Eateries rush to adapt to increased costs, changing customer

By Emily Hamann

One of Bellingham’s newest restaurants is also a bit of a blast from the past.

Last month Kim Fox celebrated the grand opening of Grant’s Burgers in Bellingham.

Grant’s is an old-fashioned burger shop with a seating area and a walk-up window. Everything, from the sliced tomatoes to the hand-scooped milkshakes, is prepared from scratch in house.

“It’s just an old-time hamburger,” Fox said.

This is the third Grant’s — there is also one in Ferndale as well as one in Lynden. But for Fox, Grant’s has always been a family affair.

Fox’s mother Linda Grant began working at the restaurant, originally called Jack’s in Ferndale.

Then she and Fox’s father Russ Grant bought the restaurant in the early ’80s, which is when it became Grant’s.

It became somewhat of a Ferndale icon — Fox said many customers back then stopped by just to hi to her dad and the family.

They operated it in until 2007, when the property was sold and they lost their lease.

But Fox couldn’t let the restaurant go. In 2009, she found a new location and reopened Grant’s in Ferndale. Two years later she opened a location in Lynden, and the following year she started a food truck to service the refineries at Cherry Point.

Her new location in Bellingham is somewhat of an homage to her parent’s original restaurant.

“I’ve always admired this building,” Fox said. “It’s so similar to mom and dad’s old one, and I love this location.”

Fox is starting on this new venture at a turbulent time in the industry. On the one hand, people are spending more at restaurants than at any time since the recession. On the other hand, the cost of doing business has gone up, cutting into the industry’s already slim margins. All the while, customer’s changing habits and new technology have restaurants rushing to keep pace.

“We’re in the middle of a complete overhaul,” Anthony Anton, CEO of the Washington Hospitality Association, said. “A complete rebuild of the business model itself.”

Part of that is due to a change in customer behavior.

“When I grew up we went out to restaurants, and it was an occasion,” Anton said. The younger generations, however, are going out to eat more often.

“They go out not for an occasion, but because they’re hungry,” Anton said.

That means customers are looking for different things when they go out.

“If you’re eating out six, seven times a week you want variety,” Anton said.

That means restaurants can offer smaller, more specialized menus. Customers are also demanding more locally sourced food, and items prepared in house.

“There really is a resistance to the concept of premanufacturing,” Anton said.

For many restaurants, the biggest change has been labor.

The workforce itself is changing. The new generation of workers expect more flexibility in their schedule, Anton said.

“They’re putting priority on their life first and their work second,” he said.

The low unemployment rate means restaurants must compete for workers, and give them what they want.

In a biennial survey of its members, the Washington Hospitality Association reports that 41 percent of restaurants mentioned finding and retaining good staff as one of their top business challenges. The number of restaurants who listed that as the top challenge doubled between 2016 and 2018.

Fox agreed that finding employees is her top challenge.

“Everything else is pretty good,” she said. “Definitely keeping the man power is tough.”

She said she has trouble finding people who can keep up with the pace of the restaurant.

“Its finding people who can multitask and think on their feet and move quickly,” Fox said.

Most of her workers are teenagers.

“This is a first time job for a lot of these kids,” Fox said.

Fox said many first-time employees don’t have a lot of basic skills.

“This generation of kids, they come to me now, there’s just no a whole lot of experience there,” Fox said. “They don’t know how to sweep floors.”

She said she’s having to teach new employees basic things like how to hold a broom and basic food safety, like washing hands after touching your hair or face.

“There’s a lot of stopping and washing our hands and trying again,” Fox said.

The hospitality association’s survey also found the cost of labor ranks high among restaurant’s business challenges.

Recent laws have made the restaurant industry’s tight margins even tighter.

The average margin of a restaurant is 4 percent, Anton said. However, recent regulatory changes have added 9 percentage points to the cost of operating a restaurant, Anton said.

Those regulations include the annual minimum wage increase, which began in 2017 and will continue until 2020, when the minimum wage will reach $13.50. In addition to that, many employers must offer paid sick leave, and beginning this year, must pay into the state’s new medical and family leave insurance program.

These extra costs put a strain on restaurant’s bottom line.

