economy restaurant supply san francisco

Economics of the San Francisco Restaurant Industry 2005 Report Prepared for Golden Gate Restaurant Association By Kent Sims May 2005 CHAPTER 1 SUMMARY & CONCLUSIONS 1–1 1.1 THE SAN FRANCISCO ECONOMY This report presents the Golden Gate Restaurant Association’s (GGRA) annual study of the Economics of the San Francisco Restaurant Industry. Previous reports, prepared in 2002 and 2003, documented industry conditions after the onset of the recent national recession, the dot.com bust, and the 9/11 terrorist attacks. These events produced the most challenging economic conditions for San Francisco restaurants in half a century. • The number of arriving passengers at San Francisco International Airport fell 25% between 2000 and 2003, reflecting the sharp drop in out-of-town visitors. Hotel occupancy dropped 20%, average daily hotel room rates fell 16%, and hotel room tax revenue plunged 59%. The number of transient vehicles using City-owned parking garages dropped 13% reflecting the drop in the number of metropolitan area visitors to San Francisco. The City lost 80,000 jobs, nearly 14% of all City-based employment; the resident labor force contracted 8%; employment dropped more than 12%; the unemployment rate rose from 3.4% to 7.0%; and the number of unemployed residents increased 84%. The office vacancy rate for Class A space soared from 3.8% in the fourth quarter of 2000 to 21% in first quarter of 2003. Vacant office space of all types rose from 5.2 million sq ft to 20 million sq ft – roughly a 10-year supply at historic absorption rates. Sales tax revenues, a good reflection of consumer spending in the City, plunged 46%. Median income of table service restaurants plunged 40% in 2001 and another 10% in 2002. In the process, San Francisco suffered a net loss of 298 restaurants and bars, or 6.4% of all such businesses in the City. • • • • • • Economic conditions in San Francisco have improved substantially from the depths of the recession in 2002 and early 2003. However, many measures of economic activity remain well below their level in 2000 before the onset of the recession and the economy in general is smaller than before the recession. • • The number of arriving passengers at San Francisco International Airport in 2004 was up 6% from it low point in 2003, but still 20% below the level in 2000. Hotel occupancy in 2004 was 4% above its low point in 2002, but still 20% lower than in 2000. Average hotel room rates have declined in every year since the onset of the recession and were 17% below their 2000 level in 2004. Hotel room tax revenue was up 36% from its low point in 2002, but 44% below its 2000 level. All three measures were depressed by an as yet unresolved hotel industry labor dispute. CHAPTER 1 • SUMMARY & CONCLUSIONS 1-2 The number of transient vehicles using City-owned garages continued to decline in 2004 and was 1.1 million vehicles or 13% below its peak of 8.6 million vehicles in 2000. The City’s labor force and employment decreased 1.6% and 0.6%, respectively, in 2004, but the number of unemployed people and the unemployment rate also decreased 15% and 13%, respectively. The labor force and employment were 10% and 12%, respectively, below their levels in 2000, while the number of unemployed people and the unemployment rate were 57% and 73%, respectively, above their 2000 levels. The Class A office vacancy rate remained at about 20% in 2004, down about 1.0 percentage points from it peak. The amount of vacant office space of all types was about 19 million sq ft, down nearly 1 million sq ft from its peak, but still 167% above the amount of vacant office space in 2000. Sales tax revenue picked up a bit to $121 million in 2004, and was up 9% from its low point in 2002, but still 33% below its peak in 2000. Median income of table service restaurants was 3.7% of sales in 2003 and had a medium increase of 17% to 4.5% of sales in 2004. However, this positive performance is tempered by the fact that 35% of survey respondents who provided these data reported decreases in their 2004 income, and 25% of respondents reported the increase in their 2004 income (included in the 17% rise just mentioned) was from a larger to a smaller loss position. CITY-DRIVEN COSTS OF DOING BUSINESS • • • • 1.2 The present study, like its predecessors, uses a large sample survey of San Francisco table service restaurants, quickservice restaurants and bars to augment published data in analyzing San Francisco’s restaurant industry. Unlike previous reports, the present study examines a longer, 5-year period to illuminate changes that occurred in the industry during the recession. Among the conclusions of this study are: • San Francisco restaurants recovering from the recession in 2004 confronted the fact their customers were back, their sales were back, but their profits were not back because operating costs have risen faster than gross margin on sales, despite higher menu prices, reduced levels of employment, and reductions in employee benefits. City government magnified the problems restaurants faced in the downward spiral of the economy, and contributed to the failure of restaurant profits to recover with the economy by imposing substantial and uncoordinated increases in City-regulated costs of doing business during, and immediately following the recession. The cumulative effect of the sharp rise in City-regulated costs of doing business is forcing fundamental and largely undesirable changes in the City’s restaurant industry. • • CHAPTER 1 SUMMARY & CONCLUSIONS 1-3 Survey respondents report the 28% increase in the minimum wage the City began implementing in February 2004 has lifted their average total cost of employees by 10%. Since the cost of employees is more than 60% of prime costs at most restaurants, this is a seismic shift and the money has to come from somewhere in this very thin margin industry: • • • • • 98% of respondents have increased menu prices, and for 89%, the increases were “significant” or “major” 54% have decreased their number of employees 35% have decreased the provision of employee benefits 91% had lower profits – and 76% suffered a decrease in the market value of their businesses The San Francisco minimum wage ordinance does not recognize much of restaurant employee income reported to, and taxed by State and federal government because the City does not recognize income from tips as income for calculating compliance with its local minimum wage ordinance. The minimum wage is only the most costly increase in City-regulated costs of doing business. Several others were hiked by double digit percents to sustain City bureaucracy through the recession (see Appendix Table 10). In a 5-year period when the Consumer Price Index rose less than 10%: • • • • Department of Public Health (DPH) license fees and hourly charges for inspections have climbed more than 50% with rate hikes in 2001 (21% - 37%) and 2005 (23%). Water Consumption Charges paid by the average San Francisco restaurant rose 18% and are projected by PUC staff to rise another 101% in the next five years. Sewer Charges paid by the average San Francisco restaurant rose 11% and are projected by PUC staff to rise another 48% in the next five years. Garbage Collection Fees for businesses, though difficult to pin down because they are not regulated by the City like residential garbage collection fees, have risen 45% to 50% since 2001 and the cumulative rise by the end of the current rate order period in 2006 will exceed 60%. There are understandable, if not agreeable reasons for each of these increases. • DPH is in the process of shifting the entire cost of its environmental health programs from the City’s General Fund to the businesses it regulates, despite common sense telling us the primary benefit of assuring safe-food conditions accrues to the public, not restaurant owners. City government for many years diverted revenue from the Hetch Hetchy water system to cover the costs of unrelated City services, leaving insufficient funds for maintenance of the Hetch Hetchy system. Now under threat of suit from water • CHAPTER 1 SUMMARY & CONCLUSIONS 1-4 customers outside San Francisco, or even loss of control of this City asset, San Francisco is playing maintenance catch-up and City businesses and residents are paying the price in higher rates. • The sewer charge is a similar story. During a voter-initiated moratorium on increasing sewer charges, maintenance of the City’s aging sewer system was pretty much limited to fixing cave-ins. Now, under threats large parts of the system might collapse, the City is playing maintenance catch-up and City businesses and residents are paying the price in higher rates. The huge hike in garbage collection fees is to underwrite the cost of an ambitious recycling program, ostensibly to meet State mandates to reduce by 50% the amount of solid waste sent to land fills.1 Although residential customers represent more than half the capital costs of single stream, curbside recycling, commercial customers are paying a disproportionately large share of these costs. • By now, few San Franciscans are surprised that, when the City is short of cash, its first impulse is to raise business taxes and fees. The City could do that much more responsibly if it established a mechanism for tracking the cumulative effects of its revenue decisions on local businesses, like restaurants. Failure to consider the cumulative effects of its decisions after the onset of the recession created many of the problems facing restaurants in San Francisco today. 1.3 NATIONAL ECONOMY The American economy performed better in 2004 than in any year since the onset of the recession in March 2001. Gross national product rose a respectable 4.4% in real2 terms, disposable personal income edged up 3.5%, and both residential and nonresidential private fixed investment surged ahead 10% in current dollars. Yet, there were troubling signs in the economy. • Employment growth has lagged far behind what it needs be to accommodate growth in the labor force, let alone provide job opportunities for those who lost their jobs in the recession. Although 2.7 million more people are employed now than at the beginning of the national recession, the civilian labor force has grown by 4.2 million people. As a result, there are 1.5 million more unemployed people looking for work, up an astonishing 25%. The overall unemployment rate in March 2005 still is nearly a full percentage point higher than the 4.3% rate at the beginning of the recession. Net domestic savings of only 1.8% of GNP isn’t nearly enough to fund the government’s huge deficit and the 10% growth in private investment in the economy last year. The Bush Administration bridged this gap by borrowing from foreigners and foreign government an amount equal to three times domestic saving. The • 1 At the time the 50% increase in garbage collection fees was imposed to underwrite Norcal’s capital costs to implement the new recycling program, San Francisco already had met 90% of the State mandate without the program. 