The Tipping Point
Can San Francisco Restaurants Pay Workers More & Survive?
In the third of our four-part series on the cost of food, we offer different perspectives on the minimum wage debate so readers can decide for themselves come voting day.
It’s a numbers game. Waiter Michael Procopio, who lives off tips, doesn’t want to take a financial hit on that front. Line cook Raymundo Gutierrez can barely make ends meet working two restaurant jobs. Small business owner Karen Heisler can’t see how her café can absorb a massive hike in the minimum wage. Fine dining restaurant manager Robin Kirby thinks her large, busy establishment can weather a significant bump in labor costs. Meanwhile bar owner Thaddeus Vogler believes a pay increase for employees is the right thing to do, even while he’s worried about what it means for his bottom line.
Welcome to the minimum wage quagmire. Heating up in professional kitchens around San Francisco, this debate is also cooking in political circles and voters will get to stir things up at the ballot box come November.
This culinary capital, the most expensive city to live in in the country, has a reputation for progressive policies that have trickled down to restaurant workers. Food-service employees here get health insurance coverage, paid sick days and the highest minimum wage of any workers in the country currently in effect: $10.74 an hour and annually adjusted for inflation.
Not too shabby, since at the federal level the minimum wage for tipped workers has been stalled at $2.13 an hour for 23 years. (The state rate moves from $8 to $9 July 1.) And given this city’s fine-dining pedigree and today’s tech-fueled affluence, waiters in high-end restaurants have been known to pull in more in tips than some top chefs or managers take home.
And yet, right now San Francisco is in the middle of an affordability meltdown for many residents. So even though Seattle beat us to the punch when its City Council voted to raise its minimum wage to $15 an hour—effective next April and phased in over three to seven years, depending on the size of the business—it seems certain that a $15 minimum wage is coming to San Francisco too. It’s just a matter of when.
In June this year, Mayor Ed Lee and the Board of Supervisors introduced a proposed measure for the upcoming election that would boost San Francisco’s minimum wage to $15 per hour by July 1, 2018. Earlier in the year, a labor-backed proposal sought to raise the minimum wage for all workers to $15 by 2017 but labor has signed on to the new measure.
The current minimum rate is “a poverty-level wage that makes it impossible to afford housing in our high-cost region,” says SEIU Local 1021 vice president Larry Bradshaw. “San Francisco now has the fastest-rising rate of income inequality in the country.”
The mayor’s proposal was billed a “consensus” plan, though some might call it a compromise. And not all the stakeholders were happy with the outcome. Earlier this year, business interests circulated a letter that outlined a more gradual approach to a wage increase. This draft proposal, backed by industry groups such as the Golden Gate Restaurant Association and the San Francisco Chamber of Commerce, sought to stave off the $15 pay rise until 2020. It also advocated for a controversial tipped worker carve out, essentially keeping tipped employees at the current wage rate structure outlined in an ordinance passed by voters back in 2003. Under that law, the minimum wage has risen from $8.50 an hour in 2004 to its current rate, $10.74, with yearly increases linked to the Consumer Price Index. Industry also lobbied for a total compensation calculation—credit for health care and sick leave—toward their minimum wage obligation. Those moves, which labor groups oppose, were an attempt by employers to control costs.
Restaurant owners have other cost concerns. They want to level the playing field between front-of-house workers such as servers, hosts and bussers, who can earn decent coin from gratuities, and back-of-the-house employees like line cooks, prep cooks and dishwashers, who often toil over a hot stove or sink without earning an extra dime from a public hungry to dine out.
While the Chamber of Commerce ended up supporting the mayor’s proposal, the GGRA expressed disappointment at the “aggressive” approach to implementing a pay raise. “There’s a real quandary here: How do you provide for people to make a living while still ensuring that those jobs survive?” asks Gwyneth Borden, the restaurant group’s executive director. “An increase to $15 an hour is a 40% increase in the cost of labor and there are no restaurants in this city with a 40% profit margin. It’s more like 4%.”
Few argue in theory against workers earning more money in this expensive city. Stories abound about line cooks leaving town because they can’t afford to live here and dishwashers and prep cooks often commute long distances to work in this food mecca, or they hold down multiple jobs just to cover the rent. But San Francisco is getting prohibitively more pricey for all parties and some restaurant owners say that it may simply become untenable to keep their doors open, let alone pay higher wages. It’s not just loss of profits that keeps them up at night: They live in fear of going out of business altogether.
