5 ms·

> Does the graduates/nongraduates segment still represent a comparable group of people? An interesting touchstone for the article: high-rent cities in the US h

> Does the graduates/nongraduates segment still represent a comparable group of people? An interesting touchstone for the article: high-rent cities in the US have started to see restaurant turnover not from 'normal' financial failures but from labor shortages. For midrange restaurants that aren't either selling luxury or exploiting captive demand (e.g. lunch for nearby offices), there's no price point where they can make ends meet while paying servers, dishwashers, etc enough to accept high rents and/or long commutes. I agree that treating "non-college" as a constant bracket is a misleading measure, and I can complain all day about the spread of overpriced credentialism in hiring. But observationally at least, I think there's a separate issue with big cities and low-skilled labor where work we consider part of "normal functioning" for our society is increasingly incompatible with the housing prices and transit options available around urban centers.

Mikeb85 8y ago
Re. failing restaurants, that's a result of bad business planning. If you can't find staff, pay more, pass those costs on to customers. If people can afford to live in high-rent areas, they can afford to pay more for food.
- Bartweiss 8y ago
  I don't disagree, exactly - I'm strongly opposed to most rent-control measures other than scrapping protectionist zoning rules. But I do think can versus will is a thorny question. Restaurant and delivery dining are highly elastic in general, and big cities aren't necessarily an exception. People who can stably afford to live in downtown SF, NYC, LA, Boston, etc. are still frequently paying >33% of income in rent, and ~50% isn't shocking for younger people. As a result, you've got a major demographic that's relatively high-income but still tight on cash and consequently price sensitive. (More speculatively, I think there's also a grain of truth to the "avocado toast" thing; young urbanites seem likely to cut back on purchase frequency before they cut back on quality.) So it's not necessarily the case that restaurants can make things work by raising prices; there's no rule saying that a given type of restaurant has to be viable at any price point. I realize that we can label all of this as free markets doing their thing; maybe mid-tier restaurants with lots of staff are just an inefficient use of valuable urban space. But real estate is infamously messy, and there are some interesting questions about whether city rents would be more functional if not for the conversion of usable space into artificial demand (e.g. mandatory parking with housing) and disused investment space. And even if that's not the case, it's still news if we've built a market where "going out for dinner" is no longer a standard transaction.
  - kelnos 8y ago
    > I realize that we can label all of this as free markets doing their thing; maybe mid-tier restaurants with lots of staff are just an inefficient use of valuable urban space. That would assume that the real estate market is a free market, which in many cities is a laughable idea.
    - Bartweiss 8y ago
      Sorry, I should have broken down that thought - because you're of course right about urban real estate. I think it's quite likely that midprice, full-service restaurants are an inefficient use of expensive urban space. It's also possible that they're an inefficient use of valuable urban space, and would be squeezed out of dense cities even by healthy, responsive real estate markets. That second claim is much bolder, though, and my personal guess is that taller buildings and better mass transit would relax labor costs via lower rent, while also lowering the price of downtown real estate. A few extremely dense cities (NYC, Tokyo, whatever) might use better transit for a "reverse commute" where people live near work and go outbound for restaurants, but that's even more hypothetical. And I can't really think of a "free real estate market" city to use as a reference, because I'm not sure anything close exists at this point.
  - Mikeb85 8y ago
