like food quality and service your NPS is going to slide, and if not turned around it becomes a leading indicator that the end is looming (e.g., Jamie's Italian).

We obviously don't track independent restaurants - chains only - but you can certainly see the effects of high rent and absolutely swingeing business rates[2] coupled with heavy downward pressure on prices across the whole sector.

[1] This isn't just restaurant chains: it includes pubs, cafes, fast food, etc.

[2] These are nothing short of an outrage in many parts of the UK. Local government will often complain about their moribund high streets, but do little to help their cause. The reality is that with costs as high as they are, and the convenience of online and delivery, it's extremely difficult for any kind of outlet to make money on the British high street.

High Street rents are incredibly high. I'm in one of the poorest UK cities, but even here - with (literally) every other shop empty - rents are phenomenal.

But then property owners are accruing financial value through property price rises, they don't need to have leasees, they're still making money.

I don't understand why the Council isn't super harsh on property maintenance (absent landlords let their properties bring down the appearance of an area); and why the gov. don't levy high taxes for empty commercial properties. IMO high-street properties that are empty should be a heavy loss on landlords.

When their title is "Why Restaurants Are So Fucked" instead of "Why Restaurants In America Are So Fucked" is why.

I think one is expected to understand the context oneself or else the first time one's spouse says "There aren't any eggs" one may receive a terrific fright at the thought of the impending doom of all sexual reproduction on the planet.

the 'context onself' is americans talking about america. got it.

The issue here is that the vast majority of American articles make no effort to convey the fact they are talking about America.

The internet is a _global_ space and there's very little effort required to make the distinction.

I would argue that the writers of these articles are the ones not understanding the "context of oneself" given how they think their readership is entirely American.

So now should every article written in the Atlanta Journal Constitution published on the internet mention that they are talking about Atlanta in the headline?

Perhaps because the author (and restaurant) are Canadian?

Maybe just adjust to title to avoid generalization. "Why Restaurants Are So Fucked in the US". Showing awareness goes a long way.

Neither the author nor the restaurant are American; even the example they use is Doner Kebab, a term that's not widely in use in America. What awareness exactly would the author be showing by adding a random country's name to her article title?

2) is the correct answer. Most restaurateurs in Canada (and probably the US) are simply unsophisticated. Most of the restaurants I've worked for and/or run are basically money printing machines (I've been lucky and feel I'm pretty good now) while a few crashed and burned hard (and it was always pretty obvious they would).

The example in the article has many, many things wrong with it.

The general rule that I've seen in the handful of UK establishments in which I've chef'd, is that food should be priced by ~tripling the cost of the raw ingredients. It's a pretty inexact science for anywhere small ish with a frequently changing menu - but it doesn't matter.

Alcohol also has a big markup, don't get me wrong, but it's not alone. And if you want to know the biggest "free profit" in a restaraunt - it's postmix soft drinks and tea/coffee.

Simply 3x-ing COGS might 'work', but you're leaving a lot of money on the table.

> And if you want to know the biggest "free profit" in a restaraunt - it's postmix soft drinks and tea/coffee.

No, soft drinks lose you money because it's often a replacement for more expensive alcoholic drinks. The typical soft drink here is $3, even a $6 beer will net me more gross profit than the total price of the soft drink. That's why craft sodas, kombuchas, home-made mocktails and the like are de rigueur nowadays...

Tea/coffee is 'free profit' in the sense it's usually an addition at the end of the meal and not everyone will order a digestif.

> The example in the article has many, many things wrong with it.

Agreed. The author of the article seems to lack some basic business skills. I realize that if you're making an artisan sandwich at home you might want to use the best possible ingredients (the artisan sourdough she talks about, etc), but you can't expect to build a viable restaurant business where you are spending so much on raw materials.

If I was making myself the ultimate burger I might use wagyu beef that cost over $10 a pound and some artisan cheese, pasture-raised bacon, etc, but I wouldn't try to create a fast casual restaurant and expect to make a profit using those ingredients.

Yup, her food cost is out of control and her fixed costs are way too high meaning her sales are low. That's just a a failure of her concept...

Having a restaurant is like owning your production tool. The invested capital allows you to make a revenue. High margin is not required since there is little investment to do, except refreshing the furniture every 2 years.

They do, however, have a serious problem with the pandemic, unless they turn to pick up meals or delivery.

Delivery market is already spoiled by Uber eats etc. which act like gatekeepers and take a huge margin.

US restaurants ask me to pay their tax and their personnel separately, and are still expensive. I get it that cheap fastfoods operate on slim margins but I have a very hard time believing the decent restaurants do. I read the article hoping to find what the hell costs 50-70 USD + tax + waiter wages (aka “20% tip that you’re a monster if you don’t pay”), found no such thing.

Just because things are itemized on a bill doesn't make the total any higher.

In fact, I would argue that I would much prefer an itemized bill to a black box total. It's much easier to sneak in extra charges if everything is rolled into a single total.

Perhaps what you mean is that you don't like having to keep in mind that all your prices don't include tax and tip, which is so common in the US, that everyone just instinctively knows it. To the point that if you try to include everything into the price, people will consider your prices too high.

It's very difficult to shift public habit.

You can say that, but there are enough hints that you'd be wrong:

- Tip habits differ a lot; various online debates and movie references show that there are "assholes" that don't tip (or don't tip well enough?). From this pov serving in a restaurant is more akin to playing music in the subway than working a regular job. This is, IMO, not how things should be.

- "if you try to include everything into the price, people will consider your prices too high": this right here tells you that people are not as rational as you paint them to be. Theoretically, the bill is the same whether you include & itemize all things, or not. In practice though, because the bills do not include everything, they can get higher than they otherwise would. Humans are strange and not always rational beasts - that's why prices like "$1999" exist. Because (false) impressions matter. So no, it's not easier to sneak in extra charges by presenting full price on the menu - it's quite the opposite.

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.

> 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.

“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!

When I was very young, in the late 1980s, my parents regularly took me to two different pubs. Both had outdoor equipment (slides, climbing frame, sandpit etc) for children. One served food in the "lounge bar".

When I visit London, it's not difficult to find a pub with no children and no food.

Things have changed, but you are exaggerating it.

Yes let’s get back to the good old days where the men went to the pub and any bloody women could go to the saloon bar .... arrrgh!

My own local pub doesn’t do food, and (was) incredibly popular. CAMRA has a good guide to these places!

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 ;)

> it's pretty much just drinks and darts ;)

   And drama!!

That's fascinating, because I've seen almost the exact opposite where I am (west coast USA). A lot of places where I am have transformed into take-out only or take-out + on-demand booze. Or even just take-out booze, with cocktail kits. The places that were mainly food (my favorite brunch place that I'd take everyone to who visits went belly up in early April) have all either closed down or tried to innovate to sell their food or alcohol as a pick up or delivery service. Semi high-end establishments that sold no food have innovated to sell these elaborate cocktail packages that will probably at least keep the lights on until this is over. At least, that's what I hope.

He meant the trend over the last 5-10 years has been for pubs to become restaurants, not over the last month or two.

I once worked in a central London pub that wasn't doing very well - however they had the lease on all 5 floors, including the landlord's apartment at the top.

They opened one of the staff rooms on the second floor as a hostel dorm with a couple of beds, filled them no problem. By the time I left the entire building, apart from the bar itself on the ground floor, was hostel beds. £20-£30/ppn, 90 beds, nearly always 100% occupancy - a license to print money!

Sadly Covid19 will have crushed them I suspect.

Just to chime in here on point on there being no normal classic pubs. It is the case many pubs have become family friendly, but only where families are going. Places where families dont go, the old man pubs still exist in great numbers. The classic no windows 'bunker' as it where.

Its easy to see the extinction of the classic pub, but in more poverty stricken areas in the UK the bunker is still prevalent.

Yup - plenty of flat-roofed pubs still out there.

My local does not do food. But you can bring it in. So that is simply not true.

However, I do know some pubs that have mainly tried to become restaurants.

We once tried to run a small cafe/restaurant, with only about 8-10 tables. And it ultimately failed. After a few months we ended funneling the business to booze and coffee, with as fast a turnover as possible, which was not what the initial place was about. We were an original organic veggie food outlet. Raw ingredients were expensive.

This shattered previous dreams about running my own. But given a cheap ground rent, I might be tempted to give it a go again, but not really for profit. Totally and utterly fried me, very long days, mostly spent at the sink. Not glamorous at all. The co-owners ultimately had to trade up ethics and risk their homes.

We might have done better if deliveroo had been about then.

A "bro culture" article written by a female entrepreneur who isn't from Silicon Valley… right. I think you need to check your prejudices.

1) plenty of restaurants don't sell alcohol, including it seems this one. she also had a point about how drinks aren't a great revenue generator given the price you can expect to charge in a fast-casual setting vs. the costs (higher than grocery stores)

2) how is the restauranteur's motivation relevant?

3) her restaurant isn't in the USA so I'm not sure how you can call it US-centric.

Ref 3:

1. Prices in USD

2. Quotes Philly Mag. (Philladelphia?)

3. Mentions how generous tipping is required to help servers survive

Yeah, of course one would assume it’s about US. I’m honestly very surprised if it isn’t.

Canada also uses (their own) dollars. (As do Australia and NZ among others.)

Some people use this knowledge to weasel out of bets.

Prices are in Canadian dollars, but I didn't know this until I looked up the restaurant. $11 felt kinda high for a döner, even a really good one. But that works out to ~7€ which is a little high for Germany, but not that much higher.

That definitely explains a lot; I thought $10/lb for the type of meat they were describing was kind of crazy (for someone complaining about margins, anyway). ~$6.30 USD/lb feels far more sane.

Location location location. The restaurant is in the middle of the main shopping street in the middle of the city, on a street called "bank", in the part called center town. We can make an educated guess that the rent is not exactly going to be cheap.

The article reads very different when the location is known. Tourism is significant effected. City shopping is significant effected. People who work in expensive offices is exactly those that often have the option to work at home. All the talk about margins feel like distraction of the fact that restaurants at central shopping streets are going to suffer. It is thus questionable if the article has anything to say about the industry as a whole.

Here in Austria, a Döner is usually 2.50-3.50€. I would be surprised if it were more expensive in Germany (expect for tourist traps)

It is in Ottawa, Ontario. In reality, the things people claim are US only often are true in Canada as well.

how about this?

https://medium.com/@joelleparenteau/wolfing-it-down-f703a3cf...

"We are looking for people who love food and crave the experience of working in a restaurant that operates more like a tech startup — after all, that’s my background and we are backed by the Shopify founders."

who craves the experience of working in a restaurant? wtf is wrong with that woman? it's a job and they enjoy it if the boss treats them fair, they get along with their colleagues and the customers are friendly. "crave", "love", ... that vocabulary is already sickening and pretentious in this context.

I crave the experience of working in a restaurant. I did full-stack back-of-house in busy kitchens and it sure beat sitting around pushing buttons all day. I just haven't been able to afford to do it for the past ten years because building web sites pays so much better.

> I crave the experience of working in a restaurant. I did full-stack back-of-house in busy kitchens and it sure beat sitting around pushing buttons all day. I just haven't been able to afford to do it for the past ten years because building web sites pays so much better.

