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Survey of San Diego restaurants points to challenges facing industry
First comprehensive survey in nearly a decade provides insights in areas such as compensation and operational best practices
San Diego, Calif., Jan. 28, 2009 – The San Diego County chapter of the California Restaurant Association (CRA) today released results from a survey of the county’s 6,600 licensed restaurants conducted in May and June 2008 by noted economist Kent Sims. The 30 percent survey panel includes restaurant members of CRA and a 22 percent random sample of all other restaurants doing business in the county. Information generated by the survey comprises industry data and analyses previously not available from other sources, including state and local government.
The survey conducted by Sims is the cornerstone of his study of the economic effect of restaurants in the county and the considerable challenges these businesses face from economic conditions and poorly-informed regulation of industry participants. “Our goals are the same as that of similar studies done in Los Angeles and San Francisco,” Sims said. “That is to provide information that enables restaurateurs to make better business decisions and enables public officials to make more informed decisions about restaurants, their employees, and the patrons they serve.”
Restaurants are a major anchor of San Diego’s economy. The 105,000 people they employ represent 8 percent of all private employment, and exceed the combined employment of the three largest public employers in the county: the State of California, the federal government and University of California at San Diego. The restaurant industry is the largest generator of employment for unskilled labor. Its work force is exceptionally diverse, and it provides a path to the middle class for more minorities than any other industry. Nationally, 80 percent of restaurant managers started as front-line employees.
The compensation portion of the survey found restaurant and bar workers are among the highest paid unskilled workers in the San Diego economy with average effective hourly wages including tips of $26 and median effective hourly wages of $28. The data indicate most employees who receive tips are paid the minimum wage in the expectation they will at least double for indirectly tipped employees, or triple for directly tipped employees that amount with the tips they receive.
Both the state and federal government levy income taxes on the full amount of effective wages including tips, and both restaurants and their employees must pay Social Security and Medicare taxes on the full amount of effective wages. However, California is one of only seven states, and the only large state, that doesn’t base compliance with its minimum wage on the full amount of wages reported to the IRS for tax purposes.
Most restaurants are small businesses that operate on very slim margins. The median survey respondent with fewer than 100 employees took just 3.6 percent to 4.6 percent of sales to their bottom line. The median survey respondent with 100 or more employees was twice as profitable, but still took just 10.6 percent of sales to their bottom line. The $18 million survey respondents collectively took to the bottom line in 2007 was 10 percent less than they took to the bottom line in 2006.
Rising food, labor and energy costs top respondents’ list of concerns. Professional service firms including accountants, lawyers and consultants interviewed for this study believe rising labor costs are driving a permanent shift in the income-and-expense structure of restaurants in San Diego County. It appears that a 5 percent-of-sales increase in the cost of labor is driving a similar increase in the cost of sales, and a like decrease in gross profit and the bottom line. Cost of sales data developed in the survey support this view. Therefore, it is easy to see why restaurateurs universally expressed alarm about high and rising labor costs in the survey’s question on business challenges.
Dramatic economies of scale were among the operating phenomena documented in the survey. Obviously, larger restaurants have higher total sales than smaller restaurants, but the largest restaurants also have much higher sales per square foot of space, $414 versus $197, and per seat, $12,514 vs. $3,813, than the smallest restaurants. Large restaurants also take more sales per square foot, $47 vs. $15, and per seat, $1,432 vs. $297, to the bottom line.
“The information in this survey is critical to help restaurants better understand how the economy is affecting us and how we should be operating during these tough times,” said Lehn Getz, president of California Restaurant Association’s San Diego County Chapter.
The San Diego Restaurant Survey is available online here. For more information, call Katie Hansen at 619.297.8202 or e-mail khansen@calrest.org .