“It’s not that we’re against it,” Anton said. “But we are having to adapt to the new cost of it.”

The higher minimum wage in particular is causing a ripple effect, and not just on a restaurant’s bottom line.

“The increase in minimum wage is really difficult to navigate,” Janet Lightner said. She is the general manager of Boundary Bay Brewery and Bistro.

“There’s always been kind of a natural divide between the front of the house and back of the house,” she said. However, the new minimum wage has exacerbated that divide.

Even though the only minimum wage employees at Boundary Bay are the dishwashers, as their pay has gone up, Lightner has adjusted the entire pay scale accordingly.

That means there’s less money to give employees a raise based on merit or to put into other departments.

Lightner said now the highest paid people in the entire restaurant are the bartenders and servers, since they make tips on top of their hourly wage.

Cooks and other back of house staff just make their hourly wage — they don’t get tips. That has always been the case, and a source of tension. Even Lightner noticed it when she was coming up in the restaurant industry, before she went into management.

“I felt the disparity as a cook,” she said. “I lived it.”

However, that incongruity is worse than ever now.

That can make it hard to find people willing to work back of house. At a hiring fair recently, Lightner was looking to hire more cooks, but said the vast majority of applicants were interested in serving jobs.

“It is difficult to find cooks,” Lightner said. “But our core of kitchen staff has been here quite a while.”

Boundary Bay staff participate in a voluntary pool, which sends a portion of the tips to the back of house staff. However, until recently, employer-mandated tip pooling was illegal. Just last month the state released its final guidelines on a 2018 rule which repealed a ban on tip-pooling.

The minimum wage law has impacted restaurants a lot more than people might realize, Lightner said.

“For 2020 we’ve got to find an additional $100,000,” Lightner said. That is just for the additional wage increases.

“It’s a lot of money, it’s got to come from some place,” Lightner said. “Some of it has to be reflected on the menu.”

In past years, Boundary Bay has found the money wherever it could, including putting off buying new equipment, as well as raising beer and menu prices.

“You’re really buying either used equipment or auctioned off equipment, really try to be frugal, because without our employees we’re nothing; we have to take care of them,” Lightner said.

“Management has taken cuts in pay, and I can attest to that.”

Lightner said she isn’t against any of the new benefits being given to employees.

“The sick leave regulation I think is great, and now we’re going into the paid family and medical leave — these are great, great programs,” she said. But there are only so many extra costs a small business can take on. “The mandatory minimum wage, coupled with the programs, you just wonder where the breaking point will be.”

This isn’t the first time the restaurant industry has had to ponder these questions. What’s happening with restaurants now is similar to what happened 20 years ago, Anton said.

“The last time we saw a major change in the business model was 1998,” Anton said. At that time, another voter-approved initiative raised the minimum wage from $4.90 to $5.70 in 1999 and then $6.50 in 2000.

“During that three-year window, there was chaos,” Anton said.

But eventually, restaurants adapted to some of the norms we see in the industry now.

Price increases, proportionate to the amount of the minimum wage increase, became normal.

“Prior, people would go three or four years without a price increase,” Anton said.

In general, Anton said, restaurants became leaner in who they employed and how many people they employed, dropping on average one full-time employee per restaurant, and became less likely to take a risk on hiring inexperienced teenagers.

“We saw a major move away from teenagers,” Anton said. “We saw the percentage of teenagers in our workforce fall.”

Prior to that law, Anton said, labor made up a third of Washington restaurant’s expenses. Food took another third, and the final third went to everything else. After that minimum wage law in 1998, that proportion changed and now labor makes up 36 percent of expenses, food still makes up 33 percent, and everything else takes up 30 percent.

Back then, the industry adapted, and it can do it again, Anton said.

There is a little bit of a cushion, because as labor costs are going up, the economy has improved, and people are dining out more often.

So far, restaurants have been able to pay for increasing labor costs by raising prices. However, Anton said, if people start eating out less often or spending less when they go out, restaurants could be in trouble.

And the economy can’t keep improving forever.

“Right now, the industry is reflecting a really strong economy and it’s been a great 10 year run,” Anton said. “I think what’s going to be really interesting is when the economy normalizes and what changes take hold.”


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