4 ms·

It’s easy to understand. If your customers won’t buy Mexican food at a high enough price to pay $20/hour, it’s better to close than to stay open and lose money.

It’s easy to understand. If your customers won’t buy Mexican food at a high enough price to pay $20/hour, it’s better to close than to stay open and lose money. Labor is the highest cost for a restaurant (higher than rent) so bumping wages from $15 to $20 may not be possible if you can’t also raise prices by 30%. This may be hard to understand for us rich programmers. But it’s quite simple for companies that have really stiff price competition.

varjag 5y ago
The competition recruits from the same labor pool, I don't think we misunderstand anything.
- mananaysiempre 5y ago
  The demand may just go elsewhere, like “screw it, I’ll just go to the supermarket”—not sure how plausible that is in a US context specifically, but surely there’s a possible world where the majority of people just stop eating Mexican or even most street food.
  - tarr11 5y ago
    We stopped eating out nearly as much during the pandemic and replaced it with higher quality groceries and prepared foods from delivery services.
    - mananaysiempre 5y ago
      I’m sure a lower-quality segment will emerge once the whole thing has time to equilibrize :) And in some places the social aspect is not insignificant. (In others you’re better off without it, true.)
pnutjam 5y ago
Honestly, it's better for these shoddy underpaid and low value places to close. They just undercut the good guys and slowly burn money.
tayo42 5y ago
You dont need to increase prices by 30% to raise the hourly rate from $15 to $20. Pay is like a fixed cost. If your cook makes 100 items an hour and you profit 1$ off each item. Your profit for the hour only goes down by $5 not by 33 cents per item
- gruez 5y ago
  But you also need to factor in the demand curve. Raising the price by 25% also means there will be less customers, which means your fixed costs (eg. rent, equipment) go up for each unit of good sold.
  - jzb 5y ago
    Maybe? Maybe not. I'm not certain that restaurant owners know to the penny what people will or won't pay for this or that on a menu. It depends a lot on how cost conscious the customers are and other factors. Try bumping up the wages and advertising the fact that you do pay a living wage, that might have some impact. My fiance and I try to choose restaurants that are locally owned and are known to treat staff well. (We have friends in food service, locally. Word gets around.) I doubt we're unique in this. It does depend a lot on location and other factors - you're going to find more people willing to spend more in some areas than others. Other people are perfectly happy to go to restaurant X knowing they fuck over workers but have the cheapest menu.
    - neltnerb 5y ago
      I think that most small restaurants tend to undervalue their food and service. Part of it is people's expectations, but even beyond that I believe they are so worried about going out of business that they try to run on the thinnest margins possible rather than raising prices by 50 cents and having some room for error. There's also a lot of... this is how much it costs for me to make, so I should charge a little bit more. Where I think it should be... this is how much it would cost my customers to make in groceries and time. When I eat out I almost only get food that is too inconvenient to make at home. I don't get spaghetti at the Italian restaurant, I get lasagna or stuffed shells or something that would take me hours of work at home. Yet, for a restaurant these are fairly easy items to cook because the time is less of a problem and are in many ways simpler for them to prepare because they are cooked ahead of time and reheated when ordered. So for the restaurant, it makes sense to price a big plate of lasagna the same or lower than a plate of pasta they have to do more work on to serve. But to me the lasagna is worth more because it would take me at least 2-3 hours to make. So the restaurant sees it as a cheap thing while I see it as a valuable thing.
rubicon33 5y ago
"Rich" programmers. You know society is doomed when a wage supporting a middle class lifestyle is deemed "rich".
jimmaswell 5y ago
McDonald's pays about 20% in labor costs, and from what I can see other restaurants also average 20-30%. Where are you getting that labor is the highest cost?
- missedthecue 5y ago
  Pretty sure he means highest of all fixed costs, not variable costs (COGS).
  - jimmaswell 5y ago
    I think anyone who's not deep in accounting would assume we're just talking about the simple sum of all expenses, not specifically fixed or variable. Like if over a month I paid $100 in rent, $100 in payroll, and $100 in new equipment, labor was 33%.
lotsofpulp 5y ago
> It’s easy to understand. If your customers won’t buy Mexican food at a high enough price to pay $20/hour, it’s better to close than to stay open and lose money. I think the root problem is that most restaurant dining experiences are not worth the $30+ per person for enough people compared to cooking and eating at home. I would like to see more places where you order at a register and bus your own food with minimal overheard and maximum investment in the quality of the food rather than the whole waiter and ambiance schtick.
- jclulow 5y ago
  This is what happens in countries with higher labour costs, and it's basically just fine -- provided your core cultural experience doesn't drive you to expect a separate staff person to fill your water cup every time you set it down of course.
- okaram 5y ago
  How is this different than 'nice' fast food restaurants? Chainwise, Chipotle or similar?
  - antisthenes 5y ago
    Chipotle is pretty much the only "eating out" experience I've engaged in since the pandemic started. Somehow they managed to not raise their prices, or raise it insignificantly enough to where I didn't notice it (50 cents across the board maybe?). For sit-down places, I frequently see price hikes of 20-30% since early 2020 and mandatory gratuity for parties of 4 now, which is frankly ridiculous, because the food quality stayed the same or has gotten worse. Not to mention that the whole experience of sharing an indoor space with an unknown demographic is dubious at best.
- yourapostasy 5y ago
  > ...more places where you order at a register and bus your own food with minimal overheard and maximum investment in the quality of the food rather than the whole waiter and ambiance schtick. This is currently a cultural non-starter except for niche markets, but once an economic crisis of sufficiently large and long duration is established, that model might work. Maybe. Look up any number of formerly-wealthy-now-poor nations, and I'm hard-pressed to recall any that adopted this model in the mainstream restaurant industry in that nation. Human culture changes are slow to arrive, and carry immense inertia. I suspect the hyper-rationalization of markets is leading to continuous spectrum K-selection strategies that ultimately prove adverse to the overall market. All the monetization optimization (aided by the gradual incremental gains our industry delivers, however somnambulantly) is attaching a price to every factor that is priced, but under-pricing all non-priced factors (generally those on a long timeline like sustained incentives for young families to support future demographics, pollution, energy, etc.). This optimization is blunted by currently-stronger cultural norms, especially those tangential or central to mating. It remains to be seen which force remains stronger over the long run (my personal bet is on the cultural norms). Having said all that, I wouldn't mind at all patronizing a "meal plan" model-based co-op that lets me select 2-4 months in advance how many breakfast/lunch/dinner/brunch I want for a month, in a setting like you describe, a 1-3 minute walk from where I live, with online seating reservations, that operates 24x7x365, serving the locality's "home style" cuisine plus lots of greens. The business only lets in a dynamically-selected number of walk-ins, based upon seating availability and ML-projected food waste at that moment. The value proposition is trade off the customer-skin-in-the-game, fixed commitments for fresh ingredients freshly-prepared at near-home-prepared prices, with aggressively-amortized costs of running the co-op and its costs, thus able to pay fair wages for bare bones staff. But I would be very surprised if there are enough potential customers like me in sufficient densities in even major metropolitan urban cores to make such a model feasible.

