We can't afford to be open - but we can't afford to close: America's restaurant industry in turmoil

When you think of cities like Los Angeles, you tend to think of extraordinary night life and endless choices of the best restaurants in the world. But behind closed kitchen doors, the food industry is hanging on by a thread.

The once vibrant restaurant scene in major California cities is facing a perfect storm of rising costs, changing customer habits, and new regulations, threatening the survival of many beloved establishments.

Back in October, Lauren and Peter Lemos closed the doors of their Chinatown sandwich shop, Wax Papers, for what they thought would be the last time.

But this past March, the store owners reopened their LA-based sandwich shop, not because they wanted to, but because they had to.

'After closing Chinatown we realized we still have our lease, we still have our [federal] loans from the SBA, from COVID, the bills are still coming in,' Lauren Lemos told the LA Times. 

'We can't even afford to close. We can't afford to be open, we can't afford to be closed.'

California's restaurant industry is tanking due to new laws and price surges (Pictured: A busy night at a Los Angeles-based restaurant, El Candor.

Lauren and Peter Lemos closed the doors of their Chinatown sandwich shop, Wax Papers, for what they thought would be the last time. But this past March, the store owners reopened their LA-based sandwich shop, not because they wanted to, but because they had to. (Pictured: a sandwich from Wax Papers)

Other restaurants have been forced to up their prices in the face of minimum wage increases and inflation. Uyên Lê, a Los Angeles-based chef and restaurant owner (left), announced on social media that she had no choice but to raise the prices of her Vietnamese restaurant Bé Ù

The restaurant scene in major California cities is facing a perfect storm of rising costs, changing customer habits, and new regulations, threatening the survival of many beloved establishments (Pictured: Protestors chanting in support of a three-day strike to protest ongoing wage theft at Pizza Hut)

The Lemoses' had a second location known for its large sandwiches and lunchtime crowd, would break $2,000 in sales on a good day post-pandemic. Lauren said they needed to make between $4,000 and $8,000 for their business to remain open.

Last year, they said Wax Paper struggled to break $1,000 in sales, which didn't even cover labor costs. They considered moving money between the restaurants they owned, but with their third restaurant, Lingua Franca, also scraping the bottom of the barrel, they realized there was no point.

'Costs are higher than ever, risks are higher than ever,' said Lauren Lemos. 'I always want to have some kind of optimistic outcome for the future, but I do really worry, 'Is it going to be sustainable?' I'm not sure we'll have mom-and-pop restaurants for a long time more.'

Crushing Costs 

Due to inflation, the cost of doing business has reached new heights, whether that be the costs of ingredients, the cost of maintaining staff, or the cost of gas and transportation.

Uyên Lê, a Los Angeles-based chef and restaurant owner, announced on social media that she had no choice but to raise the prices of her Vietnamese restaurant Bé Ù. Since launching her establishment in 2021, she said that the costs of ingredients and packaging have increased between 35 percent and 50 percent at a minimum.

'Vendors do not hesitate to raise their prices regularly on products,' she wrote, 'and we are often very reluctant to pass those heavy costs on to our guests. … I am sure you understand considering the sticker shock most of you probably experienced at the grocery store lately.'

According to the Consumer Price Index by the U.S. Bureau of Labor Statistics, prices have increased by 25% over the last four years, causing foodies to choose cooking at home over eating out more often than not.

While upping prices is necessary for survival in this economic climate, restaurants are hesitant, fearing that diners will find a cheaper option elsewhere,

It's not just mom-and-pop shops that are struggling to make ends meet. AB 1228, the new California law, increased minimum wage for fast-food chain workers by nearly 25 percent, bumping hourly pay to $20 for restaurants with more than 60 locations nationwide.

Last year, they said Wax Paper struggled to break $1,000 in sales per day, which didn't even cover labor costs. They considered moving money between the restaurants they owned, but with their third restaurant, Lingua Franca, also scraping the bottom of the barrel, they realized there was no point.

Pictured: The owner of Bé Ù announcing the new menu prices on Instagram

Since launching her establishment in 2021, Uyên Lê said that the costs of ingredients and packaging have increased between 35 percent and 50 percent at a minimum.

In December, hundreds of Pizza Hut Franchises in California announced they were laying off around 1,100 delivery drivers, opting to use delivery apps to get customers their food instead.

Others restaurant chains have decided to limit human staffing by adding more self-checkout kiosks.

Although statewide unions consisting of fast-food workers see the passing of AB 1228 as a win against corporate greed, for restaurants already operating on razor-thin margins, it's a significant financial burden.

The city of Los Angeles is set to increase its minimum wage to $17.28 per hour. Other localities, such as West Hollywood voted to raise its minimum wage even more, which is now $19.08 per hour.

Craig Sussier, owner of the infamous Craig's in West Hollywood, said he has had no choice but to cut a quarter of his staff, limit hours, and raise prices to offset the increased cost of labor. 

AB 1228, the new California law, increased minimum wage for fast-food chain workers by nearly 25%, bumping hourly pay to $20 for restaurants with more than 60 locations nationwide. In December, hundreds of Pizza Hut Franchises in California announced they were laying off around 1,100 delivery drivers, opting to use delivery apps to get customers their food instead.

Pictured: Workers participateing in a movement to begin a three-day strike to protest, denial of meal breaks, overtime and paid sick leave at Pizza Hut

Surcharges

Starting July 1, California restaurants will not be allowed to add a surcharge to their menu items or services, which experts say will lead to soaring menu prices across the state.