    > Restaurant and delivery dining are highly elastic in general Elasticity of demand depends on whether or not there's readily available substitutes. If you're a mid-end restaurant, you can be replaced easily by fast-casual concepts (food quality doesn't differ much from fast-casual to casual full-service). However if you're high end, your competitors will be other high-end restaurants, with the same staff and space constraints as you. This is why in higher-rent markets such as NYC, Tokyo, London, Hong Kong, high-end restaurants flourish. > there's no rule saying that a given type of restaurant has to be viable at any price point. Of course not. But in a dense, urban, high-rent area, there's likely a model that does work. > maybe mid-tier restaurants with lots of staff are just an inefficient use of valuable urban space They are. Rent is your main fixed cost, staff is your main variable cost. COGS matters, but you need a product to sell in the first place, and every restaurant brings in similar products. Having too much staff and too much space is a recipe for disaster. To conclude, here's some statistics for you concerning household expenditures on food: https://www.bls.gov/regions/west/news-release/consumerexpenditures_sanfrancisco.htm https://www.bls.gov/regions/west/news-release/consumerexpend... > San Francisco-area households spent $4,487, or 50.3 percent, of their food dollars on food at home and $4,431 (49.7 percent) on food away from home. In comparison, the average U.S. household spent 56.3 percent of its food budget on food at home and 43.7 percent on food away from home. In San Francisco, households are spending a higher percentage of their (already higher) income on food away from home than other Americans. Anyhow, in my experience, restaurants fail because there's a lot of shitty restaurant owners out there. Not knowing their demographics, costs, labour situation, etc..., qualifies them as being a shitty restaurateur.
- scarface74 8y ago
  But once you pass the rising costs to customers, you’re in the bracket of the high end restaurants.
  - Mikeb85 8y ago
    Yes, you are. And the business owner should know that to exist in a high-cost market, they need to be higher end.
    - scarface74 8y ago
      Can a fast food chain restaurant exist in such a market?
      - leetcrew 8y ago
        according to google maps, there are about ten mcdonald's restaurants in SF, so I would argue yes.
        scarface74 8y ago
        How can they afford the labor?
      - Mikeb85 8y ago
        Maybe, with high enough turnover. Of course franchise fees kill margins, and you need to sell an awful lot of Big Macs to equal the kind of revenue a 1500 sq. ft. fine dining restaurant can do in a year. There's far more high end restaurants downtown in my city than there are fast-food franchises.
- kelnos 8y ago
  The reality doesn't agree with you. In SF, for example, fine dining is doing well, while the mid range is slowly failing and being replaced by fast casual, where they focus on fast turnover. The only way to pay the bills seems to be to either be super high end (fewer customers overall, but at a much higher service level and price point), or just above fast food, where you serve a reasonable-quality menu, but items that can be prepared quickly, and served without waitstaff. Restaurants that try to charge "too much for their station" don't last here.
  - Mikeb85 8y ago
    Funny, I just wrote a reply to another post which explains exactly what you wrote. > In SF, for example, fine dining is doing well, while the mid range is slowly failing and being replaced by fast casual, where they focus on fast turnover. It has to do with readily available substitutes for a given price point affecting elasticity of demand. The type of food offered by a casual dining concept can be replaced by fast-casual, whereas higher end food has relatively inelastic demand, because it has fewer substitutes.
    - dragonwriter 8y ago
      > The type of food offered by a casual dining concept can be replaced by fast-casual, That's mostly not a change in type of food, just front-of-house service model. And casual and fast-casual both focus on turning tables, fast casual just has counter ordering (and often counter service for drinks) rather than full table service.
      - Mikeb85 8y ago
        Yes, hence them being substitutes.
  - leetcrew 8y ago
    is this truly indicative of market failure though? maybe it's not unreasonable that traditional table service becomes a luxury in high CoL areas.

