New York City is by far the most expensive city in the country for operating a restaurant, The New York Times finds in a detailed analysis:
To further break down the formula, a healthy restaurant aims to spend about 10 percent of its sales revenue on rent, utilities and other occupancy costs; 30 to 40 percent on labor, including payroll taxes and benefits; and 30 percent on food and beverages.
Because those three expenses account for most of a restaurant’s costs, we sought the best numbers we could find and compared them for three vibrant dining cities: New York, which has the nation’s largest roster of independent restaurants; Los Angeles, where the number of independents is growing; and San Francisco, a smaller, volatile market that has responded to restaurant closings with a real estate plan that enables start-ups to hedge their bets.
The Times explains that while ingredients cost more on the East Coast because West Coast restaurants are closer to the California bread basket, the biggest difference makers are labor and rent. Retail space in New York can cost twice as much as in San Francisco or Los Angeles. Labor costs, meanwhile, are high in all three cities, although they are higher in New York and San Francisco than in Los Angeles. In California, moreover, there is no such thing as a "tipped" minimum wage—a lower mandated rate for workers who receive regular service tips. But with each city transitioning to $15 an hour over the next few years, labor will eat up more and more of restaurant budgets. And New York's wage is rising fastest and soonest.
The results of these costs are not happy ones for restauranteurs or for consumers. As the Times notes, the number of restaurants shrank in New York in 2015, and more and more of people's dining out dollars are spent at deeper-pocketed chains. It's very difficult to weather business cycles and adapt to changing tastes as an independent restaurateur. For consumers, the challenging environment means fewer and more expensive options.
Raising minimum wages is supposed to help restaurant employees, but as anyone who has dined out in the last three decades should know, the more realistic effect of expensive labor will be that restaurants simply hire and underpay more undocumented workers. Meanwhile, tables will get more cramped and the only successful establishments will be those associated with conglomerates.
Underneath the Times' reporting lies an unstated but devastating critique of blue model governance. Restrictive zoning subject to the whims of small interest groups makes rent expensive and union pressure forces minimum wages higher—that's before all the regulatory requirements health and safety bureaucrats keep coming up with:
New York restaurateurs bemoan other enduring frustrations, including a complicated permit process and a two-tiered liquor license system that can take months to navigate. The city’s Department of Small Business Services recently announced the creation of the NYC Food & Beverage Hospitality Council, a group of over 30 industry representatives committed to improving the industry’s long-term health.
Cities are eating themselves; cosmopolitan bien pensants who obsess over every new gastronomical fad are advocating policies which make their own lifestyles unaffordable. Of course, Williamsburg graphic design artists and Murray Hill finance bros can probably afford to live in a city where restaurants have to charge $30 for a burger. And it's possible that the high barrier to entry raises standards too. But those costs almost certainly suppress creativity. They undoubtedly make it so that people earning normal salaries will have a very hard time paying for a night on the town.