“This current challenge we face in the restaurant industry is unprecedented,” says Bruce Hill, executive chef and co-owner of Fog City, Bix and Zero Zero in San Francisco and Picco and Pizzeria Picco in Larkspur, who declined to state his income. “It is without doubt the biggest and scariest challenge I have seen.” The restaurateur, who has worked at some of the city’s top spots including Stars and Aqua, employs 50 to 65 staff members at each restaurant. “Now we are faced with a whole new set of labor cost issues to even stay viable. Price increases are inevitable. At what point do these measures render a restaurant unsustainable?”
Kokkari: A tale of three employees
For 14 years, Michael Procopio has helped diners choose dishes and select wines as a waiter at Kokkari Estiatorio, a consistently bustling fine-dining restaurant in the Financial District. Kokkari prides itself on offering attentive service with distinction; Procopio embodies the notion of hospitality.
The upholstered chairs, linen tablecloths and polished wine glasses of this Greek restaurant with a solid rep mark it as decidedly old school. No Mason jars, mismatched seating or Edison light bulbs here.
Procopio is a professional server; it’s how he’s made a modest living for 23 years. He could earn more if he worked full time, but he’s chosen to tend to a food-writing career too; he’s likely the only waiter in town nominated twice for a James Beard Award for his amusing online musings at Food for the Thoughtless. He adores Kokkari.
“This is an incredible restaurant. We’re always busy and the management gives me the tools I need to succeed,” says the 44-year-old, who lives in a rent-controlled, one-bedroom apartment in what he dubs a nebulous part of town. “We’re encouraged to be ourselves. I’m not an order taker; I get to play host and that’s really lovely.”
Procopio doesn’t own a car and has no expensive pastimes, he says, aside from gin. Since he cut back his hours to concentrate on writing, he no longer has the disposable income to travel. He’s not complaining; he’s made his choices and he’s fine with them. Still, there’s no 401(k) plan, no job security. Procopio says his biggest fear is that he may not be able to support himself one day as a writer and that the physical demands of waiting tables might become too much when he’s old.
But that’s not a concern now. During an interview, Procopio had to double check what the minimum wage actually amounts to in this city. He thinks of it as his tax-paying fund, he says, since he lives off his tips. Typically, his tips run 20% or higher, as one might expect at a restaurant that caters to the business and political set, along with other well-heeled locals and travelers. Kokkari is a diners’ choice winner on Open Table in three categories (overall, Mediterranean and most booked) and ranks #2 in the city’s restaurants on Trip Advisor.
From a dinner shift Procopio typically takes home $230 in tips; a shorter lunch shift nets him about $100 in gratuities; he works 28 hours a week at the restaurant and brings home approximately $700 in tips, on top of earning around $280 a week in minimum wage. Kokkari, like all restaurants, has a tip-sharing policy. Many diners may not realize that if they give Procopio a $50 tip on a $250 bill it’s not all his to keep.
Tip outs—what servers give to support staff—vary from restaurant to restaurant. Some places pool tips, others ensure that the kitchen staff receives a cut, though technically it’s illegal under California labor law to tip anyone not in the direct line of service. The idea of tipping out is to compensate the other, no-less-important members of the service team.
An average check for two at Kokkari is around $150, says the waiter, but for explanatory purposes Procopio uses a $1,000 group check to illustrate how tipping out works at Kokkari. “We have a heavy tip out at our restaurant,” he notes, “because we have a lot of support staff and that allows servers to spend more time at our tables, which is our goal.”
On a thousand dollar sale, Procopio would typically receive $200 in tips. He gives his support team a pre-determined percentage cut.
“Out of that $200, I’d give the bartender $13, $10 to the host and $10 to the food runner. The barista gets a $10 flat fee every shift and the stocker gets a $5 fee,” he explains. “Our agreement is to give our busser $30 out of that tip but I give mine $40 because he’s my closest ally and I couldn’t do my job well without him. That’s $88 out of $200 right there.”
As with most industry employees, Procopio eats a lot of meals at his place of work, a perk of the job, which cuts down on food costs—not an insignificant expense in San Francisco. On his days off his preference and his budget dictate home cooking with friends.
Like any worker worth his salt, this waiter is protective of his earnings. So he’s not down with a tipped employee carve out, as some owners are seeking. In fact, he’s adamantly opposed to a tip credit, currently in place in 43 states around the country. A tip credit (waiters would more likely think of it as a tip penalty) allows restaurant owners to count tips towards a servers’ minimum hourly base rate. It’s currently illegal in California but some restaurateurs would like to see it enacted here as a cost-control measure.