Same, I'm an ex-founder in Fintech, I've worked for big multi-national corps, and have a background in Health Sciences. And the satisfaction you get the rare times things are 'good' in Kitchens is perhaps the most satisfying things I've even experienced in my entire Life. The comradery amongst your fellow cooks can be petty deep, my old team still keeps in touch with another during Corona and we're trying to help where ever we can. Its a sense of community that extends beyond one's Team, too. I personally have met lots of owners and cooks during these shutdowns and we often have conversations about the business and Life.

By contrast, I don't know my neighbors, and barely talk to my house mates.

The taxing part is the high stress, low pay, long hours, and a very precarious Life over all due to the widespread alcohol/drug abuse.

I've had to save up to come out of retirement from cooking after my time in Europe, too; I took it pretty far this time, I got to interview at SpaceX, did a week a the Mars Desert Research Station and worked at Kimbal Musk's flagship restaurant this last run.

So, while I wish I was at SpaceX right now the realities don't allow it and won't for an undetermined time, so upon reflection I'm pretty satisfied with my culinary career and think that I have done all I could and gone further then I realistically thought I ever could.

@Maxwell: Let me know you want to collaborate, I'd like to be able to work with someone who wants to return to the Kitchen.

> the satisfaction you get the rare times things are 'good' in Kitchens is perhaps the most satisfying things I've even experienced in my entire Life

Feeding people great food, the right food, is an amazing feeling.

For me shipping solid code for multinationals (transportation and insurance) was rewarding as well, but the effect was less visceral, more diffuse.

I'm an ex-founder too, relocation/mobility-tech (video chat moving estimates). I now work on accessible legaltech and access to justice projects.

> By contrast, I don't know my neighbors, and barely talk to my house mates.

I felt this elsewhere in the U.S. (Chicago, Vegas, Bay Area, NYC) but I'm now blessed to have amazing neighbors, tenets, and family myself here in Maine, and am able to direct most of my time into building socially impactful software with continuous technical learning.

> The taxing part is the high stress, low pay, long hours, and a very precarious Life over all due to the widespread alcohol/drug abuse.

My partner and I met at a restaurant that fostered a community, preserved a way of life. It made a million a year and spent a bit more. No longer in business. We've been iterating on a financial model for something similar for one day but aren't there yet.

> I've...

Definitely cool story. Interested in Mars Desert Research Station from the standpoint of increasing Terrestrial habitability, i.e. remote villages.

Feel free to message on AngelList or Twitter.

I worked in restaurants and bakeries for years. Certainly they have their issues, but the environment is a lot more enjoyable than a sitting at a desk in a generic office.

A woman can just as easily write a bro-culture article as a man, and you don't have to have worked in Silicon Valley to pick up on the culture. It's splashed all over the internet.

If the article reads like bro culture, that's a valid observation, irrespective of the gender or background of the author.

I would have replied the same thing. Thanks.

It really depend on definition. Bro-culture when used a pejorative is usually an reference to the supposed male privilege, and then we have to deal with the question of a woman can have that male privilege and what that would then mean.

But why are people bringing in gender into the critique of this article in the first place? The points could just have easily been made without mentioning gender and gender pejoratives. What insight does it contribute that the other points in the comment does not already bring up?

"Bro culture" presumably meant something at one point; now it just means "I don't like something but I'm not thinking clearly enough to articulate why"

Good restaurateurs will manage to find a way, IMHO.

That’s literally what the article is about. More importantly many restaurants cant sell alcohol. Sounds like you and the article are talking about two very different things.

Is everyone who writes an article about anything suppose to be an expert from a worldwide perspective?

0) I kind of wonder how anything that reads as a typical piece from a certain culture could not be criticized for massively ignoring the rest of the world.

1) In France most restaurants sell the same desserts that they buy from the same wholesale Metro that's open only to food professionals. They buy it less than a euro and sell it more than five, with a bit of an english cream they buy by liters.

2) Not sure what's your source, but I suppose running a tobacco shop would be far easier. I have yet to know one restaurant owner who has 0 experience as either a waiter or a cook.

3) Basically you're saying that doing 0 business activity is "not too bad", when you still have to pay the rent. Just because you've spoke with a couple of owners in Italy and Japan.

4) You can be good, but paying for a 10k/month rent + furlough and making absolutely 0 business activity after throwing away your stocks can kill your business even if you're a "good restaurateur".

But maybe Simone is right: if COVID killed your business then it's because you're not "good enough".

I've yet to read such a both senseless and self sufficient comment on hn.

Nice culture, nice inclusiveness, maybe one day you grow a heart.

Somebody had to say this.

> But maybe Simone is right: if COVID killed your business then it's because you're not "good enough".

Individuals are supposed to save at least 6 months expenses in case they lose their job or there's an unexpected large expense.

But for restaurants it's fine to have so little money that you go bankrupt with a month or two of no business? We're not talking about multinationals, there are lots of reasons why you might need to close a restaurant for a significant period of time or pay for expenses.

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.

Maybe food trucks will just become more pervasive. They _were_ pretty common in portland for a while, but not sure how many of them will survive. ;_;

This will no doubt be an unpopular opinion, but I’m not a fan of food trucks as an everyday dining experience. Not super impressed with the average food quality, and the “stand around waiting for 20 minutes” experience is also not ideal. Crowded food truck clusters are super annoying to me.

For the odd meal at a festival or park or whatnot - sure. But every day? not so much.

Yeah, I was pretty excited about things like "Food Truck Tuesday" in our neighborhood, but it didn't take long to realize 90%+ of them are pretty bad, slow, and unhealthy.

As an everyday experience I would agree, but food truck pods are great for groups of people since everyone can pick what they want.

Food trucks were really meant to make use of an empty lot while the owner waited for development opportunities but they took on a life of their own. Here in Portland people are very attached to them, sometimes for better, sometimes for worse.

"Crowded food truck clusters are super annoying to me." This tells me that there is indeed a market for food trucks. If this annoys you, then nothing is stopping you from shopping somewhere else. :) The alternative would be to get real estate close to these clusters and open up a "real" and high quality restaurant. Though my guess is, in these clusters, people are busy, they're not looking to sit down, and just want a snack while on the move to some other point of interest. I see these kinds of trucks in tourist-heavy areas, or in shopping areas, so that should give you a clue. The patrons are only looking for a quick snack, and not a Michelin star experience.

Oh my, looks like I hit a nerve... Punishing people for using good arguments when talking about freedom and free trade is the way to go, guys! :) That was sarcasm btw. You guys remind me of Chinese authoritarians sometimes, with this so-called "karma" social credit score. I guess it only counts when you have the same opinion as all the other sheep in here.

Where I live in Seattle, there is a lot of new dense neighborhoods going up. And many of these large apartments have ground-level retail, which is supposed to be that urban planning magic sauce for walkable neighborhoods.

The problem is, most of these retail spaces are actually vacant, despite massive job and housing growth. But why? Because the retail spaces are simply too large. These spaces are big enough to seat 100-200 people, but most restaurants, even popular ones, will not seat that many people most of the time, so they end up paying rent on real estate that is not being fully utilized the vast majority of the time, and then they go belly up because they can't afford the rent.

One recent trend that has kind of taken us back to the roots of small restaurant square footage is the food hall, where many small setups share one large communal seating area. Another is the food truck, with no seating, minimal rent costs, and the entire operation fits in a parking space. There is a great irony when I've been to a food truck serving food out of the parking lot of an under-occupied strip mall, because the strip mall spaces are simply too large.

It also doesn't help that mom-and-pops are not exactly the most attractive tenants for commercial lending; better to ink a long-term contract with a sure bet like a bank branch or a national chain.

South lake union? Gonna be even more of a ghost town with the amazon ‘wfh til October’ directive.

Almost reminded me the picture from the early Middle Ages when whole population of the Roman city now fit in a market square...

Too large shouldn't be a problem.

Every large space can be trimmed down to a small space. If there are too many vacant shops in an area, and there would be a market for smaller shops, I would assume that tenants add walls and rent out the smaller space. Even if that walled-off space is unused, tenants would make more money than not renting out at all.

That's assuming the zoning allows the space to be subdivided.

Do you live in some kind of dictatorship? In a democracy there are tools how a community makes it allowed.

Yes. It's rules by the God Emperor Money II.

In reality, democracy can be commandeered by well-organized groups of people that vote as a bloc. At the local level, this means that well-connected homeowner associations wield the power to ban density and commercial activity near where they live.

The oft-cited counterexample to US restrictive zoning, Japan's permissive zoning, works because in Japan zoning type is decided at the national level and there are only 12 types of zoning that define maximum nuisance (so a blacklist). US zoning gets extremely nitty-gritty and is functionally a whitelist.

I think you may have boiled the problem down to its essence. Search for Japanese vs. US zoning laws to see the two extremes. European countries tend to be somewhere in the middle. Same pattern can be observed with restaurant sizes and their variety.

Yep, it's this. Zoning laws in US urban centers are an absolute nightmare to navigate. If you have the time (and the gall) consider looking up the zoning laws that exist across what a normal person would consider "Los Angeles".

Kitchens need quite a lot (ventilation, gas hookups, water, electricity for the kitchen in the right places).

You can't just throw up some false walls and call it a day. Even if you could, your landlord's lease terms probably don't let you sublease like that.

A tax on under utilized spaces could result in reduced rents that make the space usable anyway.

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 :)

Great restaurants are like art, in the eyes of patrons and creators. They will continue to find each other among the robotic masses.

True, and even if the meal is not "Tate modern", even a workday lunch can make me feel that someone actually cared and reinvigorate my soul in the middle of work. Most of the time I will choose to pay a premium in time or money instead of cheapest/convenient-est.

Plot twist: Tate Modern is all about the industrialization of art.

Art, yes - theatre especially, but also visual, along with the obvious of taste and smell.

Automating society paves the way for people to do creative work about which they truly care.

One of those things is doing 20 covers of handmade tagliatelle every night.

> Automating society paves the way for people to do creative work about which they truly care.

Automation alone certainly does not guarantee this.

Work is what gives life meaning for many people. You can't just say we'll automate most productive tasks then expect everyone to be mozart or do yoga all day or something. That's not a future I want.

There’s plenty to do even if you’re not a talented musician: volunteering for a good cause, inventing, crafting...

I strongly suspect that if the most tedious jobs were automated away, so long as people had their needs met, they’d find something much more meaningful than the work they were doing before. I know I sure would!

“So long as they have their needs met” is a big assumption, though, and one that wouldn’t hold up in our current society.

Even in The Culture there were restaurants, some people just like making and serving food

Even cpt. Sisko's dad ran a restaurant on a world where anyone can walk up to the nearest wall and ask for the very best of any food.

The robot restaurant is something completely different then restaurant for date or familly dinner.

The robot restaurant is for lunch during work - you care about price and speed and nutrition. That is it. Self service checkout is fine. SittIng close to other people does not matter.

For date, meetups with friends, celebration or filly dinner I want calmer, more intimate place.

Lunch during work is a great chance to add some joy to the middle of your day. You spend so much time at work, why not leaven it with something delightful?

(I understand the expense arguments, but I think it's a false economy, without specific goals, and isn't worth much regard on software engineering salaries.)

Sometimes yes, other times you just want to eat. But even if you look for nice place, itis different.

