By Joey Thompson |bizjournals.com
Washington restaurants are sliding toward financial uncertainty, a state trade group warns.
The average profit margin for a restaurant in the state was 1.5% in 2023, compared with 4% nationally, per data shared by the Washington Hospitality Association. With average annual revenue of $1.1 million, that nets a pre-tax profit of just $16,500.
“It’s fair to raise a warning bell,” WHA President and CEO Anthony Anton said. “This is not sustainable.”
The data reflects the fragile state of the restaurant industry, in which rising costs of labor and non-operating expenses are pushing operators to raise prices, cut hours and reduce staffing levels to maintain a healthy margin. That hurts the value proposition of dining out at a time when consumer spending has slowed down amid inflation.
“This is not about a specific issue, but more a combination of factors,” Anton said. “We’re running out of places to cut. We’re really putting people in jeopardy here.”
In Seattle, restaurateurs have raised alarms about the health of the industry for months. In the first quarter of the year, sales are down about 5% from the same period in 2023, according to the state Department of Revenue.
The decrease is exacerbated by the ongoing debate between leaders in Seattle City Hall and food delivery companies over how much drivers should be paid.
When the city’s new minimum wage for food delivery drivers went into effect in January, companies like Doordash and Uber Eats raised their fees to offset costs, which has led to an almost immediate drop in sales for restaurants.
Seattle restaurant owners are also preparing for the next minimum wage jump, which will supplant a previous policy in which operators could pay tipped employees slightly below the minimum wage.
Citywide, labor already accounts on average for 41% of a restaurant’s costs, per the WHA. Statewide, including Seattle, the figure is 39%.
Charlie Anthe, who owns Moshi Moshi in Ballard, said at a WHA media briefing that he’s spoken with owners of 50 other restaurants the city, and “everybody agrees Seattle is outright hostile to small business owners and entrepreneurs.”
“We’re begging to be heard,” he said. “We’ve been ignored at every step of this process.”
Over the summer, the industry lobbied the City Council to extend the tip credit. But last week, Mayor Bruce Harrell put an end to that conversation saying the credit will expire in January, as planned.
“As the tip credit expires, we are committed to aggressively addressing many of the pressures facing small restaurants moving forward — from public safety to inflation, insurance, and a wide array of other cost pressures, including best practices in addressing the absence of a tip credit,” Harrell said in a news release.
With that, restaurant operators are tasked with finding ways to get customers to keep spending, while also eking out a margin that keeps their doors open.
For the industry, automation and tech could help with reducing costs for restaurants in the coming years, Anton said.
“The problem with tech is it’s unproven and it’s capital heavy at a time when we don’t have capital,” Anton said.
Another increasingly popular tactic is to institute service charges to pay servers higher salaries and do away with tipping.
In Ballard, Moshi Moshi is part of a new coalition of 30 Seattle restaurants, bars, cafes, delis and tasting rooms called the Independent Seattle Hospitality Alliance. The first 10 guests to visit five different businesses in the program — and reach a minimum spending requirement, which varies by business — earn an invitation, with a plus-one, to a private dinner hosted by some of the group’s chefs and business owners.
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About the WA Alliance for Innovation and Independent Work
WA Alliance for Innovation and Independent Work is a coalition of consumers, independent workers, small businesses, app-based services, and community leaders from across the state that seeks to strengthen and support advancements in the new workplace. Today, flexible jobs, benefits, and innovative services are essential to enhancing Washington’s emerging economic opportunities and empowering the small businesses and workers who are leading and innovating.