Local restaurateurs battle labor challenges

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

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

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

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

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

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

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

An 'evaporating' labor pool

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pressures of the new minimum wage

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

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

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

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

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

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

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

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

New trends in dining

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

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

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

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

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

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

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

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

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

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

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

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


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9 people like this
Posted by Observer
a resident of Old Mountain View
on Mar 11, 2017 at 8:53 am

It would be a shame to see our wonderful variety of affordable restaurant offerings decline and with it our privileged lifestyle.

This is why we need a steady stream of illegal immigrants to make up for the shortage. They will settle for less wages without benefits and accept a lower standard of living and housing arrangements such as sharing an apartment room with other families.

And the shortage of labor also affects our ability to hire the cheap house cleaners and gardeners we have all grown so accustomed to having and which raise our standard of living here in Silicon Valley.

7 people like this
Posted by History
a resident of Monta Loma
on Mar 11, 2017 at 10:41 am

@Observer, can't let anything go by without a snarky comment, tiresome at best.

I'll copy a comment I saw elsewhere that sums up this entire conversation. It's not based on opinion, feelings or activism, rather just pure fact.

"Labor is a supply/demand commodity. So is supply of services. The market will determine the balance. The labor supply will adjust accordingly. 30 years ago people were driving in from Tracy and Manteca to work here, often using commuter vans. Commuter buses will be the future, and employers will adjust.

The days of illegal aliens driving down wages is over. Get used to it."

And now let the opinions that disagree fly, in the face of fact.

11 people like this
Posted by resident
a resident of Old Mountain View
on Mar 11, 2017 at 12:19 pm

The shortage of people willing and able to work for low wages is entirely caused by the lack of housing that people can afford with low wages. Unless the city puts more effort into improve the supply of housing in the lower price ranges, the labor shortage is going to hurt more than just restaurants.

17 people like this
Posted by Jim Neal
a resident of Old Mountain View
on Mar 11, 2017 at 3:57 pm

This should not come as a surprise to anyone. I have been talking about this for the last 6 years and predicting exactly the effects that we are seeing now. The source is clear; the approval of too much office space by peninsula governments. This is being exacerbated by the setting of artificial wages by those same governments.

The result will eventually be that only chain restaurants or highly specialized and profitable family owned restaurants will be able to survive, and housing for low to moderate income people will be almost non-existent.

The only solution is to slow ( and preferably freeze ) new office development on the peninsula and for cities to stop setting arbitrary minimum wages in order to allow the housing and retail markets time to absorb the glut of high wage earners that have relocated here.

Jim Neal
Old Mountain View

10 people like this
Posted by Resident
a resident of Old Mountain View
on Mar 12, 2017 at 8:21 am

There are solutions other than killing the engine of prosperity that drives this area. We have a jobs to housing imbalance, and you are proposing limiting the jobs. I'd prefer to see more affordable housing, however, city governments have structured building rules to pretty much ensure that prices remain high. We can't have enough density to amortize land prices, we don't get much in the way of mixed use developments, so more people must travel farther for basic goods and services, not to mention ludicrous permitting costs with various impact fees which add a lot of cost to each unit.

As for residents, quit being obstructionist to development. Mountain View's fruit orchard days are gone, it's now a hotspot in a tremendously successful industry. We can resist change and continue down this path of driving out all but the rich, or we accept the problems of higher density but retain diversity in people and businesses.

6 people like this
Posted by Mike
a resident of Rex Manor
on Mar 12, 2017 at 4:22 pm

It is not just restaurants that are getting impacted. Home Care companies can't find Caregivers, Dry Cleaners losing staff, everywhere the less than 25 dollar an hour service worker is leaving. Mountain View City Council loves tech workers but has failed the lowest income service, worker. That is why tech startups love the 1099 employee and California looks the other way at the underground economy. Cash under the table can make the difference if you look at wages, taxes, Obamacare, worker's comp insurance and the host of taxes a small business needs to make to be legal. Utopia for tech but terrible for anybody that cannot make the "Google" Hiring standards....raising the minimum wages forces more people underground not less.

9 people like this
Posted by Jim Neal
a resident of Old Mountain View
on Mar 13, 2017 at 10:07 am

I was not speaking of killing any engine of prosperity. It would be one thing to advocate for getting rid of all the existing office space and driving employers out of town, but that is not what I was proposing. I was saying that too much of anything is not good for anyone. Water is good for your body, but if you drink too much it can kill you.

It is a fact that it takes far longer to approve and build residential properties than office spaces, so unless we slow down the runaway expansion of office space, the housing will NEVER be able to catch up. Think of it like putting too much popcorn in your popcorn maker. Initially everything is fine, then the kernels start to slowly pop and things are still fine, but then as the oil and air get hotter (like jobs in silicon valley) the kernels start popping so quickly (like people moving into the peninsula to get the high paying jobs ) that the popcorn maker starts to overflow and no matter how fast you try to eat it ( provide housing ), you won't be able to eat it fast enough to keep it from spilling over and making a mess (like a massive housing shortage and skyrocketing rents).

I have spoken for years about the need for balance between jobs and housing; and for a steady, controlled growth policy and so far I'm not seeing it.

Jim Neal
Old Mountain View

6 people like this
Posted by Steven Nelson
a resident of Cuesta Park
on Mar 13, 2017 at 10:45 am

@Jim Neal, that popcorn maker analogy is hot on!

Like this comment
Posted by Otto Maddox
a resident of Monta Loma
on Mar 14, 2017 at 3:21 pm

The job market is good right now. So all the good employees are getting better (ie: not retail/restaurant) jobs.

Every store I go to has a hiring sign in the window these days.

What I've noticed is the quality of people have dropped as a result. Anyone with a brain escapes the retail world fairly quickly leaving behind the less than helpfuls.

But that's a good problem to have. Means the economy is doing well.

Like this comment
Posted by Karma
a resident of another community
on Mar 15, 2017 at 12:21 pm

What goes around, comes around. The Mountain View city motto is "Poors OUT!"

It's hilarious.

Sorry, but further commenting on this topic has been closed.

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