Date, familly dinner, celebration and similar all take time. You are comfortable being there for two hours. With lunch, you want be shorted then that.

Wow that sounds like 10's of thousands of opportunities to meet, network, whatever, squandered. I always choose a quiet conversational place for lunch, and always with somebody. If not somebody on my project right now, then a contact I haven't visited with in a while.

There is powerful stuff in sharing lunch. Especially if you pay.

The same things that are preventing small restaurants also stand in the way of that sort of thing. If you could install a machine like a kiosk where people walk up to it, press buttons and insert money and out comes a hot sandwich made to order, people would be renting space to install them all over the place.

But the machine doesn't take up that much space. If the zoning requires you to rent 200 times that much space, the economics go away. So you still have to solve the original problem.

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.

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..

* 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.*

Maybe you might as well drink Soylent. Washing clothes or dishes is a chore. Cooking food is a social event and lots of people like cooking and creating food.

If anything automation of mundane tasks will lead to more food being cooked by humans. I’ll also eat my hat if you can get a robot to cook an 8 course degustation.

Right now restaurant work is too complicated for robots to do it as accurately and quickly as humans. There are hundreds of micro-skills that a prep and line cook needs to perform very well in a restaurant and most of those are specific to the individual restaurant. Mcdonalds will be the first to be automated since they serve the same stuff at every location in America, but expect regular restaurants to be the last places to be automated.

This reads like it was written by someone to whom food is simply a chore that is imposed on them rather than one of lives great creative pleasures.

As a counterpoint, SF has some of the strictest zoning in the country. It has very few chains, from my experience. Most places where I know the owners, they are just normal people scratching out their existence.

Unfortunately, I observe that SF typically does it backwards. They (the peculiar political process there) identifies the business or person they like, and puts up rules to protect that specific thing. Rather than create the broader incentives and guidelines that lead to that business being made possible. It produces a lot of bad side effects.

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..."

>Bars however are a dream. As long as the location is good and the clientele are don't fight, get unruly or drunk drive.

Ideal would be somewhere like NYC that's mostly walkable. Can't just open up a bar at the end of the universe. Unless talking cow being served.

I once worked for a chain of nightclubs. We used a poor man's form of demographic analysis. We looked to see where the major franchise food operations were building and would shop for a property there. People eat and people drink...

This isn’t a poor man’s analysis. This is what major business do.

https://www.youtube.com/watch?v=jILgxeNBK_8

Most cities are developing at least a couple bars clustered together, and they are pretty universally well attended by millenials. Previous generations might feel guilt or shame about spending a night at the bars. Modern parents are much more sensible and hire a sitter and rideshare to a brewery every now and then. Some bars and brewerys have a more substantial meal service as well, and it's not unheard of to bring your kid in tow during dinner hours.

To me, its a business that will only get more profitable as younger generations become much more sensible adults around social drinking. Outside of a pandemic, that is. Even my parents generation seems to be seeing a resurgence in going out to bars now that kids have grown up and moved away. My mom now frequents tequila bars with her friends. It doesn't even matter if it's a cold climate. Throw on the game, buy a few heat lamps, and have a special on pitchers.

Drinking culture is seeing a huge resurgence in the 4 U.S. metros I've lived in the last few years imo, although I don't have any particular data to point to off hand. Given the increasing secularization of american culture, and the acceptance of the fact that you can indeed have a bender with your friends on a weekend and still pass your medical school exams, I see no reason why bars aren't the best bet in

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.

Ah the benefits of selling an addictive substance in a market with a large base of addicts and a legal environment that largely shields you from liability for even the fairly direct consequences of your product (such as drunk driving after serving at places and times where the non-availability of alternatives guarentees that most of your patrons will be driving).

Most customers who have a glass of wine or beer with their dinner don't qualify as addicted. Also, the restaurants make the same (or even more profit) when selling alcohol-free beverages with their food.

Yeah, but I don't generally sit down and drink 3 cokes in one sitting. Alcohol is a great money maker because there's a large standard deviation to how many drinks a given person might order. It would be very rare for a customer to drink 3 cokes with dinner but not uncommon for someone to order 3 beers.

When I am out in larger groups, the number of drinks varies little with what was ordered, be it beer, alcohol-free beer or other beverages. This is one medium to large sized glass of beverage for a lunch and several in the evening. Coke might be an exception, but it is very rare, that someone orders coke in a restaurant. Usually you have fruit juices of many variations, often as a "Schorle", that is fruit juice mixed with sparkling water. Or just water. And the prices differ only little between a glass of beer and of juice.

Perhaps I should clarify: my statement applies for Germany and probably holds true for large parts of Europe.

> Yeah, but I don't generally sit down and drink 3 cokes in one sitting

Do you generally sit down and drink 3 beers in one sitting?

> It would be very rare for a customer to drink 3 cokes with dinner but not uncommon for someone to order 3 beers.

At home, I drink much as I'm thirsty for, be it soda, beer, wine, tea, water... I certainly don't drink more just because it's alcoholic. I might drink less, or switch to something else, if I'm starting to feel drunk and it's not an occasion for such.

At a restaurant, I order less when alcohol is involved. I prefer to have my senses about me if I'll be driving home...

Where I drink 5 or 6 with lunch. Not coke - sweet tea.

Are you arguing for prohibition? Or just prohibition outside of a few handful of cities where driving is uncommon?

I wasn't arguing for anything-- it's just an observation.

A bar would be a very different and less profitable business if they had the normal spectrum of liability other businesses have when their actions result in predictable harm. Or even if just law enforcement weren't effectively prevented from staking out bars and stopping obviously drunk patrons as soon as they started to drive.

Similarly, I also believe they'd be much less profitable if not for the rather alarming amount of addiction and abuse.

I don't think prohibition is a good idea but the fact that I'm opposed to prohibition doesn't make me blind to the externalities that bars create which are a component of their profitability.

There are lots of less than perfect things in the world. We can make them better by willing to discuss them and not being to quick to assume that any criticism is a call for a prohibition. In this case, especially, there was a comparison with other businesses and more than anything I wanted to point out that it wasn't a fair comparison because of bars unusual amount of externalized costs.

I don't think better enforcement of drunk driving laws would force bars to change. Why do you believe that?

Well, like, food is addictive too. In fact, pretty much anything and everything is addictive to someone, no matter how mundane or weird.

Are you suggesting that alcohol addiction is equivalent to 'pretty much anything and everything [being] addictive to someone'?

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

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

I wouldn't say always - it becomes a lot harder if your competitors are willing to stoop and you don't have enough customers who care!

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

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

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.

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.

turns out the article is mostly focused on US restaurants; but I agree, German street food is not complete without a Pislner.

> German street food is not complete without a Pilsner

German here. For lunch, no one I know ever drinks alcoholic beverages (except maybe when going to a nice restaurant with the whole family on the weekend). And I don't think people are eating street food for dinner all that much, except maybe Döner. But even at Döner places, I don't think I've ever seen people drinking beer. They mostly don't drink anything, and some drink Ayran.

Well for some cafe and restaurants Shisha.

Considering she runs a takeaway Streetfood place i highly doubt she ever intended "restaurants" to be meaning "... and also bars"

So I know (not personally) this guy named Ian McCollum. He's kind of well known on youtube, filming/writing/presenting on a topic that is personally very interesting to him.

He graduated from Purdue with a degree in mechanical engineer. But he didn't want to settle with a 9 to 5 job and a normal life, just to pay his bills. So instead he earned some extra small pile of money after college and set up a low cost life style in Arizona, with off grid house etc. And now he doesn't have to spend life in 9 to 5 job but instead travels around filming/interviewing/presenting on a passion project of his.

So how did he get that bit of enough extra money within 2 - 3 years (I think) after college to pay to get himself set up with that life style? He went to a bartender school and worked as a bartender. That earned him enough chunk of money that he could set up an off grid house in AZ and get on with his passion project.

If you listen to Ian McCollum presenting on his topic, you can tell he would've been a very good bartender. Calm, articulate, polite.

Why didn't he just get a engineering job for 2 or 3 years? Presumably he would have made lot more money.

I don't know anything about the profitability of the area of engineering that he is interested in. Perhaps you could look into it and report back.

I'm sure he was a very good bartender.

Knowing a few other mechanical engineers myself, finding a decent paying job as a mechanical engineer was nearly impossible. At least 10 - 15 years ago.

So the revelation from his story is that working as a bartender can bring in quite a bit of money due to high margin of alcohol and bigger tip.

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.

"I think there is a very good possibility that the author doesn't actually track costs down to that level."

That's pretty much the most important job of a restaurateur, especially one trying to figure out how to keep the lights on. I would be very surprised if they didn't have extremely accurate figures here.

Do you have knowledge of restaurant economics that this piece is missing? The article specifically calls out that restaurant supplies and home cooking supplies don't work the same way (with the example about buying cases of pop).

Well, I personally know suppliers in Ottawa that will give him a better price than he's paying now ;-) Like I said, I think those numbers are probably just wrong. I think it's likely there are labour figures hidden in those food costs (or potentially he's just paying too much).

$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.

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...

Never mind that preparing such a sandwich should take no more than five minutes of labor total. They are clearly not selling enough if 2.50 goes to labor.

Not sure what’s so special about this Döner, but shouldn’t take more than a minute for someone experienced in it. At peak hours, they can surely sell more than 12/person/hour.

So yeah, completely agreeing with you that the labor cost seems a bit inflated.

I doubt it. The 30-30-30-10 rule is pretty standard, I heard it 30 years back.

You might be able to drop the protein costs using cheap restaurant supply quality stuff, but then your product is basically straight from the sysco box at that point, and anyone with an account can do the same thing.

About the labor numbers tho, that’s an average over everything. Labor includes prep, dishwashers, the cashier, everyone. It’s not just what you can see.

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.

People get food trucks instead to get around this. At least until that becomes a thing rentiers monopolize, too.

So, this is a refutation of one of the author’s points: either you differentiate, or is is unskilled labor (and the iron law of wages is nipping at your toes).

It’s possible to differentiate purely on marketing and not just food alone, too. But it’s madness to expect to make your money on volume in the restaurant biz and make any significant money without double-digit location counts and significant capital reserves; too many other giants can squeeze you without a thought (eg the McDonalds $1 value menu the author also cites).

Nobody’s “in” to paying >$10 for döner kebap. You have to differentiate a lot more than that; unlike me (and edge case) most people will not pay $25 to scratch the itch of the intense periodic lust for dönerfleisch.

"either you differentiate, or is is unskilled labor"

I don't think this assertion holds up, especially if you look at other industries.

A car mechanic doesn't have much room for differentiation beyond "I can service more car brands" and "I'm cheaper" or "I'm faster". Anyone can match your offering as long as they can balance the trade-offs involved (sufficient resources, etc). That doesn't make being a car mechanic unskilled labor - doing car repairs properly and efficiently requires a lot of practice and training.

Similarly, if I'm a bank there's only so much differentiation I can offer. Different financial services and interest rates or stuff like that, sure, but at the end of the day I just store people's money in accounts and provide loans. That's basically all I do, and any other bank can do it. A bigger bank has the ability to do it better (due to their resources and regulatory capture) no matter how much I differentiate myself, and since it comes down to policy in many cases another player can just come in and copy all of my policies. None of this means that working in banking is "unskilled labor".

