Timing can be everything regarding the success or failure of a startup. For example, if you saw the internet happen and Amazon launch in the early 1990s, you might have thought, “Digital books are going to be huge”. If you invested in them, you got crushed.
Digital books didn’t get huge until after the internet bubble burst.
Peapod was the first home-delivery grocery service. It wasn’t the right time and went bankrupt. Instacart arrived at the right time and did an IPO.
There are other examples.
I was reading this article in the WSJ this morning on the habits of people going out to eat in Washington DC. The same trend is coming to a left-wing Democratic city near you with a Soros-appointed district attorney.
Crime is a big reason why people are staying home. They don’t feel safe in public and the left-wing governments empower the criminals.
Here are some other factors:
Cities have raised restaurant and liquor taxes.
They have raised minimum wages.
Inflation has risen food prices.
Covid has struck fear in the hearts of left-wing cities and people are more cautious about going out. Some people are mentally ill and damaged.
But, this is happening too:
In November 2022 the city’s liberal voter base overwhelmingly approved Initiative 82, a ballot measure to more than triple the base wage for tipped restaurant workers.
In DC, the tipped workers were against the change. They lost to the chardonnay drinking mob who doesn’t understand how the real world works.
Check costs have increased as a result. I went to Frontera Grille in Chicago and they automatically tack on gratuity now. I don’t agree with Rick Bayless comments in their explanation. I love Frontera, and won’t tip over the automatic gratuity.
In higher-end restaurants, waiters can earn a really good buck. Some earn over $100k per year. They earn it. When you eat at a very fine dining establishment a great waiter can make a gigantic difference.
In a place like Washington DC, there are a lot of higher-end restaurants. There are a lot of government and corporate expense accounts for entertaining there. Not just US governments but foreign ones too. Every big city has this. Chicago and conventions, Las Vegas and conventions, NYC and Wall Street. They are the life blood of the restaurant industry, not you and your significant other going out for a nice meal once a year.
What’s the result? Employment is down by 4% in DC and going lower as the tipped wage amount increases. 33% of existing restaurants are closing. More than 50% of the diners who used to patronize DC restaurants are going elsewhere but most are simply staying home.
That leads me to the startup world. Startups fix problems if the government and regulations let them.
Back in the late 2000s and early 2010s, startups were launched that had the business model of a trained pro chef coming and cooking dinner at your house. You created an account and had a tableau of experiences to choose from. Kitchensurfing might have been the most famous, but it went belly up.
As the Millennial generation gets older, they are doing more “adulting” things. They are having babies. They’d love to go to restaurants but since the cost of everything is so much higher than it used to be, fine dining is one of the first things they cut.
It’s not that the demand isn’t there. When you are two parents working with kids at home, it’s hard to take the time to cook a really elegant meal and share it with friends.
What if they could hire a chef to come in, cook, and clean up?
Maybe Kitchensurfing version two would work? I don’t know since I don’t know the logistics, costs etcetera. It’s just an idea. But, the trends seem to be putting some wind in those kinds of sails.
Restaurant-hospitality business is brutal even in a good environment! Post Covid BS and inflationary cost increases and raised minimum wage are devastating the industry even more! As a retired Day Job guy I was looking forward to being back as a full time musician but during the pandemic there were No Places to Play! So we changed it up. We cut deals with the remaining places that stayed open and we were basically working for tips! Busking, the British call it. Since we've got skills and people were so starved for entertainment we did better than all right. Sure, we had to go without a drummer and pay close attention to our audiences, but it was a blast! Good money and all my musician buddies waiting for "It" to be over couldn't understand how we were working so much and making such good money! Timing? Innovation? Luck?
Great observations as always Mr Carter!
Thoughts:
• America's tipping culture is crazy. There are non-human involved transactions that now even ask for tips.
• As tipped wages go up the expected tip % or service charge should go down. Lower tipped wage minimums were to acknowledge the value of tips. The only way total compensation doesn't stay the same is if wages go higher and tips stay the same.
• Some of the tipping culture is effectively price discrimination. It lets some people pay more or less than others. If you'r a young family of 4 maybe 10% is all you can do. If you're an empty nester maybe you'll give 25%.
• If some wait staff are worth $100k then restaurants should be able to figure that out and pay individuals differentially.
• I hardly ever tip more than the mandatory levels at higher-end restaurants. They're already selling and supposed to be providing superior service. I think they should just raise the headline prices and say no tipping, though.
• Private chefs already exist and have online bookings. They're not cheap, but they're not necessarily outrageous.
• Human labor is expensive. I'd rather pay up front rather than on the back side through increased social spending. If the Clark St. landlords deserve to get paid the restaurant workers can too.
• Might all these issues cause the number of restaurants to fall? Possibly.