varjag 5y ago

The competition recruits from the same labor pool, I don't think we misunderstand anything.

mananaysiempre 5y ago
The demand may just go elsewhere, like “screw it, I’ll just go to the supermarket”—not sure how plausible that is in a US context specifically, but surely there’s a possible world where the majority of people just stop eating Mexican or even most street food.
- tarr11 5y ago
  We stopped eating out nearly as much during the pandemic and replaced it with higher quality groceries and prepared foods from delivery services.
  - mananaysiempre 5y ago
    I’m sure a lower-quality segment will emerge once the whole thing has time to equilibrize :) And in some places the social aspect is not insignificant. (In others you’re better off without it, true.)

pnutjam 5y ago

Honestly, it's better for these shoddy underpaid and low value places to close. They just undercut the good guys and slowly burn money.

tayo42 5y ago

You dont need to increase prices by 30% to raise the hourly rate from $15 to $20. Pay is like a fixed cost. If your cook makes 100 items an hour and you profit 1$ off each item. Your profit for the hour only goes down by $5 not by 33 cents per item

gruez 5y ago
But you also need to factor in the demand curve. Raising the price by 25% also means there will be less customers, which means your fixed costs (eg. rent, equipment) go up for each unit of good sold.
- jzb 5y ago
  Maybe? Maybe not. I'm not certain that restaurant owners know to the penny what people will or won't pay for this or that on a menu. It depends a lot on how cost conscious the customers are and other factors. Try bumping up the wages and advertising the fact that you do pay a living wage, that might have some impact. My fiance and I try to choose restaurants that are locally owned and are known to treat staff well. (We have friends in food service, locally. Word gets around.) I doubt we're unique in this. It does depend a lot on location and other factors - you're going to find more people willing to spend more in some areas than others. Other people are perfectly happy to go to restaurant X knowing they fuck over workers but have the cheapest menu.
  - neltnerb 5y ago
    I think that most small restaurants tend to undervalue their food and service. Part of it is people's expectations, but even beyond that I believe they are so worried about going out of business that they try to run on the thinnest margins possible rather than raising prices by 50 cents and having some room for error. There's also a lot of... this is how much it costs for me to make, so I should charge a little bit more. Where I think it should be... this is how much it would cost my customers to make in groceries and time. When I eat out I almost only get food that is too inconvenient to make at home. I don't get spaghetti at the Italian restaurant, I get lasagna or stuffed shells or something that would take me hours of work at home. Yet, for a restaurant these are fairly easy items to cook because the time is less of a problem and are in many ways simpler for them to prepare because they are cooked ahead of time and reheated when ordered. So for the restaurant, it makes sense to price a big plate of lasagna the same or lower than a plate of pasta they have to do more work on to serve. But to me the lasagna is worth more because it would take me at least 2-3 hours to make. So the restaurant sees it as a cheap thing while I see it as a valuable thing.