2 The term “real” when applied to economic measures such as GNP means these data have been adjusted to a base year, in this case the year 2000, to remove the effect of inflation and reveal the underlying “real” change. CHAPTER 1 SUMMARY & CONCLUSIONS 1-5 Nation’s main creditors are China, and to a lesser extent the Central Bank of Japan and several Middle Eastern monarchies. • Prices were effectively controlled during the boom in the 1990s and throughout the recent recession. However, prices have begun to rise well before the economy has begun to push against capacity and labor market constraints. This may herald the lagged response of prices to the massive growth in the nation’s money supply the federal Reserve engineered to offset the depressing effects of the Administration’s fiscal policy. The last time something like this happened was when the Fed pumped up the money supply to accommodate much smaller deficits to finance the Vietnam War. That move gave the nation a 21% prime rate, a generation of zero growth in productivity, and a lower standard of living for the average American. Economists called it “stagflation.” The most troubling aspects of the current national economic picture are the fiscal imbalances in the federal government. • • • Most independent analysts project a 10-year “on-the-books” federal deficit of $4.5 trillion to $5 trillion. Social Security has a 75-year estimated funding shortfall of $4 trillion Medicare, with its new prescription drug benefit, has a shortfall of about $20 trillion. Americans should care about the federal budget for several reasons. Virtually all respected, mainstream economists agree deficits much smaller than these over time generate higher interest rates, diminish private investment, reduce productivity, and lower economic growth. That is exactly what happened as a result of the much smaller Vietnam era deficits. Of more immediate concern is that any one of several plausible developments could spook financial markets causing the equivalent of a financial meltdown when the foreigners and foreign governments that own about a third of US government debt move to curtail their losses. US interest rates would rise uncontrollably and the value of the dollar would plunge. With the value of the US dollar steadily eroding, foreign creditors daily are sustaining significant losses on their holdings of dollar-denominated debt. In these circumstances, it is difficult to imagine that at some point our nation will not have to pay a substantial price for the Administration’s irresponsible fiscal policy China is our nation’s chief creditor. Huge amounts of money are flooding into China because of China’s large trade surplus and substantial investments by foreign companies. Ordinarily this would drive up the value of the yuan, China’s currency. The Chinese government has prevented this from happening by pegging the value of the yuan to the depreciating US dollar, and by shipping $300 billion to $400 billion a year back to the US in the form of low interest loans to finance the federal deficit. Lately, at the behest of US manufacturers, the Bush Administration has complained that China’s currency peg is responsible of the ballooning US balance of payments deficit and that China should let its currency rise. If that were to happen, China would have no incentive to continue CHAPTER 1 SUMMARY & CONCLUSIONS 1-6 financing the US budget deficit with low interest loans, a development that would trigger the consequences described in the previous paragraph. The practical lessons for small businesses like restaurants is that they can count on much higher interest and inflation rates in the years ahead. And, if fiscal policy is not rationalized soon, we may experience an economy that makes the last five years look not so bad. 1.4 RESTAURANT OPERATING PROFILES Restaurants generally are small businesses that operate on slim margins compared to other small businesses. Although local conditions affect the relative importance of individual restaurant expenses, the pattern is similar for most establishments. Most table service restaurant revenues come from food sales (75% to 80%), but alcohol sales also are very significant (20% to 25%). Quickservice restaurant food sales average about 95% of revenue and alcohol sales, 5%. Prime costs (cost of food + cost of alcoholic beverages + cost of employees) run between 58% and 66% of gross sales for most establishments. If the restaurateur permits prime costs to rise above 66% of gross sales, over time the restaurant is unlikely to be able to continue in business. Median prime costs in GGRA’s 2005 restaurant industry survey were 66.4 % of gross sales and average prime costs were 67.3%. 1.5 SAN FRANCISCO’S HIGH COST AREAS The two areas where San Francisco restaurant costs are dramatically higher than the median for similar restaurants nationwide are occupancy costs and the cost of employees. The former is related to San Francisco’s high commercial rents, cost of property insurance, and local public policy that adds about 20% to the cost of everything built in San Francisco. Occupancy costs average 8% to 10% of total sales at San Francisco restaurants vs. 6% of gross sales nationally. The high median cost of employees in San Francisco is due primarily to local government not recognizing much of restaurant employee wages that must be reported to State and federal government for purposes as income for purposes of complying with the local minimum wage ordinance. San Francisco local government subtracts the approximately three-fourths of the wages front of house staff derived from tips, even though both restaurants and their employees are obliged to pay State and federal taxes on these wages. The high cost of employees in San Francisco also is driven by workers comp and health insurance costs that are higher than the national average. 1.6 TAXES, TIPS & THE MINIMUM WAGE Most people understand that tips are income, and that both State and federal law require the person receiving a tip to declare it as income. Less widely understood is that the federal government regards tips as part of an employee’s wages on which both the restaurant and the employee owe Social Security Taxes. From the government’s point of view, it’s immaterial whether the restaurant receives the tip from the customer and pays it to the employee (as is the case with debit and charge card transactions), or the employee CHAPTER 1 SUMMARY & CONCLUSIONS 1-7 receives the tip directly from the customer in cash. A tip still is seen as part of the employee’s wages on which Social Security Tax is owed. It is to the government’s credit that it extends this logic to administration of the federal Fair Labor Standards Act (FLSA). The current federal minimum wage is $5.15 per hour. The federal government requires restaurants to pay their employees a minimum cash wage of $2.13 per hour and allows a “tip credit” of $3.02 per hour toward meeting the federal minimum wage. Forty-three states follow the federal minimum wage law and regulations and allow a tip credit against their own (higher) state minimum wage. California is one of only seven states, and the only large state that does not base its minimum wage compliance requirements on the full amount of wages reported to the IRS for tax purposes. 1.7 DESCRIPTION OF SURVEY In March and April 2005 Golden Gate Restaurant Association (GGRA) conducted a survey of GGRA members and a 25% random sample of other San Francisco restaurants. The 25% sample was drawn from the San Francisco Tax Collector’s database of food and beverage service licensees. GGRA San Francisco restaurant and bar members were purged from the database to avoid duplicate mailings. The database then was sorted by type of license and every fourth record from each of the six types of restaurant and bar licenses was selected. The resulting survey panel of 1510 establishments represents approximately 34% of the 4,405 active restaurant and bar licenses in San Francisco on the March 18, 2004 “as of data” for the version of the Tax Collector’s database used for this survey. Survey questionnaires were mailed to potential respondents on March 28, 2005. A covering letter explained the purposes of the survey and asked for completed questionnaires to be return directly to GGRA’s research association by April 9, 2005 in the stamped, addressed envelope provided with the questionnaire. Completed questionnaires the research associate received by April 22, 2005 were included in the tabulation of survey results. The Survey was “blind” and confidential. The identity of individual participants is not known, and data submitted by individual participants cannot be identified in tables published in the present report. The principal focus of the survey is full service restaurants (also referred to as table service restaurants) which were 80% of the San Francisco survey panel and 77% of all San Francisco restaurants and bars at the time of the survey. The survey also included Quickservice restaurants (also referred to as limited service restaurants) which include “take-out” and all “fast food” concepts. Quickservice restaurants were 12% of the San Francisco survey panel and 14% of all San Francisco restaurants and bars at the time of the survey. Bars, taverns and lounges, establishments where sales of alcoholic beverages are more than 50% of total sales, were 8% of the San Francisco survey panel and 9% of all San Francisco restaurants and bars at the time of the Survey. CHAPTER 1 SUMMARY & CONCLUSIONS 1-8 Part I of the survey questionnaire covers mainly nonfinancial characteristics of respondents and its tabulation is based on a group of 52 respondents. This group includes three bars and one restaurant operating with a limited service (take-out) license. The overall response rate for Part I of the Survey is 3.4%. Part II of the survey questionnaire requests Income and Expense Statements for 2003 and 2004. It was returned by 32 restaurants and bars, or 61% of the respondents that completed Part I. For comparison, Deloitte & Touche LLP’s most recently published study of the entire California restaurant industry for the National Restaurant Association was based on Income and Expense Statements from just 69 restaurants. The overall response rate for Part II of the Survey is 2.1%. Part III of the survey questionnaire is new for the 2005 edition of GGRA’s annual study of the San Francisco restaurant industry. It was completed by 49 restaurants and bars, or 94% of the respondents that completed Part I. The overall response rate for Part III of the Survey is 3.2%. 1.8 QUESTIONNAIRE PART I – NONFINANCIAL INFORMATION LICENSE & SIZE: The survey is mainly about table service restaurants which are 70% of the universe, 80% of the Survey Panel, 87% of GGRA membership, and 92% of respondents. Quickservice restaurants are 2% of respondents and bars are 6%. Table service restaurant respondents are about evenly split between large restaurants of more than 2,000 square feet (52%) and restaurants with less than 2,000 feet (47%). ZIP CODE: Respondents are spread across 16 San Francisco ZIP codes, with significant concentrations of respondents roughly tracking significant concentrations of restaurants in the City. • • • • Financial District-Chinatown-Central Waterfront — 17% of respondents Fisherman’s Wharf-North Beach-Pacific Heights-Nob Hill-Marina — 33% Mid-Market-Civic Center-Hayes Valley-Haight Ashbury — 21% Richmond District-Sunset-Presidio — 10%. GENERAL LOCATION: Respondents were asked to identify their general location from a prepared list. The 41% that selected neighborhood commercial as their location represent 12 neighborhood commercial districts. Downtown/South of Market was selected by 17% of respondents, with the next largest concentrations being Fisherman’s Wharf and Union Square with 13% each. The Embarcadero had 10% of respondents.. OWNERSHIP: Partnerships and Private Corporations each are 38% of respondents. Proprietorships are 15%, and Public Corporations are 2%. Some 8% of respondents are family-owned. ORGANIZATION: 71% of respondents are independent, and 21% are part of larger business organizations. CHAPTER 1 SUMMARY & CONCLUSIONS 1-9 FRANCHISE: 92% of respondents are neither franchisees nor franchisers; 2% are both a franchisee and a franchiser; and 6% did not answer this question.. YEARS IN BUSINESS: 71% of respondents have been in business more than 5 years, 48% more than 10 years, and 29% more than 20 years. 25% have been in business less than 5 years, and 8% less than 2 years. PRIMARY TYPE OF BUSINESS: Table service restaurants are 75% of respondents, Quickservice restaurants, 15%, and bars, 6%. Among the table service restaurants, 15% have average checks less than $15, some 21% have checks $15 to $24.99, and 39% have checks $25 or more. LIQUOR SERVICE: 55% of respondents offer full liquor service, 33% offer beer and wine only, and 8% offer no alcoholic beverages. PRIMARY MENU TYPE: Respondents report 17 different menu themes. The most popular are American (29%), Italian (9%), seafood (7%), and French (3%). ESTABLISHMENT SITE: 81% of respondents lease their premises, 15% own, and 4% did not answer this question. FOOD SERVICE OTHER THAN DINING ROOM: 47% of respondents do some take-out business, even though only 3% are licensed as take-out restaurants. The average share of total business for those offering take-out service is 23%, and the median share is 8% of total business. Some 24% of respondents offer catering service, and 58% offer banquet service. These latter two services average 4.4% and 12% of sales, respectively, for those offering these services. DAYS & MEALS OPEN FOR BUSINESS: 88% of respondents serve dinner and 40% serve it daily; 81% serve lunch and 42% serve lunch daily; 31% serve breakfast and 19% serve it daily. Peak days for breakfast are Friday, Saturday and Sunday when 33% of respondent serve this meal. Friday is the peak day for lunch (97% of respondents), and Thursday and Friday are peak days for diner (44% of respondents). ESTABLISHMENT’S PHYSICAL SITUATION: The most frequent location for survey respondents is in a hotel (23%), followed by an apartment building or as the sole occupant of a building (17% each), or an office building (15%). Piers and shopping centers each are the location for 10% of respondents. SEATS & STOOLS: With the exception of most bars, nearly everyone (96%) has some type of dining “room,” even if it’s a couple of tables next to the take-out counter. 