The tendency to call people like chefs or line cooks "unskilled labor" is disgusting. Being a line cook or a chef in a high-pressure restaurant environment is REALLY HARD and takes tons of practice and training.

> The tendency to call people like chefs or line cooks "unskilled labor" is disgusting.

I don't think this is disgusting. I don't believe it's meant to imply what I believe you think it implies. It sounds to me as if, in your life, this term "unskilled labor" may be used as a slur --- is this the case? It is not the canonical intent behind "skilled/unskilled labor" terminology.

"Unskilled labor" means you don't spend years on preliminary education before you can even enter the job market. It means you can hire a person with no prior training or pertinent education and expect them to be able to succeed given a reasonable training program and work ethic. Compare this to "skilled labor" where entry into the field is gated upon higher education (or perhaps apprenticeship).

I'm not disparaging line cooks. As you say, it's very high-pressure, and experience and drive are critical to competency in such an environment.

PS. I do also agree that "differentiation" and "skilled/unskilled labor" are orthogonal concepts.

Regardless of their skill, they're competing with the general, unskilled population, who are overwhelmingly capable of, if disinclined towards, cooking their own food or eating packaged food.

Sorry, I was totally unclear. Either you differentiate, or you can expect to be paid like unskilled labor (which is what undifferentiated cooking results for sale pays), which is always very close to zero (thanks to the iron law of wages).

Simply expecting people to pay more for what amounts to an undifferentiated near-commodity product is a pipe dream so long as anyone out of work can be taught to work a grill in a couple days.

The iron law of wages was based, among other things, on Malthus' demographic theory. Modern economists are highly critical of it. Supply and demand are sufficient to explain the wages of cooks and dishwashers: anyone can be trained in a couple weeks to be a minimally competent cook or dishwasher. The labor supply is roughly equal to the number of people who need any kind of work.

There’s also lower barriers to entry which makes the landscape more competitive

That's a good observation about landlords. Often if you find a local "ethnic" restaurant that's been there forever and is run by a family (typically Chinese/Indian/Thai/etc) they own the building or at least the space for their restaurant. That means they can stay in business basically infinitely (well, until now) without worrying about rent increases. But this is a different model than most trendy restaurants where the owners are not interesting in buying a property outright - those are seen as an investment not as a steady income for a family.

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.

I think he's saying the passion factor will increase the supply. I think the same thing happens some with programming, it's just a lot fewer people have the passion (and ability?) than for cooking food.

The same thing happens with teachers, nurses, firemen, police... I think the reason they generally don't make more money is many people have a passion for doing those jobs (ask ten kids what they want to be when they grow up), but they aren't super difficult, so there's a large supply.

>The same thing happens with teachers, nurses, firemen, police

Maybe there's something different going on there since government salaries don't respond normally to market supply and demand. Perhaps a better way to track the true value of those jobs is by looking at private sector counterparts, such as security contractors or teachers at private schools.

Also, as far as I know (that would depends on the country, but I believe it is generally true), those professions (except for teachers) can't go on strike too much, they have to keep a minimum service running, which vastly limits their negotiating power.

They aren’t super difficult?

Teachers, nurses, firemen, and police officers would like to have a word with you.

Programming may be mathematically complex and difficult to learn, but it does not corner the market on difficulty.

Try adapting a teaching curriculum for online learning for fourth graders, working 16 shifts in an ICU during a pandemic while trying to keep people safe, planning and organizing a response to statewide wildfires, or de-escalating complex interpersonal issues dealing with crime, safety, and mental illness on the daily.

Do any of those sound easy to you?

The devil is in how well you do your job. Handling those things well is difficult; handling them well enough the government won't fire you (for which the bar seems to be fairly low) is not.

We've been flooded with reports of how we are not adapting to the change to online learning well.

Working in the ICU during a pandemic is not a complex task; the procedures for doing so are fairly simple steps posted on charts everywhere. There are degrees of complexity to being a nurse depending on the level of certification you have. Physician's assistants have abilities fairly close to a doctor.

Planning and organizing responses to state wildfires is far outside the scope of a firefighter. There are a very small number of people that plan and organize, and a large number of people who implement.

I do not think de-escalating is well-embraced form of policing in the US. If it is, we are doing a terrible job. Police in the US kill drastically more people than other countries. It's not uncommon for European countries to go a full year without police killing a single citizen. There are, of course, more complexities to it than that, but it would be hard to reconcile a doctrine of de-escalation with the absurd number of police shootings we have.

Doing those things well is hard. The fact of the matter is that there is a distinct lack of expectation that those things will be executed well. No one is going to be punished for online schooling failing, botched responses to wildfires, or for shooting a homeless person. In the face of that, they're certainly not herculean feats of strength.

Is it a work for $0 market due to passion though? I love programming. I am either programming, writing, or sleeping.

I wouldn't live in a box with roommates to be one though. I think many of us would find regular engineering or analytics jobs instead. Slightly less interesting, but we could still program within those jobs.

People who love food are basically willing to live in poverty to do it.

Yeah... and here's a thing. I can write programs all day long at home. I could spend the rest of my life on personal projects if I so chose, and had the financial security to do so. If I somehow ran out of ideas, I could write software for friends and family. If I wanted to scale up from there, I could work on open source projects. Some types of projects would be closed to me (big research, projects requiring specialized hardware, etc), but there's a lot a person can do on their own as a hobby.

Compare this to food. Beyond a very small scale (cooking for the immediate family, occasionally cooking for family events) there's a very fast, hard limit on what you can do as a hobbyist.

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.

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.

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"

Sounds like your company is dying if people who don't understand labor market economics are overruling managers on hiring decisions.

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.

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.

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.

I got approached by a big AAA game studio. The offer was (much) lower than my at-the-time salary.

With a straight face they responded to my objection that i would get access to all their PC game catalog and a limited-discount for consoles.

I still laugh when i remember that conversation.

> there just aren't any [senior] candidates around

I think that statement is almost certainly false.

Offer better pay, conditions and interesting work that has career prospects for the people when they leave, and make it known you are doing this, and I think you will have plenty of interested, good candidates.

(Unless you make crappy games infested with 15s gameplay alternating with 30s brain-polluting ads, and that's for the people who paid for the "ad-free" feature. I jest not - I just turned down a recruiter for a games company looking for someone in a senior role, after I researched the company and the first few reviews I looked at showed the games fit the above description. I copied the reviews over to the recruiter and said this this is why I could not imagine myself working there in a salaried role.)

I work for one of the largest developers in the world - the career prospects and attractiveness of work are both not an issue. I'm surrounded by people who have worked here 15, 20, even 25 years, we pretty much never let people go unless they want to leave and try something else, and generally the company tries to bend over to accomodate any wishes towards your dream career path(I personally know several people who changed their speciality within company just because they wanted to, and the company did everything it could to accomodate such changes) - you can also move to any of our 40+ studios across the world if you so desire(there is a process, but no one is going to stop you from transferring if you want to do it). Pretty much everyone here has worked on at least one title that sold 10+ million copies - it's a pretty good place to work all things considered.

No, the main and only problem is pay, and it all stems from the fact that there are hundreds of applicants willing to apply for junior positions, some of which I am certain would literally chop their own leg off for the opportunity to work in video games - if it was legal they would literally agree to work for free. So they all start on some extremely low salary(especially considering that actually, our standard for hiring programmers seems extremely high and I have no doubts that those people could find much better paid jobs elsewhere), but obviously that leads to problems further down the line.

But, just because we have thousands of applicants for junior positions, that doesn't mean we have as many for say Senior roles - those see barely anyone applying, and yes, I'm 100% convinced it's purely because of pay. And the pay is what it is, because HR considers it unacceptable to pay new hires more than what we pay people who have advanced through the ranks naturally(which obviously cannot be a lot, seeing as your starting salary as a junior was so low, even if you somehow through some miracle managed 10% increase every year that's still not a lot by the time you get promoted to senior).

It boils down to supply and demand, though, right?

I think the large number of people who love programming makes getting an "elite" programming job difficult.

But, I think the vast majority of people think they'd hate or couldn't do programming, and so never consider it as a job despite how much demand there is for it. And that keeps our entry level wages safe.

There is an entire world of people who are willing to work for less and developing can be done remotely.

Even ignoring that. Everything gets commoditized over time. How much does your typical PHP/Wordpress developer make now? Companies like make it easy for someone who doesn’t know anything about programming to make a decent website. There are companies now that make it easy to make a cut and paste iOS app.

PHP/Wordpress developer salaries are low by developer standards, but compare favourably with jobs in general (median income).

So PHP/Wordpress developer is still a great job from that point of view.

And even that is being commoditized by sites like Squarespace where you don’t need to know that.

But have you looked at what developers are charging on places like UpWork?

Even the simplest mobile app use to cost a lot. Now you have services like this.

https://buildfire.com/

It can also be seen in porn where porn prices are always falling because so many people passionately create free porn.

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.

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?

This happens all the time in Chicago too

And small towns too. What matters is growth. If landlords see growth and the opportunity for charging more rent, they'll take it.

Opportunity cost, don't want to get stuck with low rent when you may be about to get a high value renter

This makes sense in aggregate. If you have 100 properties and raise the rent 10% on all of them and only close 5 locations... you're better off on average and actually just added additional rentable units to your inventory.

> I don't understand what commercial landlords are thinking?

Financial engineering/optimization. I'm not well versed in it myself, but from my understanding:

Commercial landlords can harvest a paper loss from a vacant unit. If you were renting a unit out at $100 per square foot per month, being able to take a $100 sq/ft/month write off from a vacancy may be more advantageous than dropping your rate to $50 sq/ft/month and getting it occupied. Particularly useful if you have a large enough portfolio to withstand the loss in cash flow.

Leasing a unit out at a lower rate can also have other implications on financing (and I believe valuations) for commercial real estate, by essentially re-establishing the cash flow potential of the unit less than what it was (and still is on paper, until you re-lease it at a lower rate).

That's not how corporate income tax works. A landlord can't take a write off for reduced rental revenue.

You may have a valid point on financing.

Everybody keeps repeating that landlords can write off rent not received as a tax deduction. You can’t, and if you think about it for a minute, you’ll see it doesn’t make any sense.

Imagine a landlord with 10 properties that rent for $100 per month. That’s $1,000 per month rental income, or $12,000 per year. Assume 10% tax rate, the landlord clears $11,000 after tax.

Imagine now that half of them are vacant. The landlord is now bringing in $500 per month, or $6000 per year. Is it your expectation that the landlord can somehow deduct the other $6k in rent not paid and pay $0 per year in taxes??? No, the landlord would now pay $600 a year in taxes on that $6k in rental income. Naturally the landlord doesn’t pay taxes on money they didn’t receive, but it’s always better to have 90% of the rent after tax, than 0% of it. It is always always more profitable to receive rent than not.

Now, as others have mentioned, it may be worthwhile to lose a few months of rent in return for signing a higher-dollar lease over a 10 year term.

if the properties weren't leveraged, then yes.

But if you leveraged to buy the property, then you deduct the interest payment from the rental income. In the case of a vacant property, the interest cost will get deducted from another source (other rental income perhaps).

Then, come tax time, you net out the rental income. If they do it exactly right, it could net out to zero. And so pay no taxes since they did not make any money.

