Big City Restaurants Offering Yoga, Child Care To Lure Housing-Squeezed Workers

A housing crisis affecting tens of millions of Americans is also changing the way many of them dine.

As rents in the downtown areas of cities like San Francisco, New York and Seattle continue to climb, restaurateurs and property owners have faced a severe labor shortage overwhelming much of the industry.

In San Francisco, many haven’t been successful. Though challenges faced by restaurant operators in the city go well beyond a labor shortage, including burdens like high rents and often inhospitable street conditions, San Francisco’s astronomical cost of living and resulting limited labor pool is near the top of the problems list, according to Golden Gate Restaurant Association acting Executive Director Laurie Thomas.

Rent for a one-bedroom apartment in San Francisco averaged $3,500 last month, according to apartment site Zumper. The median home value in San Francisco comes out to just under $1.4M, Zillow reports.

Meanwhile, many workers able and willing to work at a restaurant in San Francisco are already working in the sector; the city finished last year with an unemployment rate of 1.9%, just a little over half of the nationwide figure. This has made adding new employees a challenge for restaurants in San Francisco, which still have to deal with fairly price-sensitive patrons, Thomas said.

“Nobody can afford to live in San Francisco, so to try and get workers, the restaurants have to pay more,” she said. “And in the restaurant business model, you can’t just easily increase the top line. People just stop eating [there] if the price isn’t right.”

In the last few years, that puzzle has ended up getting the best of many eateries. Over 330 more restaurants in S.F. have closed than have opened since 2016, according to GGRA, citing permit data from the San Francisco Department of Public Health.

No one characteristic applies to all the restaurants staying open. But a bet on the fast-casual mode of limited but quick service is one San Francisco operators increasingly want, or feel they must make, according to Vanguard Properties Commercial Real Estate Specialist Tasha Delancy.

“It eliminates all the headache,” Delancy, who is marketing restaurant space in San Francisco’s Marina District, said of going fast-casual. “You have smaller space, cheaper rent and just a couple of people behind the counter.”

It also follows a well-documented nationwide trend that meets not only the needs of housing-crunched cities like S.F., but also a consumer demand for speed and efficiency, even in dining. Among chains, fast-casual growth is widely outpacing the rest of the restaurant industry. The 500 largest chains added 1,569 restaurants in 2018, and over 1,200 of them were fast-casual, according to research from management consulting company Technomic.

Because fast-casual business requires smaller salaries and about half the staff of a fine-dining restaurant, it has become increasingly common in Seattle, where restaurants are constantly looking for employees, Kidder Mathews Vice President Damian Sevilla said.

“It’s the question of, ‘Can an employee live near their location while in the restaurant, entertainment or hospitality industry and still have affordability?' And that’s really difficult to find in the city of Seattle,” Sevilla said. “Not very many restaurants aren’t hiring, and it’s mostly the full-service food and beverage restaurants that are having a hard time staffing folks.”

Cushman & Wakefield Managing Director Joseph Lising has seen something similar in Orange County, California, which is deep in the throes of the state’s affordability crisis. “The minimum wage increasing is driving a lot of the restaurants that are full-service to the brink of extinction because of the cost,” Lising said.

In New York City, Lee & Associates Managing Principal Peter Braus said so far, its abundance of fast-casual restaurants has come more out of consumer preference than a labor shortage, but that the latter factor looms as a result of the housing crisis. “A lot of the people who do [restaurant] jobs are now unable to live within any kind of close proximity to where the restaurants are," Braus said.

In Seattle, cost pressures have helped lead to new concepts to boost revenue. Sevilla points to recent openings like Bellevue’s new Forum Social House, a 20K SF virtual golf, entertainment and restaurant combo, as an example of ways full-service restaurants can leverage entertainment to do well. On the other end of the spectrum, ghost kitchens have also proliferated in markets like Seattle and Los Angeles, both to take advantage of the mobile-ordering market and save on rising labor costs and overhead.

Both the GGRA’s Thomas and Vanguard Properties’ Delancy said they worry about restaurants in between expensive fine dining and cheaper fast-casual. But some owners say full-service dining without entertainment options or other lures still exists, as long as new ways of dining are embraced.

Bay Area-based Oren’s Hummus owner David Cohen said the 3.2K SF San Francisco location of the Israeli restaurant brings difficult, but not insurmountable, challenges. Even with a $25 average check, it is offering full-service fare by allocating a whole part of the restaurant for to-go orders and by striving to be an “employer of choice,” Cohen said.

Some owners, only able to raise pay so far, have been finding innovative ways to recruit and retain staff, including offering yoga classes, child care and even home loans. Sevilla has heard stories of Seattle owners offering employees help finding housing, and said he doesn’t think it will be long before some are renting or purchasing housing for employees.

Oren’s Hummus offers parking and gym perks and highly competitive healthcare plans, which help even when many of its S.F. competitors are required to offer healthcare (making many of San Francisco’s restaurants a minority in the food-services industry in that regard).

Despite cost challenges, “the restaurant formula never changes,” Cohen said, pointing to appealing cuisine, environments and service. “We’re just dealing with a customer who is much more dollar-conscious and an employee who needs more than just a paycheck.”

To some, like Delancy, restaurants in San Francisco and other cities inundated with millennials will struggle to attract them with an older model. “Regular Italian restaurants where, 10 years ago, you’d go and sit down and have the servers come and talk to you, those days are gone now,” she said.

To others, like Cushman & Wakefield Senior Associate Rainier L. Nanquil, himself a millennial, a new experience is indeed key, but good service paired with good food can still work. “Millennials and Gen Z want that experience factor,” he said. “You can have the best food in the world but if you aren’t providing good service and attracting millennials, the best food in the world becomes almost useless.”

Though Oren’s Hummus gets 45% of revenue at its S.F. location from its to-go section, that number is boosted by a brick-and-mortar strategy that mixes both old and new tactics, said Cohen, who feels a win-win is possible, even in San Francisco.

“We’re going through a restaurant revolution,” he said. “If you ask a lot of restaurateurs, it’s unlike anything they’ve ever seen. Revenue is coming from so many different places now."