69% have a bar, 40% have outside, open-air seating, and 33% have banquet rooms. The median total number of seats for respondents’ establishments is 125 and the average number is 214. The median for dining rooms only is 80 seats and the average, 104 seats. CHAPTER 1 SUMMARY & CONCLUSIONS 1 - 10 SIZE OF ESTABLISHMENT: The average overall size of respondents’ establishments is 6,065 sq ft, compared with the more representative median size of 3,875 sq. ft. The median size dining room is 1,650 sq ft and the median size kitchen is 1,000 sq ft. MAXIMUM LEGAL OCCUPANCY: Median maximum legal occupancy of respondents’ establishments is 152 people and their average legal occupancy is 179. These data are close to the average numbers of seats and stools respondents report (198), but well above the median number (107). NUMBER OF CUSTOMERS PER YEAR: The 43 respondents that reported estimates of their number of customers collectively serve nearly 5.1 million customers a year. The median number served is 80,000 and the average is 119,127. AVERAGE CHECK PER PERSON SERVED: The median average check per person for the 46 respondents that answered this question is $22.18 and their average check is $26.95. CURRENT “TYPICAL WEEK” NUMBER OF PAID EMPLOYEES: In a “typical week” last year the median number of hourly employees working for respondents was 32, with a median of 15 working in the kitchen and a median of 23 in the front of the house.3 The average was 56 employees, with 24 in the kitchen and 38 in the front of house. Of the median of 32 employees, a median of 8 were full time working more than 35 hours per week, 10 were part time working 20 to 35 hours a week, and 2 were part part time working less than 20 hours per week. A much higher percentage of kitchen staff work full time (81%) than front of house staff (49%). CURRENT “TYPICAL WEEK” NUMBER OF PAID HOURLY EMPLOYEES: In a “typical week” last year the median number of employees working for respondents was 32, with a median of 12 working in the kitchen and a median of 21 in the front of the house.4 The average was 54 employees, with 20 in the kitchen and 34 in the front of house. Of the median of 32 employees, a median of 16 were full time working more than 35 hours per week, 10 were part time working 20 to 35 hours a week, and 2 were part part time working less than 20 hours per week. A higher percentage of kitchen staff work full time (81%) than front of house staff (77%). NUMBER OF W-2 FORMS SENT LAST YEAR: The median number of W-2s sent by respondents is 24, with a median of 22 for hourly employees and 4 for salaried employees. The average number is 42, with an average of 38 for hourly employees and 9 for salaried employees. The total number of W-2s generated annually is about 1.4 times the total number of employees reported for a “typical week.” This reflects both staff turnover and the high percentage of part time jobs in the restaurant industry work force. 3 Note that 15 + 23 ≠ 32. Medians for each item are calculated separately. Therefore, median kitchen staff and median front of house staff will not sum to median total staff. 4 Note that 12 + 21 ≠ 32. Medians for each item are calculated separately. Therefore, median kitchen staff and median front of house staff will not sum to median total staff. CHAPTER 1 SUMMARY & CONCLUSIONS 1 - 11 AVERAGE WEEKLY NUMBER OF “TIPPED” EMPLOYEES: The median of the average number of tipped employees is 16, and the average number is 25. “Tipped” employees generally are synonymous with front of house employees; however there is a significant difference (44%) between the median number of tipped employees (16) and the median number of “typical week” front of house employees (23) respondents report. The averages for these two measures exhibit similar variance. A literal interpretation of the variance might suggest a significant number of respondents’ front of house employees are not tipped, but that does not square with what we know about restaurant operations. A more likely explanation is that respondents have understated their number of tipped service personnel. TENURE OF CURRENT WAIT/COUNTER STAFF: Employees of respondents have longer job tenure than is commonly assumed for restaurant employees. The median percentage of current wait/counter staff in their current jobs more than 1 year is 50%, and the median percentage that have been with their current employer more than 4 years is 18% ANNUAL GROSS SALES RANGE (FOOD & ALCOHOLIC BEVERAGES): Some 17% of respondents report annual gross sales of less than $500,000, a third (33%) have sales less than $1 million, and a little over half (54%) have sales less than $2 million. None had annual gross sales between $2.0 million and $2.5 million, but 38% had sales of more than $2.5 million. 1.9 QUESTIONNAIRE PART II – STATEMENT OF INCOME & EXPENSES The year 2004 was a transition year for most San Francisco restaurateurs – from deep recession to a tentative recovery tempered by rising government-regulated costs of doing business, and a protracted, and as yet unresolved, labor dispute in the hotel industry. Tax records show 518 table service restaurants surrendered their licenses during 2004, and 521 new licenses were issued for an essentially status quo gain of just 3 restaurants in this long-awaited period of recovery. Another 176 restaurants closed during the first three months of 2005, vs. 79 new licenses issued for a net loss of 97 restaurants. The Statements of Income and Expenses provided by respondents to Restaurant Industry Survey 2005 help explain these cross currents. • Median income before income taxes at San Francisco table service restaurants rose 17% in 2004 from the recession-depressed levels of 2003. Nevertheless, 35% of respondents report their income decreased in 2004, and 25% of respondents report the increase in their income for 2004 (included in the 17% rise just mentioned) was from a larger to a smaller loss position. • Median income as a percent of total sales rose to 4.5% in 2004 from 3.7 in 2003, and 2.5% at the trough of the San Francisco restaurant recession in 2002. However, income as a percent of total sales in 2004 still was below the 4.9% achieved in 2000, the last year before the recession began and city government imposed a series of major cost increases on restaurants. The median increase as a percent of sales at San Francisco restaurants was in the middle of the 3% to 7% range for various types of restaurants nationally. CHAPTER 1 SUMMARY & CONCLUSIONS 1 - 12 • Median gross margin on sales was a healthy 71% of sales in 2004, down from 72% in 2003. Unfortunately, median operating expenses in San Francisco were high as well -- 67% of sales in 2004, up from 66% in 2003, which was well above the 2003 national range of 58% to 62%. • The principal drivers of high operating costs were the cost of employees (38% and 39% of sales in San Francisco vs. 30% to 34% in metropolitan areas nationwide), and occupancy costs (8% and 9% of sales in San Francisco vs. 5% to 7% nationwide). • Income and expenses data per seat indicate San Francisco table service restaurants use their physical plants much more intensively than their average counterpart nationwide, a necessary consequence of doing business in a market with unusually high labor and occupancy costs. 1.10 PART III – TRENDS Many questions in Part III of the survey are retrospective of the last five years when San Francisco endured the deepest and most protracted recession in half a century. Turning a blind eye to the plight of small businesses like restaurants in this period, City government imposed double digit increases on most City-regulated business costs5 to sustain the City’s bureaucracy through the recession (see Appendix Table 10), while the State of California permitted double digit increases in gas and electric rates. This part of the survey contributes to our understanding of how the faltering economy and the sharp increase in the cost of doing business in San Francisco affected the City’s restaurant industry. • Since the trough of the restaurant industry recession in 2002-2003, virtually all business measures have risen, except profits. The customers are back, sales are up, but the sharp run up in costs, especially labor costs, have kept profits on the ropes. The 26% increase in the minimum wage the City imposed in February 2004 and ripple effects of the minimum wage increase throughout the restaurant industry compensation structure by themselves added 10% to the total cost of San Francisco restaurant employees in the last year. Other effects of the City-imposed minimum wage include fewer restaurant employees, fewer employee benefits, higher menu prices, lower profits, and lower market value for restaurants as going concerns. Only 22% of restaurateurs planning to expand intend to do so in San Francisco. The other 78% intend to expand outside San Francisco, generally in the Bay Area or elsewhere in California. The leading reason is the high cost of doing business in San Francisco, especially the City’s minimum wage. • • • These costs include City-regulated wages, garbage fees, water rates, sewer rates, license fees, and inspection fees. 5 CHAPTER 1 SUMMARY & CONCLUSIONS 1 - 13 • The trend in San Francisco restaurants is toward less table service to economize on labor costs. The best prospects for growth are seen in limited service and casual dining formats, and the worst growth prospects are for white table cloth and elegant dining formats. Many respondents note the trend toward quickservice chains displacing independent, locally owned table service restaurants due to rising labor costs. A large majority of restaurateurs rate San Francisco’s reputation as a culinary center strong or very strong, but a large majority also say the City’s stature as a culinary center is either marking time or diminishing. Forty percent of survey respondents have decreased the number of their employees to whom they offer health insurance. The most frequently mentioned reason is the rising cost of health insurance, and the second most frequently mentioned reason is increased labor costs due to San Francisco’s minimum wage. The number one issue for San Francisco restaurateurs is San Francisco’s indexed minimum wage, followed by State tip credit, and other labor costs, including worker’s comp costs. • • • SECTION 0.3 ACKNOWLEDGMENTS 0.3 - 1 Golden Gate Restaurant Association and the author of this report wish to express our appreciation to the men and women who participated in the survey conducted for this report. Without your efforts, some of the most useful information developed in the project would not have been available. We also want to acknowledge the generous assistance of the individuals and organizations listed below in preparing the report. However, Golden Gate Restaurant Association and the author accept sole responsibility for the views express herein. Renee D. Dunn Manager, Communications Port of San Francisco Susan Leal General Manager Bram Elias Finance Division San Francisco Public Utilities Commission Rajiv Bhatia, MD, MPH Director, Occupational & Environmental Health Andrew Jin Environmental Health San Francisco Department of Public Health Jose Cisneros Treasurer Francis Nguyen Young Song San Francisco Treasurer/Tax Collector’s Office John Marks President San Francisco Convention & Visitors Bureau Amy W. Vitarelli Hefferman Insurance Brokers Jim Brock Sarafina Miller Kristal-Brock-Reuscher Financial & Insurance Services Ron Gurewitz Bart Goldie Mill Valley Insurance, Inc. SECTION 0.1 TABLE OF CONTENTS 0.1 -1 Chapter 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 Chapter 2 2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.2 2.2.1 2.2.1.1 2.2.1.2 2.2.3 2.2.4 2.2.5 2.2.6 2.3 2.3.1 2.3.2 2.3.3 Chapter 3 3.1 3.1.1 3.1.2 3.1.3. 