Under this new law, restaurants must include all mandatory surcharges, like service fees or fees tied to local government mandates, directly in their advertised prices.

The ban, confirmed by the California Office of the Attorney General on May 8, has sent shockwaves through the already suffering restaurant industry. Surcharges are used to cover employee benefits, such as and health insurance, or to equalize pay between servers, who are traditionally paid in tips, and employees working behind the scenes such as cooks and dishwashers, who do not. 

Restaurants have been advised to incorporate existing surcharge percentage into the listed menu prices.

'Ending the ability for restaurants to use service charges (even if clearly and legibly listed on their menu) will have a very negative impact on the survival of this still struggling industry,' the Golden Gate Restaurant Association told the San Francisco Chronicle.

Zuni Cafe diners (pictured), most known for their chicken for two dinner special, stirred up controversy in 2021 when they stopped tips and instead charged a 20% 'fair wage' fee that is split between all the employees

If Zuni Cafe folds their 5% health mandate charge and 20% fair wage charge in the cost of the chicken for two (pictured) , which is currently priced at $75, the price would rise to $94.50

'Diners will not pay less, instead they will see significant menu price increases, which we believe will further cause them to pull back on dining out. … Not only will restaurants struggle, but workers will lose hours and jobs.'

While consumers expressed their approval of the state's decision to ban hidden fees and encourage price transparency, restaurant owners in the Bay are worried the price increase will annoy customers who are already cutting back on dining out due to rising costs.  

For example, Zuni Café diners, most known for their chicken for two dinner special, stirred up controversy in 2021 when they stopped tips and instead charged a 20% 'fair wage' fee that is split between all the employees.  

On top of that, Zuni Café charges a 5% fee for the city's health care mandate, which requires employees to set aside money for worker health benefits.

If both charges become included in the cost of the chicken, which is currently priced at $75, the price would rise to $94.50.

Disclosing these fees beforehand or after a customer pays, as commonly seen on menus, booking platforms, or receipts, will not suffice.

The law does not apply to taxes or affect tipping practices.

Some restaurants, like Dustin Lancaster's L&E Oyster Bar and El Candor are preemptively absorbing service charge costs into menu prices to avoid customer confusion (Pictured: Chefs cooking at L&E Oyster Bar)

'It's not worth the conversations, confusion and pushback once the bill is enacted,' Lancaster said, 'It's sort of a 'pick your poison.''

He continued: 'Customers' complaints or pushback have been almost nonexistent regarding the price raises, but perhaps that's because everyone has raised prices and they just expect to pay a lot more when going out. At the end of the day, not knowing how this would shake out seemed pragmatic to just make the switch sooner than later'

Looking Forward 

The future of LA's restaurant scene seems precarious. Many beloved LA establishments, such as the Barish, Petty Cash Taqueria, Sari Sari Store, Café Basque, and Jean-Georges Vongerichten self-named restaurant have already shuttered their doors, and more may follow.

However, some restaurants, like Dustin Lancaster's L&E Oyster Bar and El Candor are preemptively absorbing service charge costs into menu prices to avoid customer confusion.

'It's not worth the conversations, confusion and pushback once the bill is enacted,' Lancaster said, 'It's sort of a 'pick your poison.''

He continued: 'Customers' complaints or pushback have been almost nonexistent regarding the price raises, but perhaps that's because everyone has raised prices and they just expect to pay a lot more when going out. At the end of the day, not knowing how this would shake out seemed pragmatic to just make the switch sooner than later.'

The future of LA's restaurant scene seems precarious. Many beloved LA establishments, such as the Barish, Petty Cash Taqueria, Sari Sari Store, Café Basque, and Jean-Georges Vongerichten self-named restaurant have already shuttered their doors, and more may follow (Pictured: The front of El Candor)

Pictured: Drinks at El Candor

Pictured: Tacos from El Candor

Others, like Andy Kadin, are exploring adaptation and diversification to navigate the changing landscape. Owner of the bakery Bub and Grandma's, a majority of his profits come from bakery wholesale accounts and deliveries. 

While Kadin was forced to increase his delivery fees as a result of the increase in gas prices and car insurance, he began inquiring about outsourcing delivery services to designated delivery companies.

'There are thresholds that once they go over that, people aren't going to pay $12, $15 for a single loaf of bread,' he said. 'I hope we don't get there. If we do, we're going to have to get very creative and have to do more with less.'

'It's very hard to quantify exactly why things are so tight, because the flour prices are staying relatively in place,' he said. 'It's hard to track what else is eating up the cash. But everything has sort of steadily climbed up, including sales on our part; we're at our highest sales we've ever had, we should probably be up over 10% in profit, but we're not.'

Andy Kadin, are exploring adaptation and diversification to navigate the changing landscape

Owner of the bakery Bub and Grandma's, a majority of Kadin's profits come from bakery wholesale accounts and deliveries.

To get ahead of rising costs, Kadin has decided to expand his business ventures instead of cutting overhead or shutting down restaurants

To get ahead of rising costs, Kadin has decided to expand his business ventures instead of cutting overhead or shutting down restaurants. He said he believes the only want to continue to continue is to grow.

He opened a new cocktail and live jazz bar called BG Nights in late April, serving small plates, beer, and wine to bring in more revenue - a venture he said has already proven to be successful. 

'It's not solely the format that we thought it was going to be out of the gates,' he said. 'It has to be a more comprehensive endeavor than what we were doing.'