Restaurant Industry Insights

Long-Term Effects of the Pandemic on the Restaurant Industry

Most restauranteurs thought this was the year when neighborhoods would return to their full measure post-pandemic. Workers would start returning to the office in droves, and service charges would be a thing of the past. But, as with most extraordinary events, it appears “returning” is not an option. And while most of us are aware technology will forever be a burgeoning aspect of the industry, we were hoping for some return to normalcy. 

In light of the hopes and misconceptions, we’re highlighting some of the restaurants and communities forever affected by COVID-19 and the precautionary measures we took to stay afloat. 

San Francisco’s Financial District

According to data from CBRE, a commercial real estate firm, as reported by abc7news, the vacancy rate in San Francisco’s Financial District was 4% before the pandemic. As of the second quarter of 2023, the vacancy rate remains at over 31%. And according to the chief economist of The Golden City, even spaces with tenants are down by at least 40%. 

What does this mean for restaurants? With foot traffic half of what it was before the pandemic, they can no longer rely on the business sector to pull them through. One example is BARBACCO, an Italian restaurant that had been in business in the Financial District for almost 14 years. Unfortunately, it recently closed as it could no longer sustain itself due to reduced traffic. 

In an Instagram post, the restaurant shared, “We hoped 2023 would be the year the neighborhood returned to the way it was pre-pandemic, however, that hasn’t been the case. We appreciate each of you for allowing us to serve you over the years, whether it was lunch with coworkers, a date night after a long day, or a meal at one of our many pasta dinners.”

Service Charges

While restaurant service charges are not a new addition, they became more prevalent during the pandemic as establishments looked for any means to bring in additional revenue. Post-pandemic, that practice remains, and some customers have turned to social media to complain. These service fees may help cover employee health insurance, rising wages, inflation, and increasing food costs and may range from 3% to 22%, quite a gap.

The problem arises for customers when the charge does not explain where it goes. Is it considered a tip, which means they do not have to provide an additional tip? Street to Kitchen, a Thai restaurant in Houston, told the New York Times that, without their 22% extra charge, they would be out of business. 

Like many restaurants, they wanted to pay their employees more, getting them closer to a living wage and adding additional benefits. They also believed, as many restaurants do, that guests would not accept higher menu prices. In response, their service charge was born.

Best Practices

According to experts in the field and customers, the best practice is transparency. Communicate at various points along the customer’s journey what the service charge goes toward. For instance, are guests still expected to tip? Consider including this information on the website and menus.  

At the Duck & the Peach in Washington, D.C., the 22% service charge goes to wages and employee healthcare costs. As many of you know, when Danny Meyer tried a no-tipping policy in exchange for a guaranteed hourly range, he had to raise prices by 15-20%. He discontinued the policy and noted many employees left for restaurants that provided tips. A restaurant in Cupertino, CA, experienced social media backlash for an 18% service charge that goes to employees.

According to the National Restaurant Association, about 15% of restaurant owners added surcharges in 2023. 

Wages and Tipped Restaurant Workers

Chicago, the nation’s third-largest city, recently voted to eliminate the subminimum wage for tipped workers. Restaurants will be required to pay a minimum of $15.80 per hour, up from the current $9.48 plus tips. This changing pay scale will phase in over five years. According to Fair Wage, similar laws will be on the ballot in 2024 for four states. 

Restaurants surveyed by the National Restaurant Association felt that profits would shrink to a mere 1.6% of sales under proposals along these lines. Over 90% said they would have to increase menu prices. 

If there was anything the pandemic taught us, it was to create anew. It appears that this lesson is still looming. 

FAQS

How many states have tipped minimum wage?

Currently, 15 states use the Federal tipped minimum wage. Other states set their own standards for tipped minimum wage and seven states and territories don’t allow a tip credit.

Is a service fee the same as a tip?

No. A service fee is an additional mandatory charge. A tip is discretionary and often based on the level of service you experience. In 2023, the expected restaurant tip at a full-service restaurant is at least 20% of the total bill.

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