3.2 3.3 3.3.1 3.3.1.1 3.3.1.2 3.3.1.3 3.4 3.4.1 3.4.1.1 Summary and Conclusions The San Francisco Economy City-driven Costs of Doing Business National Economy Restaurant Operating Profiles San Francisco’s High Cost Areas Taxes, Tips & Minimum Wage Description of Survey Questionnaire Part I – Nonfinancial Information Questionnaire Part II – Statement of Income & Expenses Questionnaire Part III – Trends Restaurants and the Economy The National Economy Employment Savings Prices Banana Republic Fiscal Policy San Francisco Economy Visitors Arriving Passengers at SFO Hotel Occupancy & Room Tax Jobs & Employment Office Market Parking Local Tax Revenue Economic Impact on Restaurants Restaurant Employment Restaurant Income Number of Restaurants Restaurant Economics American Restaurant Industry Table Service Restaurants Quickservice Restaurants Operational Trends California Restaurant Industry San Francisco Restaurant Industry San Francisco Market Residents Day Visitors Overnight Visitors Operating Profile – Restaurant Income & Expenses Revenues Table Service Restaurants 1-1 1-1 1-2 1-4 1-6 1-6 1-6 1-7 1-8 1-11 1-12 2-1 2-1 2-2 2-2 2-3 2-4 2-6 2-7 2-7 2-8 2-8 2-9 2-12 2-13 2-14 2-15 2-18 2-18 3-1 3-1 3-1 3-2 3-2 3-3 3-4 3-6 3-6 3-7 3-7 3-7 3-8 3-8 Section 0.1 Chapter 3 3.4.1.2 3.4.2 3.4.2.1 3.4.2.2 3.4.2.3 3.4.2.3.1 3.4.2.3.2 3.4.2.3.3 3.4.2.3.4 3.4.3 3.5 3.5.1 3.5.2 3.5.3 3.6 3.7 3.7.1 3.7.2 3.7.2.1 3.7.2.2 3.8 3.8.1 3.8.2 3.8.3 3.8.3.1 3.8.3.2 3.8.3.3 3.8.3.4 3.8.3.5 3.8.3.6 3.8.3.7 3.8.3.8 Chapter 4 4.1 4.2 4.3 4.4 4.5 4.6 Chapter 5 5.1 Question 1 Question 2 Question 3 Question 4 Table of Contents Continued Quickservice Restaurants Expenses Food & Alcohol Employees Occupancy & Taxes Payroll Tax Restaurant License, Permit & Inspection Fees Port Leases Total Operating Cost Bottom Line Insurance Costs Workers Compensation Insurance Health Insurance Property Insurance Power Costs Wages & Salaries Minimum Wages & Tips San Francisco’s Minimum Wage Minimum Compensation Ordinance Minimum Wage Ordinance Other City-Controlled Costs of Doing Business Department of Public Health Fees Water & Sewer Rates Refuse Collection Fees 1932 Ordinance Norcal Monopoly Recycling Driving Rate Increase Absence of Commercial Rate Regulation Operating Ratios, Rates & Excess Profits COLA Adjustments Residential Rate Schedule Conclusion Description of Survey General Description Classification of Survey Respondents Geographic Distribution Number of Respondents Survey Instruments & Results Relation to Previous Survey Questionnaire Part I -- Nonfinancial Information Introduction License & Size Zip Code General Location Type of Ownership 0.1 - 2 3-8 3-9 3-9 3-10 3-10 3-10 3-10 3-11 3-11 3-11 3-12 3-13 3-13 3-15 3-15 3-17 3-20 3-20 3-20 3-21 3-22 3-23 3.23 3-25 3-25 3-25 3-26 3-26 3-26 3-27 3-28 3-30 4-1 4-1 4-2 4-3 4-5 4-6 4-7 5-1 5-1 5-1 5-3 5-4 5-5 Section 0.1 Chapter 5 Question 5 Question 6 Question 7 Question 8 Question 9 Question 10 Question 11 Question 12 Question 13 Question 14 Question 15 Question 16 Question 17 Question 18 Question 19 Question 20 Question 21 Question 22 Question 23A Question 23B Question 24 Chapter 6 6.1 6.2 6.3 6.4 6.4.1 6.4.2 6.4.3 6.4.4 6.4.5 6.4.6 6.5 6.5.1 6.5.2 6.5.3 6.6 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 Table of Contents Continued Type of Organization Franchise Number of Years in Business Primary Type of Business Liquor Service Primary Menu Type Establishment Site Food Services Other Than Dining Room Days & Meals Open for Business Establishment’s Physical Situation Number & Configuration of Seats or Stools Size of Establishment Maximum Legal Occupancy Number of Customers per Year Average Check per Person Served Current “Typical Week” Number of Paid Employees Current “Typical Week” Number of Paid Hourly Employees Number of W-2 Forms Sent Last Year Average Weekly Number of “Tipped” Employees Tenure of Current Wait/Counter Staff Annual Gross Sales Range (Food & Alcoholic Beverages) Questionnaire Part II -- Statements of Income & Expenses Introduction Summary of Findings Income & Expenses – The Big Picture Income & Expenses – Median Ratios to Sales Food & Beverage Sales Food & Beverage Costs Gross Margin on Sales & Total Operating Costs Cost of Employees Occupancy Costs Income before Income Taxes Income & Expenses – Dollars per Seat Sales, Cost of Sales & Gross Margin per Seat Operating Costs per Seat Income before Income Taxes per Seat Income & Expenses – Measures of Change 2001 to 2002 Questionnaire Part III – Trends Introduction Summary of Findings Business Measures Minimum Wage Expansion Plans Service Trends Health Insurance 0.1 - 3 5-5 5-6 5-6 5-7 5-7 5-8 5-8 5-9 5-9 5-10 5-10 5-11 5-12 5-12 5-13 5-14 5-15 5-17 5-17 5-18 5-18 6-1 6-1 6-1 6-2 6-3 6-3 6-4 6-4 6-4 6-4 6-5 6-6 6-6 6-7 6-8 6-8 7-1 7-1 7-1 7-2 7-4 7-7 7-8 7-10 Section 0.1 Chapter 7 7.8 8.0 Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Exhibit 5 Exhibit 6 Exhibit 7 Exhibit 8 Table Table Table Table Table Table 1 2 3 4 5 6 Table of Contents 0.1 - 4 Continued Most Important Issues for San Francisco Restaurants 7-12 Appendix 8-1 Medians Restaurant & Visitor Industry Terms & Definitions San Francisco Requirements for Restaurants Located on Port, Airport or Other City-Owned Property Survey Covering Letter — Dear San Francisco Restaurateur Survey Covering Letter — Dear GGRA Member Survey Questionnaire Part I — Non-financial Information Survey Questionnaire Part II — Statement of Income & Expenses Survey Questionnaire Part III — Trends Survey Part I Tabulation Survey Part II Tabulation Survey Part III Tabulation SF DPH Schedule of License & other Fees SF DPW Garbage Collection Rate Order ZIP Code Distribution of Survey Sample & All San Francisco Restaurants & Bars SF Survey Panel & Returns, Distribution by Geographic Area Open SF Restaurants & Bars In DPH Records, Selected Dates SF Restaurant & Bar Licenses Issued & Surrendered, Tax Records City of San Francisco FY 2005 Employees: Number & Compensation About the Author Table 7 Table 8 Table 9 Table 10 SECTION 0.2 INDEX OF TEXT TABLES 0.2 -1 Chapter 1 Chapter 2 Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9 Table 2.10 Table 2.11 Table 2.12 Table 2.13 Table 2.14 Table 2.15 Table 2.16 Table 2.17 Table 2.18 Table 2-19 Chapter 3 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Table 3.9 Table 3.10 Table 3.11 Table 3.12 Table 3.13 Table 3.14 Chapter 4 Table 4.1 Table 4.2 Table 4.3 Table 4.4 2-1 GNP, Disposable Personal Income & Private Fixed Investment 2000-04 2-1 Net Savings & Balance of Payments Deficit 2000-04 2-2 Private & Government Savings as a Percent of US Net Savings 2000-04 2-3 Consumer Price Index for All Urban Consumers 2000-05 2-3 San Francisco International Airport Arriving Passengers 2000-04 2-7 SF Hotel Occupancy Rates & Average Daily Room Rate 1999-04 2-8 SF Labor Force, Employment & Unemployment 1999-03 2-9 San Francisco Office Vacancy Rate 2000.4-2004.2 2-9 Vacant Office Space in San Francisco 2000.4-2004.2 2-10 San Francisco Office Rents per Square Foot 2000.4-2004.2 2-11 San Francisco Net Absorption of Office Space 2000.4-2004.2 2-12 Transient Vehicles Served by SF City-owned Garages 2000-04 2-13 SF General Fund Local Tax Revenues FY 1999-2004 2-14 SF General Fund Local Tax Revenues (% Change) FY 1999-2004 2-14 SF MSA Civilian Labor Force, Industry Employment & Unemployment 2-16 SF & SF MSA Labor Force, Employment & Unemployment, 2000-05 2-17 Median Change, Full Service Restaurant Income & Operating Expense 2-18 SF Open Restaurants & Bars, DPH Records, Selected Dates 2-19 SF Restaurants & Bars, Licenses Issued & Surrendered 1998-2005 2-20 Restaurant Economics 3-1 Top Five US State Restaurant Industries, 2005 3-3 San Francisco Licensed Eating & Drinking Places, April. 12, 2005 3-4 Open SF Restaurants & Bars, DPH Records, Selected Dates 3-6 Median Sources of Revenue as Percent of Total Sales, SF & US 3-8 Median Uses of Revenue as a Percent of Total Sales, SF & US 3-9 PG&E Electricity Charges per Kilowatt Hour 2000 to March 2005 3-16 PG&E Gas Charges per Therm, Small & Large Commercial 1999-2005 3-16 Food Preparation & Serving Occupations, 2004.3 Wages, SF MSA 3-18 2004 Effective Wages with Tips, SF Table Service Restaurants & Bars 3-19 Food Preparation & Serving Occupations, Wage Change, 2003.3-2004.3 3-19 Monthly Water & Sewer Charges, SF Average Restaurant 1996-2010 3-24 Profit Margin of Norcal SF Subsidiaries vs. City-Approved Margins 3-27 SF Refuse Disposal Fees per Ton w/COLA Adjustment 2001-06 3-28 SF Residential Refuse Collection Fees 2001-2005 3-29 Description of Survey 4-1 Survey Panel & All San Francisco Restaurants, by Type of License 4-1 Survey Panel & All San Francisco Restaurants, % by Type of License 4-2 SF Survey Panel & Geographic Distributions of Respondents 4-3 SF Survey panel & Questionnaires Returned, Percent Distribution 4-4 Summary and Conclusions (no text tables) Restaurants and the Economy 1-1 Section 0.2 Chapter 5 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 5.7 Table 5.8 Table 5.9 Table 5.10 Table 5.11 Table 5.12 Table 5.13 Table 5.14 Table 5.15 Table 5.16 Table 5.17 Table 5.18 Table 5.19 Table 5.20 Table 5.21 Table 5.22 Table 5.23 Table 5.24 Table 5.25 Table 5.26 Table 5.27 Table 5.28 Table 5.29 Table 5.30 Table 5.31 Chapter 6 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Chapter 7 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6 Table 7.7 Index of Text Tables Questionnaire Part I — Nonfinancial Information Respondents, Survey Panel & Universe, Distribution by Type of License Table Service Restaurants: Respondents, Panel, Universe by Size & Lic. 0.2 - 2 5-1 5-2 5-2 5-3 5-4 5-4 5-5 5-5 5-6 5-6 5-7 5-7 5-8 5-8 5-9 5-9 5-10 5-10 5-11 5-11 5-12 5-13 5-13 5-14 5-15 5-15 5-16 5-16 5-17 5-18 5-18 5-19 6-1 6-3 6-5 6-6 6-7 6-9 7-1 7-3 7-5 7-6 7-8 7-8 7-9 7-10 Comparison of Survey Panel to Universe by Geographic Area San Francisco Area Location of Respondents San Francisco Neighborhood Commercial District Distribution Respondents’ Type of Ownership Type of Business Organization Franchise Arrangement, if Any Number of Years in Business Primary Type of Business Liquor Service Primary Menu Theme Ownership of Establishment Site Food Services other than Dining Room Service Meals Offered & Meals Offered Daily Days Specific Meals Offered Establishment’s Physical Situation Number & Configuration of Seats & Stools Size of Establishment (square feet) Maximum Legal Occupancy & Number of Seats Customers Served per Year Average Check per Person Served Implicit Total Sales Employment Classifications Defined Current “typical week” Number of Paid Employees Current “typical week” Number of Paid Hourly Employees All Paid Employees & Hourly Employees, Averages & Medians Number of W-2 Forms Sent Last Year Average Weekly Number of “Tipped” Employees Tenure of Current Wait/Counter Staff Annual Gross Sales Range Questionnaire Part II — Statements of Income & Expenses Income & Operating Expenses Summary Median Income & Expenses as a Percent of Total Sales 2003 & 2004 Median Income & Expenses as a Percent of Total Sales 2003 Median Values of Income & Expenses per Seat Median & Average Change in Income & Expenses Questionnaire Part III — Trends Business Measures Cost of SF Restaurant Employees, Effect of SF Minimum Wage Ripple Effects of the San Francisco Minimum Wage Target Areas for Restaurant Expansion Reasons for Expansion Outside San Francisco Distribution of Respondents by Service Format City-wide Growth Prospects by Service Format Section 0.2 Chapter 7 Table 7.8 Table 7.9 Table 7.10 Table 7.11 Index of Text Tables continued Employer-Offered Health Insurance Changes in Health Insurance Coverage Reasons for Decreasing Health Insurance Coverage Restaurant Industry Issues Rated by Survey Respondents 0.2 - 3 7-10 7-11 7-11 7-12 CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-1 2.1 THE NATIONAL ECONOMY The American economy performed better in 2004 than in any year since the onset of the recession in March 2001. Gross National Product rose a respectable 4.4% in real1 terms, Disposable Personal Income edged up 3.5%, and both residential and nonresidential Private Fixed Investment surged ahead 10% in current dollars (Table 2.1). Yet, there were troubling signs in the economy. Table 2.1 GNP, Disposable Personal Income & Private Fixed Investment Annual Percent Growth Rates 2000 - 2004 2000 2001 2002 2003 2004 Gross National Product Current Dollars Constant Dollars Disposable Personal Income Current Dollars Constant Dollars Private Fixed Investment Residential Nonresidential 5.9 3.7 7.5 4.8 6.5 6.8 8.7 3.2 0.8 4.1 1.9 -3 0.4 -4.2 3.5 1.9 4.6 3.1 -4.9 4.8 -8.9 4.9 3 4.2 2.3 5.1 8.8 3.3 6.6 4.4 5.8 3.5 10.3 9.7 10.6 SOURCE: US Bureau of Economic Research at www.bea.gov Growth in employment has lagged far behind what it must be to accommodate normal growth in the labor force, let alone match the catch-up high rates ordinarily associated with recovery from recession. Net Domestic Savings of only 1.8% of GNP isn’t nearly enough to fund the government’s huge deficit and 10% growth in private investment. To bridge this yawning gap the nation has borrowed from foreigners and foreign governments an amount equal to three times the amount of domestic savings (Table 2.2). Prices were well controlled during the boom in the 1990s and throughout the recent recession. However, they have begun to rise before the economy has begun to push against capacity or labor force constraints (Table 3.4). This development may well be the normal lagged response of prices to the massive growth in nation’s money supply the Federal Reserve engineered to offset the depressing effects of the Administration’s fiscal policy. As economists and potential home buyers discovered in the 1970s, once the Fed The term “real” when applied to economic measures such as Gross National Product or Personal Income means these data have been adjusted to a base year, in this case the year 2000, to remove the effects of inflation. 