On paper this sounds bad. But because the expectation that property grows in value, they gain capital growth. This isn't taxed until sale time, but capital gains tax is very favourably taxed in most juristictions. Not to mention depreciation over time (a paper loss tbh) can deduct taxation.

After a few more years, they sell the property, using the old (high) rental income value as the valuation figure, pocketing the capital growth while paying little in taxes from the rental (which goes into the cost of debt).

This is why rents would remain high - you need high rents to value the property as high value.

what if you rent for shorterm off records and show it's vacant on paper like accepting cash for Airbnb like deal yet claiming it was forever empty?

Then you are committing tax fraud. Also, Airbnb issues 1099’s for their payments to you above a certain amount, which they also helpfully furnish to the IRS. Wouldn’t recommend leaving Airbnb income off your taxes.

Yes, you can deduct expenses from your rental income and you only pay taxes on the profit (income minus expenses). Of course. But if you have a mortgage, you have to pay it whether you receive rent or not, so it’s totally irrelevant to the discussion - there is still never a case where you are better off, tax-wise, to not earn rent than to earn it.

Then you mention capital appreciation. Same thing. If I sell a property at a profit, then I’m always better off having earned rent from it while I owned it than not. Additionally, you don’t “claim a value” on a property when you sell it, someone pays you for it based on fair market value. For commercial property, the key measure of value is the rental income - when you buy or sell it, you advertise the cap rate (annual percent of investment made back in profits after expenses) and also the vacancy rate. Buyers get a copy of your income statement for the property going back a few years. If the property has been sitting half-vacant, then it will almost always sell for less money, since it’s not earning.

Bottom line, taxes are calculated as a percentage of profits. Outside of some esoteric situations, the money you save on taxes is less than the money you lose in profit.

Lease length also factors into this a bit. In NYC, for example, a lot of restaurant leases are 10 years long with an option to renew for another 5 at a new rate at the end. Each year, the rent increases by a percentage (3ish is common).

For a 30% increase, locked in for at least 10 years (assuming the restaurant survives), landlords are willing to let a property sit vacant for a while.

> For a 30% increase, locked in for at least 10 years (assuming the restaurant survives), landlords are willing to let a property sit vacant for a while.

The thing that puzzles me is how willing landlords are to let properties stay vacant. I live in NYC and all of the newer high rise apartment buildings in my neighborhood have retail spaces at the ground floor and usually a few floors above the ground floor also for retail/commercial use. As far as I can tell, almost every building has utterly failed to get any tenants in the ~5 years since the buildings have been built.

One of the things I have noticed is that a lot of the City of San Francisco has prohibitions on new liquor licenses. In many cases this makes wholly new businesses of some types, like nightclubs or bars, impossible or seriously squeezes the margins on new restaurants.

> 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/...

I think your comment can be summed up in: they [read: large holding companies] just don't care because it doesn't affect them.

It's pretty much the exact same situation in Toronto.

Trying $40k/mo in Midtown in rent alone. It's stupid.

> 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.

> 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.

Does that apply to all properties, including commercial buildings? I only said that because a close friend of Tebo's wife (that's his actual name, and he named his business after himself from striking it big in collectors Coins) was a trainer at the gym I went to and we'd often talk about how all the property surrounding the area was owned by him and a lot are vacant, he said that was her rationale. He could be wrong or made it up, I suppose.

He literately is a Feudal Lord in Boulder and has obscene amounts of holdings, its actually alarming how much clout the guy has a result of it and the effect it has on the local population.

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.

The landlords are gambling. Their bet is that N months with no tenant followed by a tenant paying X% more than the going-rate tenant will net out to more than renting at the going rate. They also bet that by nudging rents higher, they will cumulatively ratchet rents up over time, to the benefit of all landlords (they hope).

I don't know how often this bet comes true - it is truly remarkable to see retail properties empty for so long sometimes. But it's just a bet, not a tax strategy.

> I don't understand what commercial landlords are thinking?

The value of a commercial property is (generally, if it has development potential that may be the main factor in valuation) usually multiple of the rental income that it can generate. If landlords accept lower rents then that lowers the value of their property.

> High real estate prices are essentially forcing every commercial space to become a chain restaurant...

How? Is rent lower for chain restaurants? Do they charge more than non-chain for the same food? And they still have the franchise fees on top of the same costs as the non-chain restaurants. How are chain restaurants surviving and others not?

I'd expect what nradov describes: That the space stays empty.

They have way better efficiency on goods and marketing. Your local mcdonalds isn’t advertising on TV. They pay franchise fees but its not a 1:1 cost to benefit. Depending on the size of the chain, they can also negotiate discounts by buying at predictable and high volumes.

Your local McDonalds sure is paying for TV advertising, in two ways. One is through franchise fees for national advertising, and the second is through co-op advertising in a region where franchisee's pool their advertising dollars.

The only reason fast-food franchises are better commercial tenants is because they're usually better capitalized than bespoke restaurants. (McDonalds franchises also don't worry about rent since the parent corporation owns all the land).

How do they “not worry about rent”? The local franchise pays rent to the parent company.

I think their point is that most McDonald's franchisees in the U.S. don't need to be concerned about sudden, drastic rent increases because they aren't beholden to a third-party commercial landlord - McDonald's is their landlord, and thus is unlikely to boot them out just to lease the space at a higher rate to e.g. Burger King.

That's interesting, and suggested by the movie. However I wonder how that works in Europe for inner city locations. Here in Germany both in large and small cities, I can't recall any that I can imagine being owned by McDonald's.

> I wonder how that works in Europe for inner city locations

I don't have any specific insight into the EU, but in the other global markets I'm familiar with (mostly China, Hong Kong, Singapore, and Japan) locations are either owned by McDonald's directly or franchised by large corporations that have significant bargaining power with (and sometimes are) landlords.

The China/HK franchise, for example, is operated by CITIC (a Chinese SOE) and Carlyle.

Yes, but the McDonald's Corporation has a vested interest in making sure that the rent is affordable for running a McDonald's franchise on. MDC isn't going to spike the rent to force a franchisee out of business in the hopes that somebody else comes along willing to pay the rent spike.

I have to point out that many if not most franchisees most own or lease the property independently of the parent company. Some parent companies own the property but most don't.

In the US, McDonalds Corporation owns all the land, and overall they own an incredible amount of the land and the buildings:

"The company owns about 45% of the land and 70% of the buildings at their 36,000+ locations (the rest is leased)."[1]

This article is from 2015, but I don't have any info that disputes it.

[1]https://blog.wallstreetsurvivor.com/2015/10/08/mcdonalds-bey...

Margin. McDonald's average profit margin for the past five years has been 23%.

Sometimes they increase margin on price. But more often, they do it on labor and cost of goods. McDonalds takes no-skill workers, applies its systems, and spits out 5 billion cheeseburgers at five nines consistency. And then it buys in quantities that move world markets, unlike your locavore restaurant.

Five Guys will have lower margins, but still be 4-10x the margin of a one-off restaurant. Same for Cheesecake Factories, and all the Darden-owned restaurants.

sounds like to me that one-off restaurants' owners want to be artisans and craftsman, not running a business. It's like an engineer who values good code and high quality engineering, but is beaten out by massive outsourced labour that optimizes for business value.

The silliest one I've been to was an upscale pizza joint that sold tiny $28 pizzas because they were "artisanal". They didn't make it 6 months. I walked in, looked at the portions and the price and walked out.

Not really, it's just simple economies of scale. Large chains have a natural advantage in the restaurant business just like they have a natural advantage in any other field. A small restaurant simply cannot have as high a margin as McDonalds because they don't have the same bargaining power with their suppliers - they need to pay more for everything.

Yeah I wonder about the real estate situation.

There is a retail development near me that sat largely empty for years. They kept it up and clean, but word was the prices were sky high. It still has a huge number of vacancies ... we're talking 5+ years after it was built.

Meanwhile other retail places had shops closing, word was the rent kept climbing.

I almost want to suggest that the local city come up with a concept that somehow would encourage actual occupancy. Granted that could be complex but it seems a real waste to have these spaces empty / taking up space with high rents where maybe some business could try to run if rents were lower...

It is a weird dynamic. It's like every spot is just waiting for a Chipotle or Noodles & Company or some small fitness fad / chain and if not that ... nothing.

Maybe they haven't got it exactly right, but this shoe seems to fit rather well: https://www.strongtowns.org/journal/2017/11/27/the-paradox-o...

In summary, lowering rents to market price lowers the value of the building and makes the project insolvent.

You can't "make something insolvent". A project is either solvent or it isn't. You can make a mistake about estimating solvency, but that's the fault of your poor estimation skills and your inability to read the situation accurately, not the situation itself.

If a project isn't objectively solvent and banks are still lending on it, then the problem is higher up the food chain - a lending "market" based on moral hazard which encourages poor decisions that blow up later.

This is one of those situations where the people on the ground - shopkeepers, small restaurant entrepreneurs, and their customers - are being punished for policy errors in the financial and real estate industries.

A project is either solvent or it isn't

If you read the link, the point is the project is able to pretend it is still solvent when it isn't anymore.

Harvard Square in Cambridge, MA, has trended towards being one of these places in recent years. Restaurant or other long-standing business can no longer afford the rent, and it’s either replaced by nothing or a bank. It says the lifeblood out of the area.

From what I understand, the owners of the buildings are holding out for the high cost renters... like a bank.

A city government could provide incentives to ensure these places don’t sit vacant, and that formerly thriving areas stay interesting and have shopping for most people, not just those with massive wallets or looking for a bank.

Harvard Square isn't a good example because Harvard owns so much of the property. That's why Davis/Porter/Central all have liquor/wine stores but Harvard doesn't. Businesses exist because Harvard allows it--not a free market within that limited zone.

Isn't the lack of rent already an incentive to not let places sit vacant?

> I almost want to suggest that the local city come up with a concept that somehow would encourage actual occupancy. Granted that could be complex but it seems a real waste to have these spaces empty / taking up space with high rents where maybe some business could try to run if rents were lower...

Land value tax. Shift away from taxing the value of buildings and towards taxing the value of the land they're built on; that way you encourage appropriate and efficient development / land use.

The real estate sector hasn't made sense to me in years. No matter what happens, prices either stay intact or go up. Nothing seems to move the prices down.

Greed. It's just that.

Is greed unique to the real estate market?

And why do we have high real estate prices? Because of cheap money (low interest rates).

Good thing central banks around the world have been cutting rates. /s

>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?

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.

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%.

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.

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.

> 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.

> real estate prices

For older, less popular restaurants, maybe, but a salad at Sweetgreen is, what, $10-$15? And that's fast casual. Clearly overhead is being passed on to customers.

And yet I'm not sure it's a smart deal to be a commercial landlord. These "Retail space per capita" graphs have been eye-popping for awhile.[0]

The landlords that win seem to be the landlords who play the political subsidy and tax games, not just good developers.

[0]

My favorite is the landlords that refuse to lower their rents to attract tenants. They got a loan to buy the property, and the loan is backed by the revenue potential of the property. If rents decrease, the revenue potential also decreases and the lenders require the property owners to make up the difference. It produces a huge incentive for a property to go unrented at a high price rather than rented at a low price.