Procopio enjoys the camaraderie he shares with other employees. He’s not sure what his brethren on the line make, but he suspects it’s less than he earns. “Those guys work so hard. They are friendly, great coworkers,” he says of the kitchen crew. He senses it’s tough to get by.
“If I lost my apartment I couldn’t afford to stay in the city and I know a lot of these guys, many of whom are Central American and Mexican, commute a long way,” he says. “I don’t know how they do it.”
The line cook
Here’s one example of how they do it: Raymundo Gutierrez works alongside Procopio in the kitchen at Kokkari. He’s a line cook. The Mexican native, a United States citizen, can barely afford the $480 a month he contributes towards a one-bedroom apartment near Civic Center that he shares with his four brothers, according to a San Francisco Chronicle story.
Gutierrez works seven days a week, including a second cooking job at another restaurant; both jobs pay above minimum wage. He’s supporting various family members and hopes to bring his wife and children to the U.S., according to the paper.
“I love what I do and where I work,” Gutierrez said through a translator for the article. “But [the workload] is heavy.”
Gutierrez believes he deserves a raise. “It’s not just about securing my future, but those of my co-workers and family,” he has said.
At Kokkari’s open kitchen diners can observe the line cooks, who pay close attention to preparing and plating food. On the floor bussers constantly scan the room, dressed in crisply ironed white shirts and ties, keeping tables fresh, cleared and cleaned. Few guests even notice these employees’ presence. Restaurant work is not for wusses. The hours are long, the work physically hard and the pay low. There are also cuts, burns and demanding diners to contend with. Still, for workers like Gutierrez with barriers to employment such as language, education and training, it’s one of the few industries hiring.
Jayaraman runs the Food Labor Research Center at UC Berkeley and co-founded the workers’ rights group Restaurant Opportunities Centers United. A recent report released by her center made news when it revealed that U.S. restaurant workers are twice as likely to use food stamps as the rest of the workforce. Says Jayaraman: “The largest workforce in America can’t put food on the table—except when they go to work.”
Kokkari manager Robin Kirby has been in the industry long enough to live through several economic booms and busts. For the most part, Kokkari has been able to insulate itself from financial downturns, or at least adapted to market dips and still made money. Kirby is reticent to talk specific figures but concedes that the commonly bandied-about profit margin for a healthy food business—in the 5% to 10% range—is realistic for most restaurants in today’s economy.
Kirby remembers the days when it was more than double that; financial upheavals and rising food and labor costs have taken their toll on the bottom line. Kirby prefers not to discuss her income either, but will say managers’ salaries in fine dining can start at $60,000 and run well into the low six figures. Many enjoy packages that include a wardrobe stipend, entertainment budget and car allowance. Yet it can be hard to lure senior waiters to the management side, says Kirby, because they make a tidy sum serving without the added headaches that come with such gigs.
As for kitchen labor costs, she confirms that line cooks are paid a competitive rate at her restaurant, which is typically in the $12–$15 range, more for senior, skilled cooks. “We value retaining our employees and treating them well,” says the Oakland resident, who has worked at the restaurant since it opened 16 years ago.
How to handle rising labor costs? Unlike other local upscale restaurants, such as The French Laundry or Chez Panisse, Kokkari, which can seat 180, has opted not to add a surcharge to the tab for its diners.
“We’ve chosen to find other ways to reduce costs, such as negotiating better deals with our vendors,” says Kirby. Looking ahead she says: “Because of our size and volume an increase in the minimum wage is something we can likely more easily absorb than a small business.”
Still, like anyone who enjoys the diversity of dining experiences in this town, Kirby is concerned for the industry as a whole. Smaller venues, she believes, will take a bigger hit if the minimum wage jumps to $15 an hour.
“I worry about how our unique, small, independent restaurants, a vital part of this city’s dining scene, can afford to do this.”
The small business owner
Welcome to Karen Heisler’s world: This café owner is asking herself the same thing. She’s the co-owner of Mission Pie, a popular neighborhood hangout that prides itself on feeding people well and taking care of its staff of 20. Like many micro businesses, especially small food businesses, she is all about hard work and tight margins.
The 53-year-old San Francisco native lives above her business with her partner in pie and life, Krystin Rubin, a professional baker. Heisler bought the charming corner Victorian building at Mission and 25th Streets nine years ago; her goal was to create a place that offered thoughtfully selected food at affordable prices for a diverse customer base.
Her café, which seats 30, has a reputation for sourcing good grub from local farms, employing youth—and dishing up delicious savory and sweet pies.