1 CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-2 pumps that much money out there, its inflationary effects take a long time to play themselves out. 2.1.1 EMPLOYMENT The employment picture is especially troubling. A few reasonably good months of job creation recently have meant that about 2%, or 2.7 million more people are employed now than at the onset of the national recession in March 2001. Unfortunately, that is not nearly good enough. The civilian labor force has grown 2.9% or some 4.2 million people in the same period and, as a result, the number of unemployed people looking for work (1.5 million) is up a whopping 25%. The overall national unemployment rate stood at 5.2% in March 2005, still is nearly a full percentage point higher than the 4.3% rate at the beginning of the recession. The US economy is weighted down by record federal borrowing to fund the President’s tax cuts, and by US defense spending greater than the aggregate defense spending of every other nation on earth combined. Currently our economy is not generating enough new jobs to accommodate normal growth in the labor force or to expand job opportunities for those who lost their jobs in the recession. The situation is all the more serious for average Americans because it is occurring simultaneously with the Administration’s assault on the economic and social safety net that has helped Americans through such periods for half a century. 2.1.2 SAVINGS The crux of the savings conundrum is clearly evident in Table 2.2, namely that the United States is relying on foreign savings to cover more than three times as much domestic private investment and government deficit as is covered by domestic savings. The ballooning Current Account deficit in our Balance of Payments represents US borrowing of foreign savings to postpone the consequences of insufficient domestic savings. As further discussed in Section 2.1.4, this leaves the US at the mercy of its foreign creditors. As the problem grows, it’s difficult to imagine there will never be a price to pay in terms of actions we take or refrain from taking at the behest of creditors with the power to bring our financial system to its knees. Table 2.2 Net Savings & Balance of Payments Deficit Percents of Gross National Product 2000 - 2004 Gross National Product ($trillions) Net Savings as a % of GNP Balance of Payments Deficit % of GNP 2000 2001 2002 2003 2004 $9.8 $10.1 $10.4 $11.0 $11.7 5.8 3.7 1.7 1.2 1.8 4.7 3.8 4.5 4.8 5.7 SOURCE: US Bureau of Economic Research at www.bea.gov Changes in the shares of US net savings over the last five years are summarized in Table 2.3. It is easy to see from the table that federal budget deficits are a major part of the CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-3 savings problem. Net savings as a percent of GNP fell from 5.8% to 1.2% between 2000 to 2003 when the private savings share of net savings skyrocketed from 59% to 375%. Both personal savings and corporate savings2 rose swiftly from 2000 to 2003 as the private sector held on to its money until it could see some light at the end of the economic tunnel. Even State and local governments were dis-savers in 2002 and 2003, despite legal prohibitions against running deficits in most States and localities. Table 2.3 Private & Government Savings as a Percent of US Net Savings 2000 - 2004 Net Savings Private Savings % Personal Savings % Corporate Savings % Government Saving % Federal % State & Local % 2000 2001 2002 2003 2004 100% 100% 100% 100% 100% 59 86 255 375 268 29 35 88 83 48 30 51 167 292 220 41 14 -155 -275 -168 32 13 -141 -273 -176 9 1 -14 -2 8 SOURCE: US Bureau of Economic Research at www.bea.gov 2.1.3 PRICES The 6-year history of the Consumer Price Index for all urban consumers is summarized in Table 2.4 for the US, California and the San Francisco Bay Area.3 Increasing inflationary pressure is evident in the US and California indices which have returned to their prerecession rates of growth. As discussed in Section 2.2 of this report, the recession started Table 2.4 Consumer Price Index for All Urban Consumers US, California & San Francisco Fiscal Years ended June 30, 2000 - 2005 fiscal years SF Bay Area California United States 4.2 3.2 2.9 2000 5.5 4.3 3.4 2001 3.2 2.9 1.8 2002 1.9 2.6 2.2 2003 0.9 1.9 2.2 2004 1.8 3.1 2.8 2005f SOURCE: California Department of Finance at www.dof.ca.gov f. Data for the two remaining months in fiscal year 2005 are forecast. Corporate savings consist mainly of undistributed profits. This 10-county San Francisco Bay Area index includes Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Santa Cruz, Solano and Sonoma Counties. 3 2 CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-4 a bit sooner in San Francisco with the dot.com bust, and lasted more than a little bit longer than in the rest of California and the nation as a whole. This is evident in data that show the rate of increase in the Bay Area CPI in 2005 still less than one-third the rate of increase in the last year before the recession. 2.1.4 BANANA REPUBLIC FISCAL POLICY The most troubling aspect of the economic picture is that fiscal imbalances under the present Administration have reached frightening proportions. • • • Most independent analysts project the 10-year “on-the-books” federal deficit will be $4.5 trillion to $5 trillion. Social Security has a 75-year estimated funding shortfall of $4 trillion. Medicare, with its new prescription drug benefit, has a shortfall of about $20 trillion. Americans should care for several reasons. Virtually all respected mainstream economists agree deficits much smaller than these over time will generate higher interest rates, diminish private investment, reduce the nation’s productivity, and slow economic growth. The much smaller deficits Lyndon Johnston used when Congress balked at funding the Vietnam War with taxes gave the nation a 21% prime rate, a generation of zero growth in productivity, and a lower standard of living for the average American. Anyone who thinks the economic damage from the current Administration’s fiscal policies will end with this Administration is in for a rude awakening. This time around the federal government is facing unprecedented budget deficits coincident with an unprecedented deficit in the nation’s balance of payments. The two have put America at the mercy of the government of China and, to a lesser extent, the central bank of Japan, and a few Middle Eastern monarchies. Their continuing willingness to take huge losses by holding and buying more depreciating dollars is all that currently is keeping the US government financially afloat. The immediate hazard for our nation in this precarious financial position is that we could experience the equivalent of financial meltdown if any one of several plausible developments were to spook financial markets. The sophisticated public and private traders in these market know the consequences of financial turmoil in the US would be soaring US interest rates and a sustained plunge in the value of the dollar. Massive US deficits have created huge pools of dollars in foreign hands. As the owners of those dollars act to curtail their losses, interest rates would be forced even higher and the value of the dollar, lower. This scenario has been played out many times before in other countries. It has not happened before in the US because this nation never has had fiscal mismanagement on the current scale. What needs to happen is fairly clear. First, our government needs more revenue – current federal taxes at 16.5% of GNP are at their lowest level since 1960, while spending is about 20% of GNP. There’s always a bit of efficiency that can be had, but not enough to close that kind of gap. Americans pay the equivalent of 30% of our Gross Domestic CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-5 Product in taxes to some level of government, a tax burden near the bottom of the world’s developed nations. We are 17th on the list – between Ireland and Japan – but well below Australia, New Zealand, Canada, and all European and Scandinavian nations. This helps explain why graduates of US schools now score well below students in most of these other countries, and why life expectancy and the general level of health is lower in the United States. Studies repeatedly have shown that the US provides insufficient government revenue to sustain a competitive education system, maintain transportation and other infrastructure, care for Americans unable to care for themselves and, at the same time, provide for the security and defense of our nation. The Social Security and Medicare systems also need some attention because together they account for more than half of federal expenditures. However, de-funding the nation’s social safety net at a time when the Administration has made it much easier for private companies to walk away from their private pension obligations, should not be an option. Nor should converting the nation’s Social Security Trust Fund for every American into a welfare program for indigents in an attempt to gut popular support for Social Security. Many effective options are available for repairing the relatively minor, very long-run funding problems of Social Security, as well as the much larger and much more immediate funding problems of Medicare. • The Medicare drug benefit could be made affordable for the nation if Medicare were directed to secure the best drug prices it can negotiate for seniors, as is done in every other developed country. Instead, Big Pharma used its check book to buy enough political clout to write into the drug benefit a prohibition against the government using its bargaining power to secure fair drug prices for seniors. That done, Big Pharma is taking Medicare and American seniors to the cleaners. It would be very easy to change this situation, if the President and the Congress he controls cared about the health of seniors or the solvency of Medicare. However, if as many suspect, the central objective is to bankrupt Medicare, the President has chosen an effective way to do it. The President’s tax cuts for people earning more than $200,000 a year could be repealed and the inheritance tax as reformed could be kept rather than eliminated. These rather modest moves would yield a 75-year reward of about $3.9 trillion – nearly equal to the projected $4 trillion 75-years Social Security funding shortfall. This also would represent nearly a 25% reduction in the 10-year “on-the-books” deficit projection. Repeal of all of the President’s 2001 and 2003 tax cuts for wealth Americans would yield a 75-year revenue stream worth $11 trillion, or nearly three times the entire projected Social Security funding shortfall. • • With these data it is not difficult to see where the Social Security funding problem or the ballooning overall federal deficit came from. Prior to 2001 the federal government was running huge surpluses, paying down the debt accumulated during the Reagan and Bush Senior years, and building the financial capacity to meet Social Security’s obligations to CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-6 the baby boom generation. The current Administration has made a U-turn on that strategy. Instead of boosting the finances of Social Security, its objective appears to be to eliminate