I’m familiar with the argument but I think people overstate the importance of unrented high price to refinancing. Banks (and CMBS investors) don’t simply look at market rent levels in isolation. They also look at percent vacant and length of tenancy. Except over the very short term, no one is being deceived.

I can't say that it's specifically the case, but in Montreal, there's been an ever increasing number of vacant commercial spaces - seemingly because they know that "eventually" some BigCo will come along and be willing to pay the extremely high rent. As anecdata, there's a corner space on the ground floor of Duluth and St. Laurent that's been vacant for well over a year - maybe even two. It's pricing out smaller businesses, and even though the space is available and empty, it's just unaffordable and priced far above the true market value.

We don't want more A&W's and Starbucks, but that's what eventually happens here. The only places that survive are bars.

Refinancing isn't the answer, because the borrowers will need to make up the difference between the old value and new value in cash. That's what makes this such a strong incentive, where it's worth it to leave a property unrented for a long time. If there's no refinancing, there's no reevaluation and no big lump of cash to be produced - everything just continues on as it did before.

Large landlords who own an entire street/area in upmarket or aspiring parts of a city also worry about low end tenants dragging the rest down. Completely rationally they'd rather have 60% occupancy at 2x the average rent than 95% at 1x and they know that high end retailers will pay a lot less (if anything) for a site next to a McDonald's (for example) than for a site next to another high end retailer.

Landlords, like any other business, are out to maximize their profits. Their goal is to capture 100% of the profit of businesses that rent from them. Given that the mechanisms for doing this are very crude, there's a chance that they could be getting 101% or more and that spells death for your business.

A landlord’s goal is to capture 100% of their tenants profits? That’s quite a misinformed statement. Their goal is to create sustainable, long term income on their investments. Taking everything they can from their tenants would not foster sustainability. I’m also really curious about your last sentence. Can you elaborate?

The goal is to maximize income, and the maximum you can get sustainably is 100% of your lesee's profits. If you take less then you're leaving money on the table. If you take more than that (e.g. 101%) they will inevitably go out of business.

If you guess wrong and drive a place out of business, your hope is that the next tenant is more profitable and can handle the overhead. Chain restaurants are typically pretty good about this because they know their revenue potential accurately ahead of time.

>...The goal is to maximize income, and the maximum you can get sustainably is 100% of your lesee's profits.

If you hypothetically take 100% of the profits of the renter, they won't be in business long term. There likely will be a gap between when they stop paying rent and you are able to evict them. There will also likely be a gap between that point and when you get a new renter, particularly when your rent is so high.

I agree that the goal is to maximize income, but trying to take 100% of the profits of the renter is not a way to maximize long term income.

> the maximum you can get sustainably is 100% of your lesee's profits.

only if there's a monopoly on real estate. I find that unlikely.

So with profits dropping they should lower rent?

I'm not sure why you couldn't buy 20 cases of pop per day at a big grocery store. There's more than 20 cases of each flavor at my local grocery store and there's lots of other grocery stores nearby that have the same selection.

Also, you're right. Costco exists too.

A few reasons:

One: the shop often wouldn't let you buy up their whole supply

Two: there are likely other restaurants in the area, so that's 20*N boxes a day

Three: lots of countries have resale laws that prevent this

Four: that's a lot of time to spend every day when you can get a single delivery every week / two weeks instead

Five: the delivery often includes the collection of the used bottles (when using glass) and that otherwise can cost a lot

> One: the shop often wouldn't let you buy up their whole supply

Any half-sane shop would love the giant piles of money you're spending and negotiate a way to get you a nice big supply with an even easier pickup process than filling a cart.

> Two: there are likely other restaurants in the area, so that's 20N boxes a day

Even better. Imagine a shop saying they don't* want to ramp up to selling ten times as much product out of aisle seven with no extra work beyond staying in stock.

> Three: lots of countries have resale laws that prevent this

If you buy a shelf-stable food, you can't resell it? Why would a law like this ever exist?

> Four: that's a lot of time to spend every day when you can get a single delivery every week / two weeks instead

This is a better reason, but you'd think the huge volume of the sale would get you at least a mild price improvement.

> Five: the delivery often includes the collection of the used bottles (when using glass) and that otherwise can cost a lot

If it costs money to set things out for recycling, the local government is doing a bad job.

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

The landlord's costs go up, too.

Other than borrowing what costs do landlords have to bear? Certainly in the UK they seem to do nothing other than cream off any profitability you have generated at the next rent review.

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.

> 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.

>> [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).

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.

> 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.)

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.

> The landlord's costs go up, too.

Not if you've owned the place for a long time and seen rent and value appreciation.

I suppose that would be true if you weren't paying maintenance, taxes, insurance, legal bills, accounting costs, compliance with regulation costs, repairs, upgrades and assume that none of those go up over time.

I'd expect most of those to rise only insofar as the inflation rate. The cost of housing in major North American metros has outpaced inflation in the past 20 years.

This doesn't make sense in the first place. Don't suppliers charge lower rates to restaurants exactly because they'd otherwise just go to the supermarket?

That part seemed strange to me. According to people I know that have worked in food/beverage industry, the most expensive part of a cup of Coke at a movie theater or fast food restaurant is the actual cup itself. The liquid inside the cup costs pennies.

My first boss said the ice was the most expensive part. But that just may have been his occasionally flakey ice machine.

Possibly because the machine costs a bit, the constant running costs, and maintaining of course as well.

Also maybe because you don't want to use tap water...

As with my examples above (linen and dishwashing) ice machines are also notoriously difficult/expensive. They most certainly have to be cleaned & serviced regularly. When the Board of Health comes in, the ice machine is one the first places they look as it’s basically a invitation to a mold party without diligent cleaning.

Syrup is cheap, water is cheap, C02 is cheap... for a fountain drink, you are indeed correct. The margins here are crazy.

I assumed this vendor was selling bottled or canned soft drinks. Why that is, I couldn't say (just as I couldn't say why they're renting a dishwasher, why they're paying a linen cleaning service rather than purchasing a washing machine, etc...).

It’s very common to rent a dishwasher. High volume dishwashers break down all the time and need very regular servicing and cleaning. At every establishment I have been associated with (wine industry) I’ve been on a first name basis with my dishwasher service rep.

With linen, when you go through a big volume, it is infinitely easier to use a linen company than to do it yourself on site. You’d have to buy industrial washers, pay rent on space to keep them, know how to service them, pay staff to operate them, etc...

If you’re a large chain, perhaps you could bring those operations in house. If you’re tiny, you could do it yourself. But if you’re seeing over 100 guests a day, there’s no reason not to use service companies for these two examples.

Hmm, pulling from past experience from the fast-food industry... I never saw our commercial dishwasher[0] break down in year after year of service. It really seemed like a simple, reliable machine to me. The kind of thing I'd be shocked if I couldn't disassemble, understand and repair myself if necessary. (Okay, it was old, and a bit crotchety; there was some component which regularly acted up. However, it was simple enough to "fix" it and move along, so we never really minded). However, alright, lets say that maintenance is a major issue, and so renting is financially attractive. I defer to your experience in this arena.

> With linen, when you go through a big volume, it is infinitely easier to use a linen company than to do it yourself on site. You’d have to buy industrial washers, pay rent on space to keep them, know how to service them, pay staff to operate them, etc...

How much volume could a small restaurant like this need for cleaning towels? More than a McDonald's doing top sales in the state? They get by just fine on a single washing unit[1]. Dump the dirty towel buckets in the washer, add detergent, run. When it's clean, distribute them into buckets of sanitizer so they're ready to use. Takes a few minutes, that's it; usually you'd do it during downtime. It's been too many years to remember now, but that machine was probably run a few times a day (maybe once every 4-6 hours). The process was very streamlined and efficient, and I can't imagine what involving a third party would bring to the table (perhaps if there was legitimately not floor space for a single washing unit in your building?).

I guess if it's common, it's common. I must not understand the business constraints involved, or maybe it's prevalent in certain areas and not in others. The U.S. is a very large and varied place, after all, to say nothing of the rest of the world. I'll have to ask my friend what her family restaurant does for a small-scale perspective.

[0] this type here, more or less: https://4.imimg.com/data4/DW/DT/MY-9292814/dishwasher-500x50...

[1] it was a lot like this (with the coin mechanism removed). Not glamorous, but got the job done just fine: http://i.ebayimg.com/images/i/271466627178-0-1/s-l1000.jpg

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

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.

If restaurants had much better margins, they (or their owners) would have bigger rainy day funds. There are lots of businesses with large fixed costs.

There are few businesses with such large fixed costs and ample competition.

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.

> He got fired once as a short-order chef in the 50's from a Howard Johnsons for cooking too well.

Under which logic? The Baron Von Muchausen argument of demoralization?

Consistency is a big deal in restaurants because mismatched expectations drives bad experiences.

> Consistency is a big deal in restaurants because mismatched expectations drives bad experiences.

It could also be that the expo/chefs valued speed over anything else, I've never been or eaten at a Howards Johnoson's, but I can easily see it being an issue if you're trying to make an effort while being behind on a ton of tickets and management prioritizes volume over quality and it they're seen as the bottle neck.

I admit speed is not my strong point, but my presentation and knife skills are strong so I make up for it that way and I'm organized and clean--its what got me to work under a 3 star Michelin chef (total nightmare, he finally got fired a months after I left) despite focusing mainly on Farm to table concepts for most of my career.

But I've been judged negatively in other kitchens for playing to my strengths and believing/saying that speed comes with time--in the last place I proved that is the case and trained 4 people due to that philosophy/results.

But patience isn't exactly easily found in kitchens or tolerated amongst a bunch of fast talking, high-strung adrenaline/stress junkies which is what most chefs are, myself included.

I didn’t understand that note about firing either. Care to explain your reference? I’m not familiar with it.

>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.

Chain coffee houses are doing fine. And ever been to a McDonald's on a weekday morning? Community still has places, even if independent restaurants are likely going to reduce in number.

> Let's just kill all community space.

It might be helpful to differentiate "community space" from "restaurant". Or perhaps to differentiate "restaurant that is primarily selling convenience", which is the kind the article seems to be describing, from "restaurant that is primarily selling a dining experience in a community space". I would expect margins on the latter type of restaurant to be significantly higher.

all restaurants want to be a 'dining experience'.

But only restaurants that can be this are famous ones which have a lot of celebrity pull. So the remaining ones that don't have such pull will need to adapt, or die.

It's not that all restaurants will die - just the ones who aren't celebrity/famous and can sell an experience.

> all restaurants want to be a 'dining experience'.

Wanting to be a dining experience, and having "be a dining experience" be your primary business model, are two different things.

I'm sure the author of the article would like his restaurant to be a "dining experience", but that's not his primary business model. His primary business model is selling convenience. His customers buy his food because it's more convenient than preparing it themselves, not because they need to have the "experience" of dining in his restaurant. His restaurant could just as easily be a truck parked at the curb--as many sellers of food actually do in large cities--and his customers probably wouldn't care as long as the food was the same and was available as quickly.

Sure, if you ask the customers, they'll say they prefer the restaurant space to a truck at the curb, but unless they're willing to pay more for the former than they would for the latter, there's no business value in the former. And the fact that customers aren't willing to pay enough to support a restaurant space, but what they're willing to pay probably would be enough to support a truck at the curb, is precisely why the author is struggling to find ways to cut costs--because he mistakenly thinks the space itself is part of his business model, when it actually isn't. He'd like it to be, but it isn't, because his customers aren't willing to pay extra to support it.