In the seven-and-a-half years the café has been opened, close to 90% of the hires at Mission Pie have had no previous kitchen experience. Nearly all made the leap from their hiring wage, above minimum, to $15 or more over a two-year period, says Heisler.
But Heisler’s run the numbers. A $15 minimum wage would put Mission Pie in the hole financially for the first time in its history. The only way to recover that income loss, she says, is through increasing costs at the cash register or reducing staff expenses. “A $15 minimum wage means we will surrender the practice of hiring young, inexperienced people who we train,” she says. “We’ll be financially obliged to hire only experienced candidates.”
Heisler makes an important distinction between a minimum wage and a livable wage. “They have two different roles and purposes. The minimum wage exists as a critical first step on an earning ladder, a position where a person with little or no work experience can begin,” she says. “A living wage is something that a person should expect to earn with demonstrated skills and abilities.”
Heisler thinks a tip credit should be on the table. And, in fact, it is incorporated into the recently passed Seattle minimum wage measure, along with employer credit for monies spent on health care costs.
“The gross inequity that results from an absence of a tip credit is so distasteful to me … in a city that professes to be committed to economic justice,” she says, of the disparity between tipped front-of-house workers and non-tipped back-of-house staff. Heisler and other restaurant owners attempt to address that inequity by paying kitchen crew higher wages, currently in the $15 to $20 an hour range at Mission Pie.
“With a $15 minimum and no tip credit, we will need to pay $20 to $25 in the kitchen to maintain a sense of fairness in our house. These are starting wages, mind you. That’s a difference of $115,000 a year which we have to generate somehow.”
For Heisler, introducing a tip credit is not just a way to control costs. It’s a way to acknowledge industry employees who are often overlooked in a tipping culture.
“We are missing an opportunity to do something bold and brave on behalf of people who work in kitchens, washing dishes, doing all of the hard work without either human or monetary feedback from customers.”
Given the likelihood of a hike to $15 an hour, Heisler says she’ll have to pass it on. “We run super lean as it is and so of course we will have to raise prices and we will communicate clearly to our customers why,” says the former federal government sustainable ag and pesticide policy wonk. She’s not relishing those discussions. “Even at Mission Pie, where we pride ourselves on talking with customers about everything that goes into our food, this is too complicated a topic to serve well at the register.” Heisler and partner Rubin earn between $50,000 and $60,00 each a year through salary and shareholder distributions, an amount comparable to their highest-paid staff.
Recent history could offer clues to what lies ahead. Has San Francisco’s higher minimum wage slowed the growth of restaurant openings? Certainly not in the Mission District. Has it led to industry job losses? Not according to UC Berkeley’s Institute for Research on Labor and Employment.
In the recent book When Mandates Work, UCB researchers note that employment grew 17.7% among food-service workers in San Francisco from 2004 to 2011. Has a higher minimum wage had any measurable impact on the local restaurant industry during that time? Menu costs went up about 2.8% in that period.
“Every time one of these laws was debated some people said the policy would hurt the economy and kill jobs—and every time they were wrong,” says Miranda Dietz, a research data analyst at UC’s Center for Labor Research and Education and a co-editor of the book. “The sky-will-fall admonitions never materialized, as the laws did not hurt employment at all.”
Heisler is less optimistic about the future. If the minimum wage climbs quickly to $15 an hour, small businesses like Mission Pie will close or have to fundamentally transform. “This will happen not all at once, like an earthquake,” she says, “but over a few years, like cracks in the walls from many small shocks.”
The case for making more
Bar owner Thad Vogler feels Heisler’s pain. And fear. And yet he’s in favor, in principle, of upping the minimum wage to $15 an hour.
“I don’t think it’s tenable to offer workers less than that and I question even whether that’s a sustainable amount to live on,” says Vogler, the owner of the 110-seat SoMa-based Bar Agricole, a James Beard Award winner.
He, too, is experiencing all the industry challenges that Heisler faces. Losing talented cooks to the less expensive East Bay. Paying well above minimum wage for valued workers. Dealing with inadequate public transportation that prevents restaurant workers easily and inexpensively commuting in the wee hours from work to home and vice versa. Trying to address the income inequities in his own bars. Vogler recently opened a second spot, Trou Normand, which seats 80, on Montgomery Street.
Owning a restaurant business isn’t for wusses either. It’s not surprising that this Yale graduate, who grew up in an academic family in Santa Cruz and has worked in Paris, Tokyo and Cuba, among other places, thinks that the U.S. model for paying workers is due for an overhaul. He also points out that industry trends—such as communal tables, counter service, mismatched dinnerware—have economic underpinnings. The days of old-style service and white tablecloths are on their way out, he says, because most business owners simply can’t justify such costs in the current climate. Fashion trends, he points out, always come from financial necessity.