Social Security’s role as the nation’s universal economic safety net for the elderly and convert it to a much more limited welfare program for indigents. Each of the Administration’s proposals to “reform” Social Security would de-fund and undermine the present system. These proposals, as with the tax cuts for the wealthy in 2001 and 2003, are intended to create financial crises where none presently exist in hopes of persuading Americans to agree to radical proposals they otherwise would not accept. Money diverted to private accounts would drive the Social Security Trust Fund deep into debt – essentially replicating the Administration’s strategy with the drug benefit. The President’s proposal to “means test” Social Security recipients is a gross violation of the federal governments contract with three generations of Americans and, if he is allowed to reduce Social Security to a welfare program, he just might be able to generate a sufficiently angry backlash to kill the system altogether. San Francisco restaurants and bars have a major stake in the current assault of Social Security and Medicare. These programs are vital to the health and well being of relatively low-paid food preparation and service workers nationwide. Take away the government social safety net and the burden of meeting these need likely would devolve to employers. In San Francisco local government already has demonstrated its eagerness to legislate in this area. Replicating Social Security and Medicare at the local level could be much more costly for restaurants than the City’s minimum wage. Better and cheaper to just say no to the Administration and strengthen the national safety net we have. 2.2 SAN FRANCISCO ECONOMY The economy of San Francisco and the Bay Area did not emerge from the recent recession until late 2003 and 2004, despite the fact the national recession technically began in March 2001 and ended in January 2002. San Francisco’s recession began early with the dot.com bust. The onset of the national recession, and recession in Silicon Valley high tech business that are major drivers of San Francisco’s economy broadened and deepened the recession already underway here. The September 11, 2001 terrorist attacks on New York City and Washington, DC compounded an already grave local economic situation. The stream of visitors that sustains large parts of San Francisco’s economy dried up, and almost overnight the sky was falling in the City’s huge hospitality industry. The sustained drop in out-of-town visitors that occurred in 2001, 2002, and 2003 was reflected in a sharply diminished number of passengers arriving at San Francisco International Airport (SFO), in a sharp drop in hotel occupancy and hotel room rates, and in declining transient occupancy tax collections. San Francisco lost 82,000 jobs from 2000 to the end of 2003 which represented nearly 14% of all City-based jobs at that time. About 43% of these jobs had been held by commuters, part of a cadre of metro area day-visitors that accounts for a quarter to a third of retail sales in San Francisco. These enormous job losses were reflected in CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-7 extraordinarily high office vacancy rates, low office rents, and a smaller market for restaurants, bars, retails shops, and entertainment. The before-tax income of San Francisco table service restaurants plunged 40% in 2001, and another 10% in 2002.4 In 2001 the city suffered an unprecedented net loss of 6.8% of its table service restaurants, some 298 establishments.5 In April 2005 the inventory of table service restaurants still was 261 establishments below the number in 2000. A drop in the number of transient vehicles served by local parking garages, and lower parking tax collections reflected a smaller number of metropolitan area visitors, both commuters and metro area residents in San Francisco for shopping, entertainment and personal business. A review of City taxes adds to the understanding that this was a very deep and protracted local recession that began 2001 and lasted through most of 2003. 2.2.1 VISITORS Visitors are a mainstay of San Francisco’s economy. The San Francisco Convention and Visitor’s Bureau estimates the 17.3 million people that visited the City in 2000 for purposes other than employment spent $7.62 billion. A quarter million people commuted weekdays to jobs in San Francisco in 2000 forming another significant spending stream. The number of visitors in all categories declined in every year between 2000 and 2004, and became a major driver of San Francisco’s deep recession. 2.2.1.1 ARRIVING PASSENGERS AT SFO The recession and intrusive security measures imposed on air travel after the 9/11 attacks drove a 28.4% cumulative decline in the number of passengers arriving at San Francisco International Airport (SFO) between the pre-recession peak in 2000 and 2004. The arriving passenger stream was down by 5.7 million passengers by 2003 and it still was down 4.0 million passengers at the end of 2004 as shown in Table 2.5. The latest published monthly data show the total of all arriving passengers in February 2005 was up 7.3% from February 2004. Domestic arrivals were up 8.8% and international arrivals were up 2.7%. Table 2.5 San Francisco International Airport Arriving Passengers 2000 - 2004 (000) 2000 2001 2002 2003 2004 All 20,102 16,833 15,292 14,373 16,174 Domestic International 16,064 4,038 13,147 3,686 11,690 3,602 11,031 3,343 12,404 3,770 SOURCE: www.flysfo.com 4 Economics of the San Francisco Restaurant Industry, Golden Gate Restaurant Association, April 2002 & April 2003. 5 City & County of San Francisco Department of Public Health, Environmental Health Section. CHAPTER 2 RESTAURANTS AND THE ECONOMY 2-8 2.2.1.2 Hotel Occupancy & Room Rates The city-wide hotel occupancy rate plunged from 81.7% in 2000 to 65.4% in 2002, recovered to 72.5% in 2003, then fell back to 68.1% in 20046. Average daily room rates, declined steadily from $169.74 in 2000 to $141.48 in 2004, indicating that the stabilization of occupancy rates, albeit at a lower level, had to be purchased with significant concessions on room rates. San Francisco hotel occupancy rates and average daily room rates are summarized in Table 2.6. Table 2.6 San Francisco Hotel Occupancy Rates & Average Daily Room Rates 1999 - 2004 Year 1999 2000 2001 2002 2003 2004 $-Average Daily Rate 155.29 169.74 168.29 146.17 142.17 141.48 %-Average Occupancy 79.9% 81.7% 68.5% 65.4% 72.5% 68.1% SOURCE: San Francisco Convention & Visitors Bureau 2.2.3 JOBS & EMPLOYMENT At the cyclic peak in 2000 before the most recent recession San Francisco’s 598 thousand jobs were distributed approximately 57% to residents and 43% to commuters. The City lost 82,000 jobs from 2000 to the end of 2003, leaving 35,000 fewer commuters working in San Francisco.7 These job losses meant a smaller market for restaurants, bars, retails shops, and early evening entertainment. The continuing nature of San Francisco’s recession is clearly evident in the City’s unemployment rate8 (Table 2.7) which climbed from 3.48% in 2000 to 7.0% in 2002 before beginning a modest decline to 6.8% in 2003 and 5.9% in 2004. Occupancy and Average Daily Room Rates for 2004 are an 11-month average because data for December 2004 were not available from the Convention and Visitors Bureau as of this writing. 7 As of this writing (May 2005) California EDD has not published total jobs by county for 2004. 8 Unemployment rates published for a specific geographic area refer to residents of that area. Therefore, San Francisco’s unemployment rate refers to unemployed residents. Commuters who have lost their jobs in San Francisco are counted in the unemployment statistics for their country of residence, rather than in San Francisco’s unemployment rate. 6 CHAPTER 2 RESTAURANTS AND THE ECONOMY Table 2.7 San Francisco Labor Force, Employment & Unemployment 1999 - 2003 (000) 2000 2001 2002 2003 2004 Labor Force 473,800 470,200 451,200 433,900 426,900 Unemployment Employment Number Rate 457,700 16,100 3.4% 446100 24,100 5.1% 419,500 31,700 7.0% 404,200 29,700 6.8% 401,700 25,299 5.9% 2-9 SOURCE: www.calmis.ca.gov Note: These data recently were revised to reflect the new March 2004 benchmark for the series. 2.2.4 OFFICE MARKET San Francisco’s high-order services economy is predominately office-based, making the demand for office space a key indicator of the strength of the local economy. The state of the office rental market is reflected in the office vacancy rate, the amount of vacant space, the level of rents, and the net absorption rate (net change in occupied space in a specific period). Table 2.8 San Francisco Office Vacancy Rate 2000.4 – 2004.2 DownTown Class A Class B Classes Core A+B+C 4.1% 3.8% 5.6% 4.8% 2000.4 8.6% 8.2% 10.9% 9.2% 2001.1 10.4% 10.1% 13.7% 11.3% 2001.2 12.1% 12.4% 15.7% 13.1% 2001.3 12.8% 14.0% 16.3% 14.1% 2001.4 15.4% 17.4% 18.0% 16.2% 2002.1 14.6% 17.0% 17.8% 15.9% 2002.2 14.8% 16.5% 17.0% 15.3% 2002.2 16.5% 19.2% 17.8% 16.6% 2002.4 18.2% 21.2% 17.5% 17.2% 2003.1 18.4% 21.1% 18.0% 17.4% 2003.2 18.3% 20.4% 17.8% 17.1% 2003.3 17.5% 20.8% 17.8% 17.1% 2003.4 16.8% 20.2% 17.5% 16.9% 2004.1 17.4% 19.8% 17.3% 16.6% 2004.2 SOURCE: The CoStar Office Report San Francisco Office Market Mid-Year 2004 The vacancy rate for Class A office space soared from 4% in 2000 to 21% in 2003 and has remained at or near its peak since then as shown in Table 2.8. The Class A vacancy CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 10 rate remained at 19.6 % in the first quarter of 2005. The vacancy rate for Class B space rose from 5.6% in 2000.4 to 18% in 2003.2, before settling to 17.3% in mid-2004. A little over 5 million sq ft of San Francisco office space (Classes A+B+C in Table 2.9) was vacant in the fourth quarter of 2000. Some 20 million sq ft was vacant by the second quarter of 2003. And 19 million sq ft remained vacant in mid-2004, approximately a 10year supply of vacant space at historic absorption rates. Vacant office space is filled by net job creation, but none occurred in San Francisco in 2001, 2002 or 2003, as is evident in Tables 2.7 and 2.9. Table 2.9 Vacant Office Space in San Francisco 2000.4 – 2004.2 (000,000 sq ft) DownTown Core 2000.4 2001.1 2001.2 2001.3 2001.4 2002.1 2002.2 2002.2 2002.4 2003.1 2003.2 2003.3 2003.4 2004.1 2004.2 2.1 4.5 5.5 6.4 6.8 8.2 7.8 7.9 8.9 9.9 10.0 10.0 9.6 9.1 9.5 Class A 1.6 3.6 4.5 5.5 6.2 7.9 7.9 7.6 8.9 10.0 10.0 9.7 10.0 9.6 9.4 Class B 2.5 4.9 6.1 7.1 7.4 8.1 8.1 7.7 8.1 8.0 8.2 8.1 8.1 8.0 7.9 Classes A+B+C 5.2 10.1 12.4 14.5 15.6 18.1 17.9 17.2 18.8 19.7 19.9 19.5 19.7 19.4 19.1 SOURCE: The CoStar Office Report San Francisco Office Market Mid-Year 2004 Falling rents are the consequence of the weak demand reflected in all classes of office space from 2000.4 to 2003.3. Class A office space rent fell 66% in this period and the rent for all classes of office space as a group fell 62% as shown in Table 2.10. CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 11 Table 2.10 San Francisco Office Rents per Square Foot 2000.4 – 2004.2 DownTown Core 2000.4 2001.1 2001.2 2001.3 2001.4 2002.1 2002.2 2002.2 2002.4 2003.1 2003.2 2003.3 2003.4 2004.1 2004.2 $68.20 $56.34 $50.63 $40.91 $35.31 $31.61 $30.00 $26.51 $25.29 $25.92 $23.67 $23.31 $23.36 $24.09 $24.48 Class A $70.46 $60.10 $53.31 $43.71 $36.67 $32.82 $31.25 $27.33 $25.63 $26.61 $24.55 $24.15 $24.49 $25.37 $25.68 Class B $60.62 $49.79 $42.18 $35.50 $31.31 $28.01 $26.38 $23.86 $23.60 $22.94 $21.67 $21.75 $21.67 $22.10 $21.61 Classes A+B+C $59.87 $50.58 $44.73 $37.84 $31.89 $28.96 $27.04 $24.39 $23.77 $23.58 $22.20 $21.99 $22.09 $22.60 $22.52 SOURCE: The CoStar Office Report San Francisco Office Market Mid-Year 2004 Office vacancy rates cannot fall, and rents are unlikely to rise until the glut of vacant office space hanging over the market is reduced, i.e. until there is sustained, positive net absorption (a net increase in occupied space). Net absorption of office space was negative in 7 of the 14 quarters between 2000.1 and 2004.2 as shown in Table 2.11. Negative net absorption (a net decrease in occupied space) of 10.4 million sq ft between 2001.1 and 2002.1 contributed half of the current nearly 20 million sq ft of vacant space in San Francisco at mid-year 2004. CHAPTER 2 RESTAURANTS AND THE ECONOMY Table 2.11 San Francisco Net Absorption of Office Space 2001.1 – 2004.2 (000,000 sq ft) DownTown Core 2001.1 2001.2 2001.3 2001.4 2002.1 2002.2 2002.2 2002.4 2003.1 2003.2 2003.3 2003.4 2004.1 2004.2 Class A Class B Classes A+B+C 2 - 12 (1,891.3) (1,417.7) (2,418.9) (4,335.5) (648.6) (553.4) (1,114.9) (1,938.0) (962.3) (1,024.9) (724.3) (1,927.5) (441.7) (364.1) (134.2) (637.5) (1,045.3) (845.7) (648.7) (1,582.3) 977.8 960.1 82.9 1,159.4 (96.4) 393.4 386.0 863.8 (955.0) (1,018.1) (362.4) (1,254.9) (317.3) (369.7) 355.4 99.2 (120.4) 48.1 (168.3) (130.6) 87.4 297.2 3.9 319.1 401.1 131.3 132.8 314.7 424.5 316.4 144.3 306.7 (378.1) 191.9 58.1 250.2 SOURCE: The CoStar Office Report San Francisco Office Market Mid-Year 2004 In updating the office market picture to the first quarter of 2005, and using slighly different geographic categories, Grubb & Ellis estimates the city-wide Class A office vacancy rate to be 19.6% and the Class B rate to be 19.4%. They found positive net absorption of a little over 300,000 sq ft in the Class A market during 2005.1 and negative net absorption of 120,000 sq ft in the Class B market, for overall positive net absorption in the two markets of 182,071 sq ft in first quarter of 2005. Class A office rents in financial district were a little over $30.50 per sq ft, and Class B office rents in the financial district were about $23.00 per sq ft. Nearly 300,000 sq ft of new Class A office space currently is under construction in San Francisco, 60,476 sq ft in the north financial district and 235,000 sq ft in the Yerba Buena. 