rubicon33 5y ago

"Rich" programmers. You know society is doomed when a wage supporting a middle class lifestyle is deemed "rich".

jimmaswell 5y ago

McDonald's pays about 20% in labor costs, and from what I can see other restaurants also average 20-30%. Where are you getting that labor is the highest cost?

missedthecue 5y ago
Pretty sure he means highest of all fixed costs, not variable costs (COGS).
- jimmaswell 5y ago
  I think anyone who's not deep in accounting would assume we're just talking about the simple sum of all expenses, not specifically fixed or variable. Like if over a month I paid $100 in rent, $100 in payroll, and $100 in new equipment, labor was 33%.

lotsofpulp 5y ago

> It’s easy to understand. If your customers won’t buy Mexican food at a high enough price to pay $20/hour, it’s better to close than to stay open and lose money. I think the root problem is that most restaurant dining experiences are not worth the $30+ per person for enough people compared to cooking and eating at home. I would like to see more places where you order at a register and bus your own food with minimal overheard and maximum investment in the quality of the food rather than the whole waiter and ambiance schtick.

jclulow 5y ago
This is what happens in countries with higher labour costs, and it's basically just fine -- provided your core cultural experience doesn't drive you to expect a separate staff person to fill your water cup every time you set it down of course.
okaram 5y ago
How is this different than 'nice' fast food restaurants? Chainwise, Chipotle or similar?
- antisthenes 5y ago
  Chipotle is pretty much the only "eating out" experience I've engaged in since the pandemic started. Somehow they managed to not raise their prices, or raise it insignificantly enough to where I didn't notice it (50 cents across the board maybe?). For sit-down places, I frequently see price hikes of 20-30% since early 2020 and mandatory gratuity for parties of 4 now, which is frankly ridiculous, because the food quality stayed the same or has gotten worse. Not to mention that the whole experience of sharing an indoor space with an unknown demographic is dubious at best.
yourapostasy 5y ago
> ...more places where you order at a register and bus your own food with minimal overheard and maximum investment in the quality of the food rather than the whole waiter and ambiance schtick. This is currently a cultural non-starter except for niche markets, but once an economic crisis of sufficiently large and long duration is established, that model might work. Maybe. Look up any number of formerly-wealthy-now-poor nations, and I'm hard-pressed to recall any that adopted this model in the mainstream restaurant industry in that nation. Human culture changes are slow to arrive, and carry immense inertia. I suspect the hyper-rationalization of markets is leading to continuous spectrum K-selection strategies that ultimately prove adverse to the overall market. All the monetization optimization (aided by the gradual incremental gains our industry delivers, however somnambulantly) is attaching a price to every factor that is priced, but under-pricing all non-priced factors (generally those on a long timeline like sustained incentives for young families to support future demographics, pollution, energy, etc.). This optimization is blunted by currently-stronger cultural norms, especially those tangential or central to mating. It remains to be seen which force remains stronger over the long run (my personal bet is on the cultural norms). Having said all that, I wouldn't mind at all patronizing a "meal plan" model-based co-op that lets me select 2-4 months in advance how many breakfast/lunch/dinner/brunch I want for a month, in a setting like you describe, a 1-3 minute walk from where I live, with online seating reservations, that operates 24x7x365, serving the locality's "home style" cuisine plus lots of greens. The business only lets in a dynamically-selected number of walk-ins, based upon seating availability and ML-projected food waste at that moment. The value proposition is trade off the customer-skin-in-the-game, fixed commitments for fresh ingredients freshly-prepared at near-home-prepared prices, with aggressively-amortized costs of running the co-op and its costs, thus able to pay fair wages for bare bones staff. But I would be very surprised if there are enough potential customers like me in sufficient densities in even major metropolitan urban cores to make such a model feasible.