Because it's so much easier to fundamentally change a huge and enduring societal institution (the concept of restaurants in trafficked places) than to re-adjust the expectations of the fucking landlords, which has never been dealt with before...

The hyperfocus on "disruption" you sometimes see in here is really... something.

> 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.

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.

Wait, so now the plan is (a) reduce rent overhead (b) pay someone to deliver all the food? You're betting that the increase in costs implied by (b) exceeds the possible drop caused by (a) ? Good luck!

I have no idea where the restaurants I order from are.

That's one way to look at it. I, on the other hand, right now order only from the restaurants that are close to home, and I know exactly where they are. In the hopes that at least some of my favourites survive.

> lack of differentiation.

Exactly. The French Laundry can charge $325+ for dinner because it is arguably one of the 15 best restaurants in the country. It is incredibly differentiated.

That level of differentiation, though, is only available to on the order of 20 restaurants in the entire country.

I don't think we disagree here. I was pointing out that those rare times restaurants are differentiated, they can demand a premium, but only because they're differentiated. Restaurants aren't inherently low-margin, but most are, and it's because they're not differentiated.

I know I'm being pedantic, but the best restaurants in the biggest food cities have pricing power because they effectively become Veblen goods. Benu, Coi, Quince, and so on can pretty much charge what they want to. They will continue to be booked out a month in advance, and the exclusivity itself becomes a draw. The line a restaurant needs to cross to achieve that differentiation is apparently a second Michelin star.

Those are not examples of true Veblen goods but rather goods which use price as a signal of quality. True Veblen goods are things like staple foods for the very poor where the increase in price eats so much of their income that they can only buy more staple foods.

You are thinking of a Giffen good.

A Veblen good:

>...A higher price may make a product desirable as a status symbol in the practices of conspicuous consumption and conspicuous leisure. A product may be a Veblen good because it is a positional good, something few others can own.

https://en.wikipedia.org/wiki/Veblen_good

A Giffen good:

>...The classic example given by Marshall is of inferior quality staple foods, whose demand is driven by poverty that makes their purchasers unable to afford superior foodstuffs. As the price of the cheap staple rises, they can no longer afford to supplement their diet with better foods, and must consume more of the staple food.

https://en.wikipedia.org/wiki/Giffen_good

What I don't understand is that restaurants seem very well differentiated to me. I have a significant preference for the food of some restaurants over others, and I'm not remotely a foodie.

The medium post seems to be arguing for charging $12 for the example Doner instead of $11. It could just be that I'm relatively price-insensitive, but if I'm choosing between meals at two different restaurants where one costs $11 and the other $12, the decision is being made by which meal I'd prefer eating, not by the $1 difference.

If we're talking a 2x in price, then sure, that can sway my decision. But the article is not talking about such big differences.

What's an example of a well differentiated restaurant?

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...

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

Not a huge difference, but it's actually 11 CAD, so closer to 7 EUR.

Though tax is on charged separately in Canada, so probably closer to 8 EUR. I’ll admit, in Canada, assuming you’re in a busy part of town, I’ve gotten used to the idea that a fulfilling meal out costs $15-25. The only way I’ve been able to reduce prices further than that is to use a service like MealPal or stack discounts from credit cards and app cash back to get another 10-12% off or so. Not to say there aren’t cheaper places to eat at, but I’d have to drive a bit of a distance to get there. Land/rent really is too damn high everywhere “walkable”... The cheapest places in town are always the ones that have been there “forever” or have the smallest, sketchiest locations, but still have lineups around the block, or they’re simply fast food with coupons.

11 dollars is probably in SF or NYC where average pay is 2 to 3x the one in Berlin.

Inflated by rent costs for sure, but the food cost part has to be cheaper in SF than Berlin.

This is in Ottawa.

But isn't it cash-only at even most established joints in Germany much less mom and pop immigrant-run hole-in-the-walls? My friend tells me even vape shops that sell hundreds of dollars of gear are cash only.

We have plenty of those in our ethnic neighborhoods. Heck even some very successful joints like Rosamunde Sausage Grill in the Mission District (S.F.) were cash-only until a couple of years ago, when I last went there.

Most other places accept cards & thus have to factor that into the price of the offerings.

But how does cashless pay make it cost a few bucks per serving more? If it is that, why would anyone offer cashless payment?

Most Döner and other Street Foods in Austria are cash only, but that's not the reason a typically priced Döner costs ~5€

Cash-only means no card reader rental, which saves a couple hundred per month and at least 5% of every transaction, and possibly no internet bill, either...

But you can't go cash-only because so few people carry cash, that our would drive out your sales.

5% per tx?! Remember, in Europe debit is way more common than credit and the fees are capped.

Banks charge for handling large volumes of cash though - can be as high as 2% I think; and as others have said 5% is way way more than you'd be paying to accept card payments. If anything the economic incentives are towards going completely cashless these days.

> at least 5% of every transaction

In EU 0.3% or 0.2% depending on card type: https://www.reuters.com/article/us-eu-payments-cards-idUSKBN...

You can easily get sub 2% in the US if you shop around and have ok volume. Just as much exaggeration in this thread as in the article.

The company supplying and supporting the card machine adds a fee, so it's more like 1-2%.

And I'm pretty sure no receipt and under-reported taxes. But what am I saying, that's only something that happens in PIGS, nobody evades taxes in Germany...

Cash only also means you can skip on paying (part) of the taxes because there is no record of any transactions.

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.

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.

Commercial rents are still insanely low in Berlin. Low fixed costs and high turnover make a low-margin business viable, hence the proliferation of food trucks in Tier 1 US cities.

Throw in a cold Lagerbier (€2) to wash it down with and the contrast is even more sobering.

I honestly thought that was cheap, and that the answer to the problem was: charge more. I would pay $15 for that doner. Looks delicious.

And for $15 in Berlin you would expect a main course, glass of wine, and espresso in a decent sit-down place, tips included.

$15 CA is €9.50...The meal you describe would still cost more than that, maybe $20 CA & that would be the cheaper end of the spectrum (€7 Mittagsmenü, €3 wine, €1.5 espresso + 10% tip, then convert € to $CA).

If you're in central business locations in Mitte or Charlottenburg it would be more than that. That said you have very cheap options for Turkish, Arab or Vietnamese food in other districts like Neukölln. One of the best benefits I had when self-employed was the cheap & decent "ethnic" food options I had near the coworking space I chose in Neukölln vs having to go to the office in an expensive part of Mitte.

Right, I was thinking USD so ~13€. For that you have a nice main, wine, and coffee in half the ethnic places of Berlin. Not in Mitte as you said though.

As a side note, I don't know anyone actually tipping 10%. At this price range usually it's rounded to next full euro.

I try to tip at least 10-15% and in cash as the waiters for sure earn less than I do & honestly the extra Euro or 2 make 0 difference to a well compensated software developer.

The same in Zurich would cost 10-15USD. Some places would do a plate for 15USD.

Prices really do vary wildly across Europe.

> 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.

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.

1 and 2 can both be true and margins can still be low because of higher rent and/or labor costs.

> Is it really just too many food vendors thinking that the $1 happy meal is their competition?

Maybe if you're a Burger King, but most restaurants aren't really competing with fast food. It's more like the Italian place is competing with the Sushi place in the same price bracket (I'm guessing, but 3x-5x more than fast food).

It used to be 3-5x more than fast food.

A burger with a meal + a drink @ Wendys is like $8+. The price of fast food has risen quite a bit over the years.

I can get a burger and fries that's 10x better at Friendly's, Ruby Tuesday's or a half a dozen other franchises for about $10-12 and the only sacrifice I have to make is that I'll have to drink water instead of soda.

I don't buy this. At a fast food chain, drinks are $1 with free refills. A burger is $3 for the fancy ones, $1 for the dollar menu ones. The windows also have all sorts of 4 for $4 or $5 value meal deals. So $5 without any coupons at Wendy's. Two people can eat for $6 if you use a coupon.

Ruby Tuesday burgers are $9.50 with fries. Add a soda, tip, tax, and it's $16. The multiple is still 3-4x.

It also depends on where you live. Some places the price disparity might be higher than others.

Also if you're talking about dollar menu stuff or the stuff close to it, its about 1/3 the size of the burgers included in fast food meals. The burgers in the meals are comparable in size to what you would get at a sit down restaurant.

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.

I've eaten in both SF and Europe a lot. Is it more expensive than SF? Not notably, but I'm comparing against SF.

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

I'm not sure about Europe but I suspect one of the issues is similar to Japan. The food isn't necessarily that much more expensive, especially if you're eating food similar to a native, but the serving size is much much smaller. In the US most people will leave a restaurant upset if they aren't completely and totally stuffed with leftovers for the next day and this is combined with people here easily able to eat more on average already. When I first lived abroad I was spending alot of money in my first couple months trying to eat like an American, until I embraced eating more local food and accepting the smaller serving size. Then I loss tons and tons of weight without even going to the gym.

2 is not true for Southern Europe.

True. 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.

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.

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.

Niedersachsen. I usually get a falafel tasche which is €3 (same size) but you're right, maybe the equivalent sized döner is 1 or 2€ more. Still, there's a large gap in price I can't get my head around. Maybe your tax evasion point could be it, or maybe the author's business is in an unusually high rent area (shopping centre or big city or something).

To add to this, the Dönnerbude is probably in a part of the city where rents are low (whereas US restaurants are often in designated city center high rent areas), and the Dönnerbude is usually very, very small.

Dönerstuben

What a word.

Budapest: 2.2 EUR for a nice Doner.

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

Yeah in Poland it would be about 10PLN(so also about $3). But the the labour and rent are super cheap, even if the ingredients are high quality - that's where the saving will come from .

Wolf Down is in Canada. Your currency conversion is incorrect.

Ah, that's starting to explain the difference here. 5 EUR is approximately 8 CAD.

Yea, a döner can be made for far less money.

They're using over-the-top expensive premium ingredients, but if you just use regular supermarket ingredients, you could make a döner for far far less. Let me attempt a prices breakdown:

I'm in the U.S., and the nearby Aldi sells boneless, skinless chicken breasts for $2.49 per pound (a restaurant could probably order in bulk, and get that an even lower price). A pound is 453 grams. There's probably only 100 grams of meat in a döner. So 113g of chicken in a döner should cost around $0.50. (It cost them $2.50, a 5x premium.)

Pre-packaged pita bread (döner wrappers) probably cost far far less than $0.75. I'm not going to analyze, but I'm going to guess it actually costs closer to between $0.05 and $0.10. Then there's the sauce. It too, when bought it bulk, likely costs less than $0.10 per döner.

So that's all to say you can definitely make a good döner in the U.S. for less than $1 per döner in terms of ingredient costs.

In terms of labor cost -- if you pay someone $15/hour, and if they take 1 minute per döner, which is definitely possible if you do things assembly-style, then the labor cost is $0.25 per döner. If you're less efficient, then maybe the labor cost is $0.50 per döner.

So now labor + ingredients is somewhere between $1.25 to $1.50.

Lastly, there's rent/utilities/etc. This totally depends on where you're located, but assumeing you're in a non-super-expensive area, let's guesstimate it costs around $1 total per döner purchased to cover these things.