2.2.5 PARKING Changes in the number of transient vehicles9 using San Francisco’s 18 city-owned parking garages is a good contemporaneous indicator of changes in the number of metro area non-commuter visitors in the City. The total number of transient vehicles served by city-own garages fell steadily from FY 2000 through FY 2004, as shown in Table 2.12. The decline in the number of transient vehicles served provides further evidence recovery from the recession in San Francisco was not on solid ground until well into FY 2004. Transient vehicles are distinguished from monthly parking contracts generally purchased by metro area commuters because they guarantee a spot in the garage at a slightly lower daily rate than transient vehicles are charged. 9 CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 13 Table 2.12 Number of Transient Vehicles Served by San Francisco City-Owned Garages fiscal years ended June 30, 2000 -2004 Number of Transient Vehicles Garage Name FY 2000 FY 2001 FY 2002 FY 2003 372,881 371,537 375,039 396,072 Civic Center 825,920 764,981 805,457 779,159 Ellis O'Farrell 1,909,288 1,940,309 1,818,183 1,596,998 Fifth & Mission 323,647 286,953 247,938 227,188 Golden Gateway 711,246 657,972 651,062 559,474 Japan Center 136,206 132,759 120,607 112,680 Lombard Street 134,570 129,012 138,752 133,371 Mission Bartlett 220,545 199,530 182,756 175,045 Moscone Center 120,144 145,044 149,902 143,218 Performing Arts 51,830 56,717 57,307 57,357 Polk Bush 617,507 643,048 637,716 592,917 Portsmouth Square 176,756 180,188 185,590 206,924 SF General Hospital 143,555 16,803 51,607 50,541 St. Mary's Square & Hoff St 1,664,833 1,675,633 1,611,870 1,528,249 Sutter Stockton 847,877 870,653 741,058 754,692 Union Square 269,670 236,340 175,531 134,358 Vallejo Street 37,780 36,157 34,634 30,206 1660 Mission TOTAL ALL GARAGES 8,564,255 8,343,636 7,985,009 7,478,449 SOURCE: San Francisco Department of Parking & Traffic Note: The North Beach garage is not included because it began operation in mid-2002. FY 2004 390,301 745,931 1,630,141 263,641 531,291 88,742 125,305 181,652 143,868 52,497 604,786 212,928 59,663 1,441,768 806,069 137,713 34,593 7,450,889 2.2.6 LOCAL TAX REVENUE San Francisco local tax revenues shown in Tables 2.13 and 2.14 suggest the economy essentially was in “free fall” during fiscal years 2001 and 2002, and there was very little growth in fiscal years 2003 and 2004 to recover lost revenue. The result is the enormous General Fund deficits City government has faced in FY 2004 and FY 2005. The shaded areas in both tables indicate years of recession-reduced revenues. By the end of FY 2004 in June of CY 2004, revenue from business taxes, the sales tax, hotel room tax, utility user tax and parking tax all remained below the level of collections reached in FYs 2000 or 2001. However, the property tax, which is driven by assessment rolls that change slowly, did not respond to the depressed economy until major commercial assessment appeals took hold in FYs 2003 and 2004. CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 14 Table 2.13 San Francisco General Fund Local Tax Revenues fiscal years ended June 30, 1999 – 2004 ($000,000) FYs ended June 30 Property Tax Business Taxes Sales Tax Hotel Room Tax Utility User Tax Parking Tax Other Local Taxes * TOTAL Local Taxes 1999 2000 2001 2002 2003 2004 388 406 462 510 519 547 229 267 277 274 276 264 180 206 144 111 116 121 156 176 131 72 75 98 59 61 77 71 71 71 27 30 34 30 30 32 59 73 65 50 54 82 1,099 1,220 1,190 1,118 1,141 1,215 SOURCE: City & County of San Francisco Comprehensive Annual Financial Report for fiscal years ended June 30, 1999 - 2004 Table 2.14 San Francisco General Fund Local Tax Revenues fiscal years ended June 30, 1999 – 2004 (percent change) FYs ended June 30 Property Tax Business Taxes Sales Tax Hotel Room Tax Utility User Tax Parking Tax Other Local Taxes * TOTAL Local Taxes 1999 13.5% 2.5% 4.6% 7.8% 4.1% 7.1% 26.6% 8.6% 2000 2001 2002 2003 2004 4.5% 13.9% 10.4% 1.7% 5.4% 16.6% 3.7% -1.1% 0.7% -4.3% 14.2% -30.2% -22.6% 3.9% 4.4% 13.2% -25.4% -45.0% 3.4% 31.8% 4.2% 25.7% -8.3% 0.8% -0.6% 12.2% 11.7% -9.9% -2.5% 7.7% 23.7% -11.2% -24.1% 9.7% 50.0% 11.1% -2.4% -6.0% 2.0% 6.5% SOURCE: City & County of San Francisco Comprehensive Annual Financial Report for fiscal years ended June 30, 1999 - 2004 2.3 ECONOMIC IMPACT ON RESTAURANTS Currently there are about 4,370 eating and drinking places in San Francisco, including 3,382 table service restaurants, 597 limited or quickservice restaurants, and 391 bars. Within the San Francisco inventory of 4,300 to 4,600 restaurants and bars in recent years, tax records suggest 500 to 600 new businesses open each year and a similar number close. Prior to 2001 the size of the inventory was very stable year to year, with stronger growth in up-economy years and slower growth in down-economy years, but always on a fairly predicable slow upward trend. That changed radically in 2001, and the reasons have been a major challenge for most San Francisco restaurateurs. CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 15 San Francisco suffered a net loss of 298 restaurants and bars, or 6.4% of all such businesses in the City, between June 1, 2001 and December 1, 2001. What happened between those two dates were the dot.com bust and the 9/11 terrorist attacks on New York City and Washington, DC. What followed were the deepest and most protracted recession in San Francisco since the depression of the 1930s, and the avalanche of increases in City-regulated costs of doing business in San Francisco described in Section 3.8 of this report. Despite the unfortunate events between June and December in 2001, San Francisco’s restaurant inventory was expanding again in 2003 before the City imposed a 26% increase in the minimum wage. Unlike federal law, San Francisco’s minimum wages fails to recognize the role of tips in compensation of hospitality industry employees. Respondents to the survey conducted for the present study report the indexed minimum wage, passed in November 2003 and effective in February 2004, has forced a 10% increase in their overall cost of employees in just 12 months – and this in one of San Francisco’s thinnest margin, most labor-intensive industries. Although the minimum wage law is the most costly, it only one of several City-regulated costs of doing business in San Francisco hiked by double digit percentages in last five years. One major consequence is San Francisco’s inventory of restaurants has ceased growing with the recovering economy and has fallen to a level near that of the dark days in December 2001 after the dot.com bust and terrorist attacks. Survey data suggest the minimum wage may have driven prime costs (cost of goods sold + cost of employees) for many San Francisco restaurants above the 66% of revenue that usually is the maximum for a sustainable restaurant operation. That doesn’t mean everybody is going out of business, but it does mean significant changes are occurring in San Francisco’s restaurant industry. These changes, driven primarily by increases in the cost of employees, include fewer restaurants, fewer restaurant employees, less table service, and higher menu prices. These conditions favor decline in the number of independent, locally owned table service restaurants, especially white table cloth establishments, and increases in the number of corporate and franchised restaurants, especially quickservice establishments. 2.3.1 RESTAURANT EMPLOYMENT Current local area employment data by industry are available for metropolitan statistical areas (MSAs), but not for individual counties. The City and County of San Francisco represents 46% of the labor force and employment in the San Francisco MSA, and 51% of the unemployment. The MSA comprises San Francisco, San Mateo, and Marin Counties (Table 2.16). The City very likely represents a much larger percentage of food preparation and service employees in the MSA because of San Francisco’s large hospitality industry. Therefore, data on MSA employment in various parts of the food preparation and service industry presented in Table 2.15 should be a fair reflection of industry employment shares and trends in San Francisco. CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 16 Table 2.15 San Francisco Metropolitan Statistical Area (MSA) 1 Civilian labor force, Industry Employment & Unemployment Rate January 2000 to January 2005 Civilian Food FullQuick Unemploy- Service & % of Service Service Special Drinking Civilian ment Drinking Labor Restau- RestauFood Places Labor Rate Places Force rants rants Services Force Labor Force, Employment & Unemployment Rate 999,300 3.3% 68,200 6.8% 37,300 22,500 5,300 3,100 1,025,100 3.4% 71,500 7.0% 38,600 24,000 5,800 3,100 976,500 6.3% 67,500 6.9% 36,600 23,800 3,900 3,200 953,600 6.4% 68,300 7.2% 37,200 23,800 4,300 3,000 927,500 6.0% 68,900 7.4% 37,700 24,000 4,300 2,900 923,800 5.0% 71,300 7.7% 38,000 24,900 5,300 3,100 923,500 4.7% 74,000 8.0% 39,900 24,900 5,900 3,300 Percent Changes 2 & 3 2.6% 0.1 4.8% 0.1 3.5% 6.7% 9.4% 0.0% -4.7% 2.9 -5.6% -0.1 -5.2% -0.8% -32.8% 3.2% -2.3% 0.1 1.2% 2.4 1.6% 0% 10.3% -6.3% -2.7% -0.4 0.9% 0.2 1.3% 0.8% 0% -3.3% -0.4% -1.0 3.5% 0.3 0.8% 3.8% 23.3% 6.9% -9.9% 1.6 3.8% 0.9 5.0% 0% 11.3% 6.5% North American Industrial Classification System (NAICS) Code 2000 2100 2200 2300 2400 January 2000 2001 2002 2003 2004 2005 Mar-05 Jan/Jan 2000 2001 2002 2003 2004 2001-2005 Code 70-72 SOURCE: California Employment Development Department at www.calmis.ca.gov 1. The San Francisco MSA includes San Francisco, San Mateo & Marin Counties. 2. Percent changes are from January of the year shown to January of the following years. 