Mikeb85 8y ago

Re. failing restaurants, that's a result of bad business planning. If you can't find staff, pay more, pass those costs on to customers. If people can afford to live in high-rent areas, they can afford to pay more for food.

Bartweiss 8y ago
I don't disagree, exactly - I'm strongly opposed to most rent-control measures other than scrapping protectionist zoning rules. But I do think can versus will is a thorny question. Restaurant and delivery dining are highly elastic in general, and big cities aren't necessarily an exception. People who can stably afford to live in downtown SF, NYC, LA, Boston, etc. are still frequently paying >33% of income in rent, and ~50% isn't shocking for younger people. As a result, you've got a major demographic that's relatively high-income but still tight on cash and consequently price sensitive. (More speculatively, I think there's also a grain of truth to the "avocado toast" thing; young urbanites seem likely to cut back on purchase frequency before they cut back on quality.) So it's not necessarily the case that restaurants can make things work by raising prices; there's no rule saying that a given type of restaurant has to be viable at any price point. I realize that we can label all of this as free markets doing their thing; maybe mid-tier restaurants with lots of staff are just an inefficient use of valuable urban space. But real estate is infamously messy, and there are some interesting questions about whether city rents would be more functional if not for the conversion of usable space into artificial demand (e.g. mandatory parking with housing) and disused investment space. And even if that's not the case, it's still news if we've built a market where "going out for dinner" is no longer a standard transaction.
- kelnos 8y ago
  > I realize that we can label all of this as free markets doing their thing; maybe mid-tier restaurants with lots of staff are just an inefficient use of valuable urban space. That would assume that the real estate market is a free market, which in many cities is a laughable idea.
  - Bartweiss 8y ago
    Sorry, I should have broken down that thought - because you're of course right about urban real estate. I think it's quite likely that midprice, full-service restaurants are an inefficient use of expensive urban space. It's also possible that they're an inefficient use of valuable urban space, and would be squeezed out of dense cities even by healthy, responsive real estate markets. That second claim is much bolder, though, and my personal guess is that taller buildings and better mass transit would relax labor costs via lower rent, while also lowering the price of downtown real estate. A few extremely dense cities (NYC, Tokyo, whatever) might use better transit for a "reverse commute" where people live near work and go outbound for restaurants, but that's even more hypothetical. And I can't really think of a "free real estate market" city to use as a reference, because I'm not sure anything close exists at this point.
- Mikeb85 8y ago
  > Restaurant and delivery dining are highly elastic in general Elasticity of demand depends on whether or not there's readily available substitutes. If you're a mid-end restaurant, you can be replaced easily by fast-casual concepts (food quality doesn't differ much from fast-casual to casual full-service). However if you're high end, your competitors will be other high-end restaurants, with the same staff and space constraints as you. This is why in higher-rent markets such as NYC, Tokyo, London, Hong Kong, high-end restaurants flourish. > there's no rule saying that a given type of restaurant has to be viable at any price point. Of course not. But in a dense, urban, high-rent area, there's likely a model that does work. > maybe mid-tier restaurants with lots of staff are just an inefficient use of valuable urban space They are. Rent is your main fixed cost, staff is your main variable cost. COGS matters, but you need a product to sell in the first place, and every restaurant brings in similar products. Having too much staff and too much space is a recipe for disaster. To conclude, here's some statistics for you concerning household expenditures on food: https://www.bls.gov/regions/west/news-release/consumerexpenditures_sanfrancisco.htm https://www.bls.gov/regions/west/news-release/consumerexpend... > San Francisco-area households spent $4,487, or 50.3 percent, of their food dollars on food at home and $4,431 (49.7 percent) on food away from home. In comparison, the average U.S. household spent 56.3 percent of its food budget on food at home and 43.7 percent on food away from home. In San Francisco, households are spending a higher percentage of their (already higher) income on food away from home than other Americans. Anyhow, in my experience, restaurants fail because there's a lot of shitty restaurant owners out there. Not knowing their demographics, costs, labour situation, etc..., qualifies them as being a shitty restaurateur.
scarface74 8y ago
But once you pass the rising costs to customers, you’re in the bracket of the high end restaurants.
- Mikeb85 8y ago
  Yes, you are. And the business owner should know that to exist in a high-cost market, they need to be higher end.
  - scarface74 8y ago
    Can a fast food chain restaurant exist in such a market?
    - leetcrew 8y ago
      according to google maps, there are about ten mcdonald's restaurants in SF, so I would argue yes.
      - scarface74 8y ago
        How can they afford the labor?
    - Mikeb85 8y ago
      Maybe, with high enough turnover. Of course franchise fees kill margins, and you need to sell an awful lot of Big Macs to equal the kind of revenue a 1500 sq. ft. fine dining restaurant can do in a year. There's far more high end restaurants downtown in my city than there are fast-food franchises.
kelnos 8y ago
The reality doesn't agree with you. In SF, for example, fine dining is doing well, while the mid range is slowly failing and being replaced by fast casual, where they focus on fast turnover. The only way to pay the bills seems to be to either be super high end (fewer customers overall, but at a much higher service level and price point), or just above fast food, where you serve a reasonable-quality menu, but items that can be prepared quickly, and served without waitstaff. Restaurants that try to charge "too much for their station" don't last here.
- Mikeb85 8y ago
  Funny, I just wrote a reply to another post which explains exactly what you wrote. > In SF, for example, fine dining is doing well, while the mid range is slowly failing and being replaced by fast casual, where they focus on fast turnover. It has to do with readily available substitutes for a given price point affecting elasticity of demand. The type of food offered by a casual dining concept can be replaced by fast-casual, whereas higher end food has relatively inelastic demand, because it has fewer substitutes.
  - dragonwriter 8y ago
    > The type of food offered by a casual dining concept can be replaced by fast-casual, That's mostly not a change in type of food, just front-of-house service model. And casual and fast-casual both focus on turning tables, fast casual just has counter ordering (and often counter service for drinks) rather than full table service.
    - Mikeb85 8y ago
      Yes, hence them being substitutes.
- leetcrew 8y ago
  is this truly indicative of market failure though? maybe it's not unreasonable that traditional table service becomes a luxury in high CoL areas.