We've reached a final cost price of $2.50 per döner. I can see how a 3 euro price is totally achievable in Germany.

Food can be cheap in the U.S., even in nice neighborhoods. As an example, I offer "Tara Inn", a tiny old local restaurant in Port Jefferson, NY. (Their menu: https://zmenu.com/tara-inn-port-jefferson-online-menu/) They sell pretty darn good hamburgers for $1.00 each, cheeseburger for $1.50 a piece, a grilled chicken sandwich for $2.00, etc. And the food there is actually good. This, in a neighborhood (North Shore Long Island) where the typical family income is $100k+. (Although the immediate vicinity of Port Jefferson is not considered super-bougey by north shore folks.)

There's another reason why döners can be fairly expensive in the US (even at a places using non-premium ingredients). Turkish cuisine is still somewhat exotic here. The US doesn't have the huge fairly-recent immigrant Turkish population that Germany has, so döners fall under the realm of "exotic mediterranean" foods. Hence their higher-than-typical prices.

That's because Tara Inn is a bar. They likely lose money on the cheap food and make it up on drinks.

At least in California, restaurant and bar licenses are separate. Restaurants have to prove that a certain percentage of their sales are food related; otherwise you can’t allow anyone under 21 into the establishment.

Though you don't want to use chicken breast with a doner, it would come out too dry. I think it's very common to use brown meat from birds, something like turkey thighs, which are gonna be even cheaper than chicken breast.

Donairs (how we Canadians spell Döner) everywhere are like $8-11 in Canada. And not for a premium one either. Meat here is more expensive than the US or Europe, rents are more expensive than the US or Europe, health and ventilation requirements for restaurants are more stringent than the US or Europe and in Ontario the minimum wage is $14/hr.

I've never been to Germany, but many of my favourite bars and restaurants in France wouldn't even be able to exist in Canada, they would run afoul of all our regulations.

It's about the same here in Sydney too. I'm almost certain most of this is due to rent, some of it minimum wage.

It's not really that accurate to compare costs across markets like this. There are too many variables.

Something like the Big Mac index is a good way to reveal this: https://fxssi.com/big-mac-index

Canada is ~10% more than the Euro area.

And in Stockholm you’d be lucky to get one under €9. These things vary with taxes and living costs (which ironically include the Döner).

Germany also has a huge Turkish community, perhaps competition is just fierce in that category?

It is very competitive in Germany, and most of all in Berlin (where the Döner was actually invented!).

Too bad that there are very few real Turkish restaurants around. We happen to have one in my town and it's very, very good. When Germans think "Turkish" they think "Döner", and that's just unfortunate.

A good Döner in Berlin runs about €5, this restaurant is in Canada where CA$11 = €7.

It's slightly more expensive than dirt-cheap Berlin, but it's hard to compete with dirt-cheap Berlin. Berlin is wonderfully cheap in every aspect. Most of the western world can't compete with that.

Try having a similar Döner in Zürich and you'll be wishing for that $11.

And try any small German town and it will be cheaper.

Zurich being in Switzerland which has one of the highest costs of living in the world is not really a good comparison. It's like saying "beer in X is cheaper than in Norway" - it will nearly always be true ;)

NYC is 4-7$ usd

I live near the one of the best Döner and most famous places in Berlin and it is €4.10 including everything.

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.

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.

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 ...

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.

Although it should be noted that modern American regulations make it very challenging to run the kind of low-cost "random guy with a cart" stands that historically provided street food.

Very true, and I also read that income taxes were one reason for people doing things themselves, because income taxes discourage 'outsourcing' household tasks. The example used in that article (which I can't find right now) was that people paint their own houses more in places with higher income taxes.

Fair enough. Don’t think those poor ancient Romans were eating in restaurants either though, wasn’t it more of a communal kitchen setup?

https://www.reference.com/world-view/did-romans-cook-prepare...

Depends how far you want to go back and where they live. Most people throughout history have had the ability to make bread and soup on a fire or something similar to that.

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

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).

That's a good point.

On a more philosophical level, are restaurants an essential good for society, or more of a luxury along the lines of upscale purses, limited-run sneakers, Rolex watches and Teslas?

I'm not going to argue that they shouldn't exist, but just like with fine mechanical watches, I don't imagine society will collapse without them as we switch to centralized food preparation with economies of scale and more home cooking.

I would consider some amount of restaurants (of one variety or another) to be of some cultural importance. They don't need to be as prevalent as today, perhaps. But it would be a very different place to be without them entirely, and I think it would feel... a bit colder; more barren.

Luxury? To some degree, perhaps. Hardly to the same degree as Rolex watches, however.

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.

Isn't this just a buffet?

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)

So what are they like?

Like a buffet but not self-serve. Pick what you want and they tell you what the total is.

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.

Ever been to IKEA restaurants? If not Google it. Lots of stuff they dish up for you out of massive trays.

Buffet means self-serve, the price can be fixed ('all you can eat') or by weight.

Canteen or cafeteria is the word you want, where they serve you at a counter and you walk away with a meal on a tray.

Sometimes there's a combination, with only a salad buffet.

The difference in function with the buffet is that buffets are self serve.

But the main difference for me is the quality. Buffets are always underwhelming. The food is basic and barely palatable.

While cafeterias have a pretty solid quality and taste equal to a proper mid range restaurant.

Even in Canada. I’ve had a chance to work at a military base on a contract. There was a cafeteria on the base. The food was amazingly good and dirt cheap. It was like half the cost of a basic McDonald’s meal, twice the size and nutritious.

> 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?

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

I mean, if it's a really good sandwich I might.

I'd pay $13-15 for the doner in the article for sure. (NYC)

You'll find a $16 doner in the comically overpriced food court in City Point, or a $15 currywurst at a place Chelsea Market.

This is, of course, a comically grim state of affairs compared to the 4 euro doner or currywurst you can get in Berlin. Though I will say NYC halal carts might be the best _common_ street food in the US, and that hasn't yet made it above the $6 sandwich/$7 plate mark... yet.

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?

People are fine with making their own food. It has a big benefit in that you can make it exactly how you want. Restaurant food makes the most sense for things which are difficult to make or require expensive equipment or the most prep.

I don't feel its a matter of people passing or not. Its a matter of how often they pass. People, in aggregate, will just eat out less. Whether this means restaurants will, at the end of the month, make more or less money, I don't know (I suspect its less, because it seems most of the costs are pretty constant; the food itself is a minority of the pie).

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?

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.

Personally I think it's mostly the last one: I know what sandwiches are "worth" and you are trying to fleece me, or your high price is because you are bad at running a business and it's not my problem. No one likes to be conned or make up for someone else's mistakes, that stings a lot more than just paying a few dollars more. I've noticed a vaguer version of that train of thought in my own head more than once.

The calculus is, what percentage of Americans can afford $15-$20 per sandwich on a regular basis? And how does that revenue compare to current revenues?

edit: Though, this throwing around of prices is perhaps not very effective. Reasonable prices for sandwiches in SFC, NYC, or Seattle will be much higher than a midwest capital, which will still be higher than some rural diner. The point stands, however, that there's a breaking point which has nothing to do with principles or indignation and everything to do with household economics.

As an occasional thing, I'd probably buy a $15-20 sandwich if I really like it. As a daily or even weekly thing? No.

That's not that far off from what some sandwich shops are already getting in Boston at least.

Landlords are a whole other problem to be sorted separately.

Gabrielle Hamilton had a good op-ed about this topic as well: https://www.nytimes.com/2020/04/23/magazine/closing-prune-re...

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.

> 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.

https://www.facebook.com/100001668520076/posts/2990762630989...

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

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....

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

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.

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.

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.

The food truck would be the closest NA incarnation of that.

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.

Food stands and simple stuff like that are illegal in many cities or require burdensome permits/regulation.

Prices in developing countries are low because ingredients/labor/location is cheaper than in developed countries.

The lack of frills (e.g. signage, interior design, tables, dishes, etc.) are not what make the prices low (relative to developed countries).

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.

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.

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

It's probably Canadian dollars. At today's exchange rate, that is about €7.

Döner + Coke = 10€ Source: Me in Oslo, 2011

Döner + fries + soda = 5€. Spain 2020.

So Canada is somewhere in the middle between oil-rich Norway and Spain with economy that was suffering even before COVID-19. Sounds about right.

Never been to Kebab Shop? It's like $11 for a wrap. https://www.thekebabshop.com/

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.

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

A good doener+drink for $11 is a steal in chicago.

The donner featured here is $11 without the drink. With the drink maybe it's $18 after tax?

Food prices in general are pretty high here in Canada, a big mac combo down the street costs $9.69.

Also, as someone who lives ~4 blocks from the restaurant in question (Wolf Down in Ottawa) I can confirm that the Doner is completely unparalleled. You can tell that they use top quality ingredients and all of the portions are super generous.

tl;dr, while $11 may be expensive for a different doner in a different city, its pretty reasonable for Wolf Down in Ottawa.

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.

Brand value extraction might be the name of the game. It seems only when a restaurant is ascendant is the quality excellent. Once they have a good reputation, the quality slides.

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

Whole Foods is the only place to buy quality food at okay prices in the whole city

No difference to Western food in big Asian cities. Either passable yet overpriced, or completely unpalatable yet still overpriced.

This video is funded by he American government so I'm not sure how biased it is, but it shows a cost cutting measure (gutter oil):

https://www.youtube.com/watch?v=zrv78nG9R04

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?

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

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.

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.

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.

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.

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

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.

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)?

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.

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.

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.

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.

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...

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.

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.

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!

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.

> 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.

Could you elaborate on how the NIMBY attitude is detrimental to mom-and-pop establishments? I thought generally the point was to protect such businesses from chain competitors.

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.

> 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.

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?

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

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.

>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?

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

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!

If both a pb&j sandwich (one of my main go-tos) and a restaurant meal are equally acceptable to me, why would I want to spend the time and money getting the restaurant meal. I can make and eat the sandwich in less than 5 minutes and get back to those things in life I find enjoyable.

You (and me) sound like the target market of Soylent. I don't think it's bad.

If everyone treats nutrients as necessities and dining as treats, reckon over time people will be willing to pay more for dining than they do now, making the whole sector more financially sustainable.

People like us helps uncommoditize dining.

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.

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...

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...

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.

>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.

New York City is free for residential.

Business trash pickup must be contracted for with a private company. The Mafia used to run a lot of it, but the NY Times claims that's no longer true. Here's an article on the currently screwed up state of commercial trash in NYC: https://www.nytimes.com/2019/10/29/opinion/nyc-sanitation.ht...

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".

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.

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.

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

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.

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.

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

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.

Most neighborhood restaurants aren't really selling the experience. To be honest, I only go because taste is good, and I don't want to invite people over.

I think trying to collapse this into a simple explanation is a simple mistake when other countries around the world have the same 'competition' and not the same issues.

So when you start looking at issues with American restaurants vs other countries, a different picture starts to arise. One with a whole lot of rent-seeking behavior.

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.

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.

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.

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

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

People want Bouchon at McDonald's prices.

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.

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.

> 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.

> 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?

https://www.latimes.com/california/story/2020-04-29/coronavi... apparently a hard problem to solve

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.

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.

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.

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

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

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