Vogler sees the big picture beyond craft cocktails and small plates. “As a society, the middle class can’t afford servants; they’re not affluent enough for that, so restaurants fulfill some of that function: offering people the chance to be waited on even if only for a few hours,” he says. “In order to sustain that, there has to be a class of people who earn less. That’s the tension point. It’s an ideological one. I have no problem politically if we address that inequity but if that does go down it would mean a huge cultural shift.”
Don’t go hungry waiting. Vogler looks around his neighborhood and sees tech companies getting hefty tax breaks to do business in the city. Meanwhile, the culinary industry—one of the city’s largest employers providing a service that is synonymous with San Francisco—is left to fend for itself. He’s been in the bar business for around 26 years and says it’s getting harder and harder to stay afloat. Vogler has a mortgage on a house in the Mission; this year he’s paying himself a salary of $75,000 per bar. He says he lives in “constant terror” that he’s not going to be able to meet all his financial responsibilities, including to his 80 employees, whether from a downturn in business, a dip in the economy or rising wage costs. But almost three decades in the challenges haven’t dulled his delight in what he calls the art form of his industry.
Prior to opening his own bar in 2010, Vogler designed, opened and managed bars for almost 20 years at more than 10 top Bay Area venues including Jardiniere, Bourbon & Branch, Beretta, Flora and Camino. Vogler recently hired a new chef at Bar Agricole, seasoned cook Melissa Reitz, who has come on as a partner. He takes a historic, long view on his industry.
Service is an iconic American concept, whose heyday might have peaked during the era of jazz supperclubs, he says. The culture of service is disappearing from the city’s landscape—white-tablecloth restaurants are shutting their doors or reinventing themselves. Case in point: After more than 40 years of business, San Francisco fine-dining institution Fleur de Lys served its final dinner in June.
Restaurateurs are business owners but industry insiders maintain they’re more than that.
“Restaurateurs want to feed people, nourish their souls and provide gathering places for them to celebrate important events in their lives,” says GGRA’s Borden. “They don’t go into the business to become experts on health care law or employees’ wages. And it’s not the typical us versus them that you might find in other industries,” adds the former IBM manager. “Their employees are like family; restaurant owners and chefs depend on their staff. They need their workers happy, healthy and executing their vision.”
Some wonder out loud whether getting rid of tipping altogether might be one solution to the problem. One restaurant owner, recently relocated from San Diego and about to open two places in Oakland, even tried it. For more than six years, Jay Porter adopted a strictly tip-less policy at his popular sustainable sausage joint The Linkery, adding an automatic 18% surcharge to dining-in checks instead. Porter says the move helped level the playing field among staff, created unity and improved business, service and the quality of food coming out of the kitchen.
And, here’s the kicker: His kitchen staff and his servers ended up making more money. On his eponymously named blog Porter took a deep dive into the benefits of a tip-free restaurant from personal experience; his multi-part treatise garnered national attention last year. Tipping is like high-fructose corn syrup, says Porter: Everyone gets this rush and thinks they’re getting a good deal out of it. But his experiment proved otherwise and research suggests that the practice promotes racial, age and gender-based discrimination against both employees and customers.
Porter’s convinced that a culture that values civil rights should make tipping not just optional but illegal. He just doesn’t think the burden to adopt such a policy should be forced on small business owners like himself. Porter is poised to open The Half Orange, a sausage, burger and beer joint, in Oakland’s Fruitvale District; a seafood-oriented restaurant, Salsipuedes, is slated to follow in a North Oakland neighborhood where dining out options are slim. Oakland voters will also have the opportunity to approve a raise for minimum wage workers come November. A ballot measure seeks an increase to $12.25 an hour in 2015, with annual increases pegged to the cost of living.
In fundamental ways, Porter, Vogler and Heisler are on the same page.
“The restaurant industry is hyper-competitive and runs on razor-thin margins, and customers choose restaurants largely based on perceived value, not on how much the restaurants pay their staff,” says Porter. “Individual restaurant owners don’t have a lot of leeway, if they pay their staff a lot more than their competitors then they have to raise prices above their competitors, and they’ll lose customers. That’s why if we want restaurant workers to be paid a fair wage, that has to come as a mandate from the government.”
But outlawing tipping in favor of a surcharge is not on the table this November. Food for thought for the future, perhaps. In the interim, will voters opt to increase workers’ wages this fall and how will the industry respond if they do? Stay tuned.