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Restaurants weigh cost of wage increase: San Mateo business owners concerned by payroll hike in coming months
October 15, 2016, 05:00 AM By Samantha Weigel Daily

Samantha Weigel/Daily Journal
Downtown San Mateo restaurant owners David Hunsaker, left, Brad Goldberg and Alicia Petrakis meet at Three Restaurant to discuss how the city’s minimum wage hike may affect their businesses.

In the coming year, San Mateo’s lowest paid workers are guaranteed a raise. But a group of local restaurant owners ask, who will help them cover the cost?

The city approved breaking from state standards and raising the minimum wage to $15 by 2019 in an effort to help those struggling with the region’s high cost of living.

Those currently making the lowest wages can expect $12 an hour beginning Jan. 1, 2017; which will be $1.50 more than the statewide standard.

But while several downtown San Mateo restaurant owners say the new rules may be well intentioned, they remain concerned business like theirs may struggle to absorb the increased costs.

Owning a restaurant isn’t easy work. And it’s a passion for the industry that keeps three local proprietors in the business. Yet with notoriously slim profit margins, fierce competition and already having difficulty retaining employees, some wonder if the wage increase could shake San Mateo’s downtown restaurant scene.

“It’s a nickel-and-dime business; it’s going to become nickels and pennies,” said Brad Goldberg, owner of Vault 164 Restaurant who employs about 55. “The margin in this business has never been high, with the rare exception of a few restaurants. For the average Joe, it’s a 5 to 6 percent profit margin on a good day. But this wage increase, that’ll eat it up.”

Restaurants are also not exempt from the Bay Area’s rising costs. Commercial rents increase, food and beverage prices go up and retaining employees already means paying a decent wage, said Goldberg and Alicia Petrakis, owner of Three Restaurant.

Impacts resonate

And then there’s the ripple effect; if one person receives a raise, restaurateurs say others will want one too. Plus, many making minimum wage are tipped employees, who actually bring home the most at the end of a night. In the end, giving multiple raises leaves less money to spend on those who need it most, which tend to be kitchen staff or those in the back, they said.

Like a rock thrown into a pond, increasing wages entails related costs — such as workers’ compensation, payroll tax and more. Petrakis, who said she employs about 50, expects the wage increase will translate to about $150,000 to $250,000 a year for her restaurant. Staying on budget could mean she needs to increase sales by nearly 20 percent.

“If we knew of something else we could do, we would already be doing it. This is a very challenging business on a good day,” Petrakis said. “Do you think people are just going to say ‘god, we love our community and San Mateo restaurants; we’re going to pay 20 percent more for a burger in San Mateo?’”

They also argue it puts them at a disadvantage as they compete with neighboring cities to attract customers. San Mateo isn’t alone in hiking wages, others have done so in Santa Clara County while Belmont officials have broached the topic. But none in San Mateo County currently has a higher-than-the state minimum wage.

So in the meantime, San Mateo restaurants may be at a disadvantage, the owners argue.

“The playing field is no longer level,” Goldberg said. “It’s a lot of money when you don’t have it.”

Prompted by rising costs

With Bay Area rents higher than the state average, some contend a geographical wage adjustment is appropriate. The Raise the Wage Coalition has supported similar initiatives throughout the region and the San Mateo City Council agreed to act.

The restaurant owners don’t disagree people are struggling, small businesses included. Instead, they sought a slower implementation schedule before the council approved the increase in July after considering the changes for more than a year.

The current statewide $10 minimum wage will increase by 50 cents next year and continue until it hits $15 in 2022. San Mateo has a two-step increase with the minimum hitting $12 Jan. 1, 2017, then $13.50 the following year and $15 by 2019. Charitable nonprofits have an extra year to adapt.

Layoffs are out of the question, as it would be bad business to cut back on quality of service. Instead, it’s likely the increase will trickle down to customers. The three local restaurant owners are floating the idea of having a percentage fee on customers’ bills to account for the increase in labor costs. It’s similar to what other cities have seen in response to the health care-related costs, Goldberg said.

Questioning the consequences

Dave Hunsaker, who employs about 18 people at his restaurant 31st Union, noted a surcharge could make customers less inclined to leave servers as much of a tip. Hunsaker, who opened his business in 2012, said he wants what’s best for his employees, but wonders how he’ll be able to make up to $4,000 more a month.

“I’m going to have to figure out a way to increase sales or take home less money,” said the Burlingame resident and father of three young children.

With people across the region struggling to afford rents, it’s also had an impact on their customer base, Petrakis said.

“People are paying so much in rent, they don’t have this immense amount of disposable income to then go spend on going out to eat,” Petrakis said.

Less flexible income also means it will be harder for small businesses to support local nonprofits or participate in community events, Hunsaker added.

San Mateo prides itself on being named the “best small town for food” — thanks to a Rand McNally internet contest. But Hunsaker said “if they want downtown to be full of corporate restaurants, chain restaurants, the route they’re going right now is going to solidify that in the future.”

Overall, one of their major fears is the unknown — such as exactly how much it will cost and whether customers will be willing to continue supporting local businesses.

“I don’t think anyone really knows how adversely it affects everybody until the first few months,” Hunsaker said. “I do think by June, you are going to see other restaurants or businesses that just say, ‘forget it.’”

But none of them got into the business for an easy ride. Petrakis has 20 years of experience under her belt and opened her restaurant in 2003. Goldberg said he’s been running his downtown locale for about five years now and expects the increase will cost him between $75,000 and $150,000 more a year.

Each agreed losing restaurants means losing jobs, and hope the community will rally behind them to help them stay in businesses.

For some, their restaurants, customers and employees are equivalent to family.

“I enjoy taking care of people, having camaraderie with the employees. But it’s a grind, I work probably six days a week,” Hunsaker said. “I don’t mind working a lot of hours and being away from my kids at times. Alicia and Brad and I really put forward our support behind downtown San Mateo and looking for it to succeed.”

(650) 344-5200 ext. 106



Tags: increase, restaurant, mateo, restaurants, business, going,

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