3. Calculated changes in the Civilian Unemployment Rate and Percent of Labor Force are simple differences (percentage points). They are not second derivatives (a percent of a percent). During the last five years, the civilian labor force in the San Francisco MSA shrank 10%, while the food service and drinking place industry, and each major type of business in the industry except quickservice restaurants, managed an increase. Employment in the industry increased 3.8%, drinking places by 6.5% and table service restaurants by 5%. Although quickservice restaurant employment increased an impressive 3.8% in 2004, it was essentially unchanged over the 5-years period. The star performer was the special food services segment of the industry whose employment rose 11% over the 5-year period. Special food services includes contractors that operate cafeterias, restaurants and fast-food eating places at institutions, and at commercial and industrial locations. Special food services also include caterers providing event-based food services, and businesses that operate mobile food services such as CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 17 canteen trucks, mobile concession stands, and food carts. This volatile industry segment released 33% of its work force, between 2000 and 2002 due to lower employment at the businesses that contract for its services, and more businesses needing to curtail discretionary expenses, such as on-site food services for their employees. Special food services employment bounced back with a 10% increase in 2002, and a 23% increase in 2004. Table 2.16 San Francisco & San Francisco MSA 1 Labor Force, Employment & Unemployment 2000 to March 2005 Labor Employ- Unemployment Force ment Number Rate San Francisco County (000) 2000 474 458 16 3.4% 2001 470 446 42 5.1% 2002 451 420 32 7.0% 2003 434 404 30 6.8% 2004 427 402 25 5.9% Mar-05 428 406 22 5.2% San Francisco MSA (000) 2000 1,015 983 32 3.1% 2001 1,004 960 44 4.4% 2002 966 906 60 6.2% 2003 936 878 58 6.2% 2004 921 872 49 5.3% Mar-05 924 880 43 4.7% San Francisco County Percent of MSA 2000 47% 47% 51% 2001 47% 46% 96% 2002 47% 46% 53% 2003 46% 46% 51% 2004 46% 46% 51% Mar-05 46% 46% 51% SOURCE: California EDD at www.calmis.ca.gov 1. The San Francisco MSA includes San Francisco, San Mateo & Marin Counties. The total number of food service and drinking place employees in the MSA declined in only one year, 2001, when the industry released 4,000 employees or 5.5% of its labor force. The civilian labor force, on the other hand, shrank throughout the period for a cumulative loss of 10%. As a result the share of food service and drinking place employees in the civilian labor force rose from 7% to 8%. CHAPTER 2 2.3.2 RESTAURANTS AND THE ECONOMY 2 - 18 RESTAURANT INCOME Median income before income taxes for San Francisco restaurants was 3.7% of median sales in 2003, toward the lower end of the national range of 3.1% to 5.7% in that year. As recovery from the recession progressed, more restaurants shifted from loss to profit, or loss to smaller loss in 2004. Median income before income taxes rose 17% to a 4.5% share of median sales (Table 2.17), 10 about in the middle of the national range. Among the group of survey respondents, 39% reported losses in 2004. Table 2.17 Median Change in Full Service Restaurant Income & Operating Expense 2004 Median Change 8.5% 7.8% 8.0% 9.2% 8.8% 17% Median Sales Cost of Sales Gross Margin on Sales Cost of Employees Total Operating Expense Income before Income Taxes ♫ Exhibit Income before Income Taxes as a Percent of Gross Margin on Sales 4.5% Source: San Francisco Restaurant & Bar Survey 2003 Golden Gate Restaurant Association. ♫ Percentage increases in Income before Income Taxes include respondents moving from a loss to a smaller loss position, or from a loss to a small profit position. The average changes in the items shown in Table 2.17 were similar to the medians, except for income before taxes where a few very large restaurants shifting from loss to profit push the average to 95%. 2.3.3 NUMBER OF RESTAURANTS Tracking the inventory of San Francisco restaurants and bars is more challenging than one might think. One choice is a fairly accurate picture from the Department of Public Health (DPH) that unfortunately can tell you only how many establishments there are today. Even though DPH is the primary regulator of restaurants in San Francisco, it keeps 10 The fact that each median value of the table is analyzed independently and may not included the same number of respondents accounts for the counter intuitive result that total operation costs increase 8.8% and gross margin on sales increases 8.0% and income still increased 4.5%. CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 19 no statistical history to reveal the effects of its decisions on the industry it regulates. The other choice is a historically long statistical picture from the Tax Collector’s Office that was not maintained properly prior to 1998 and continues to have a great many errors and omissions. Table 2.18 presents the San Francisco Restaurant and Bar inventory, and changes in the inventory from selected dates from DPH. The only reason these DPH historical data are available, and the reason they have rather odd “as of” dates, is that the author of the present report requested these data on those dates for previous reports prepared for Golden Gate Restaurant Association. The table shows how close the April 12, 2005 inventory of 4,370 is to December 1, 2001 inventory of 4,333. It also shows that, of the net loss of 298 restaurants between June and December 2001, four years later San Francisco still has 261 fewer restaurants in what prior to this period had been a very stable inventory. Table 2.18 San Francisco Restaurants & Bars Open Establishments in the Records of the Department of Public Health Selected Dates June 1, 2001 H24 (<1,000 sq') H25 (1,000-2,000 sq') H26 (>2,000 sq') Full Service Restaurants H28 (Take-out) H29 (Fast Food) Ltd Service Restaurants All Restaurants H27 (Bars) All Bars & Restaurants Full Service Restaurants Ltd Service Restaurants All Restaurants H27 (Bars) All Restaurants & Bars Full Service Restaurants Ltd Service Restaurants All Restaurants H27 (Bars) All Restaurants & Bars 1,313 1,202 1,043 3,558 630 46 676 4,234 397 4,631 Dec. 1, 2001 Feb. 26, April 12, 2003 2005 April '05 June '01 Inventory 1,227 1,252 1,230 1,142 1,192 1,180 968 1,011 972 3,337 3,455 3,382 565 567 535 44 44 62 609 611 597 3,946 4,066 3,979 387 387 391 4,333 4,453 4,370 Change in Inventory -221 118 -73 -67 2 -14 -288 120 -87 -10 0 4 -298 120 -83 Percent Change in Inventory -6.2% 3.5% -2.1% -9.9% 0.3% -2.3% -6.8% 3.0% -2.1% -2.5% 0.0% 1.0% -6.4% 2.8% -1.9% -83 -22 -71 -176 -95 16 -79 -255 -6 -261 -176 -79 -255 -6 -261 -5.2% -13.2% -6.4% -1.5% -6.0% CHAPTER 2 RESTAURANTS AND THE ECONOMY 2 - 20 Table 2.19 presents data on changes in the San Francisco restaurant and bar inventory from the records of the Tax Collector’s office. Here you can see the 500 to 600 annual new licenses issued and licenses surrendered discussed in Section 2.3 of this report. The net change in the number of active licenses bears little resemblance to information presented in Table 2.18 because the two tables address different time periods and the Tax Collector’s date on active licenses do not necessarily coincide with data on active restaurants are bars. People often get restaurant licenses many months before they actually commence business to satisfy lenders and other needs, and they typically let their licenses run out, rather than surrendering them when they quit business. Table 2.19 San Francisco Restaurants & Bars Licenses Issued & Licenses Surrendered 1998 through March 18, 2005 Net Change in Number Licenses Licenses of Active Issued Surrendered Licenses 1998 ♪ 667 700 -33 1999 597 538 59 2000 561 680 -119 2001 488 579 -91 2002 588 555 33 2003 580 575 5 2004 521 518 3 2005 ♫ 79 176 -97 Cumulative Since 1998 4,081 4,321 -240 Since 2000 2,817 3,083 -266 572 592 -20 Av. Since 98 SOURCE: San Francisco Tax Collector ♪ 1998 was the first year these data were maintained on a relatively consistent basis. ♫ 2005 data are through March 18, 2005. Despite the orientation of the Tax Collector’s license database to active licenses, rather than active restaurants, it provides unique and useful information. For example, we do not know exactly when the 176 restaurants licenses that terminated in the first three months of 2005 actually quit business, but we do know that it is not good to have a net loss of 97 restaurants, especially when the industry should be recovering form recession. CHAPTER 3 RESTAURANT ECONOMICS 3–1 3.1 AMERICAN RESTAURANT INDUSTRY In 2004 the American restaurant industry employed more than 12 million people at about 900,000 locations with collective annual sales of $453.5 billion.1 The industry, defined by the National Restaurant Association (NRA) as “all meals and snacks prepared outside the home, including take-out meals and beverages,” is the nation’s largest private employer, providing work for nearly 9% of employed Americans. More than 40% of American adults have worked in the restaurant industry at some time in their lives, and 27% of adults got their first job experience in a restaurant. Restaurant industry sales increased 5.5% in 2004. On an inflation-adjusted (real) basis, the growth rate was 2.4%, up from a 2.1% real gain in 2003. The NRA projects restaurant sales nationwide will grow by 4.9% in 2005, reaching $476 billion by year end. Americans currently spent more than 46% of their food dollar on food and beverages prepared outside their home, up from 25% in 1955, and projected to exceed 50% by the year 2010. The average American 8 years or older consumes 218 restaurant meals per year, and the most recent published data show the average American household spends annually $910 per person on food away from home. The overall economic impact of the restaurant industry will exceed $1.2 trillion in 2005, including sales in related industries stimulated by sales in the restaurant industry. The restaurant industry’s economic impact multiplier2 is a relatively high 1.98, which means that every $1 spent in a restaurant generates $1.98 of spending in other industries allied with the restaurant industry. Every additional $1 million spent in restaurants generates 42 additional jobs in the US economy. Direct sales in the restaurant industry alone account for about 4% of US gross domestic product. 3.1.1 TABLE SERVICE RESTAURANTS Table service restaurants3 accounted for $157 billion of industry sales in 2004, up 5.4% or $8 billion from 2003. These sales represented a 2.4% real (inflation adjusted) rate of growth in 2004, up from 2.2% real growth achieved in 2003. In addition to a modest recovery from the recession, several other factors contributed to this growth. Demographic trends are helping casual dinning establishments with checks in the $10 to $20 range which have great appeal to the baby boom generation, the nation’s largest National restaurant industry data in this report are taken from the Restaurant Industry Operations Report 2004 prepared for the National Restaurant Association by Deloitte & Touche, and from the National Restaurant Association’s web site, www.restaurant.org. 2 Economic impact multipliers capture the direct and indirect economic effects of economic activity. A dollar spent in a restaurant is a dollar of revenue for the restaurant which, in turn, spends most of that dollar on operating expenses which becomes income for employees and vendors who, in turn, spend most of it, and so on. The economic impact multiplier summarizes this entire spending stream. 3 The Appendix to this report provides the definitions of commonly used restaurant industry terms. 1 CHAPTER 3 RESTAURANT ECONOMICS 3-2 demographic group. A revival of tourism is boosting sales at higher-end, full service restaurants that nationally draw about 30% of their sales from out-of-town visitors. The NRA’s consumer survey found 47% of American adults “spend more time than they would like preparing daily meals at home” and 93% of adults say “eating in restaurants is usually fun.” These numbers suggest significant underlying causes of restaurant growth are consumers’ desire for convenience and “fun.” 3.1.2 QUICKSERVICE RESTAURANTS Quickservice restaurants (also called limited service restaurants) accounted for $128.2 billion of industry sales in 2004, up 5.9% or $7.1 billion from $121.0 billion in 2003. These sales represented a 3.0% real rate of growth in 2004, up from 2.5% real growth in 2003. The 5.9% sales growth at quickservice restaurants in 2004 exceeded the 5.4% sales growth at full service restaurants that year for the first time in several years. Although the growth of convenience food sales generally has outpaced the growth of food sales at full service restaurants in recent years, quickservice restaurants have faced stiff competition from grocery and convenience stores. They also face growing competition from take-out orders at table service restaurants seeking to cash in on the convenience food boom. Much of the rapid growth in quickservice restaurant sales until recent years came from the rapid proliferation of new units. This is changing. The quickservice part of the restaurant industry, dominated by national chains, currently is undergoing significant consolidation. According to the NRA, stronger concepts are taking over weaker ones for their real estate or for simple “re-flagging” (take down their sign and put up yours). Several large chains also are reducing the proportion of company-owned shops by selling more of their units to franchisees. Finally, there is a growing trend toward housing more that one brand or concept in the same building (facilitated by consolidation of parent companies), which slows growth in the total number of quickservice units. KFC-Taco Bell co-branding is an example familiar to most people. In any case, the strong sales growth at quickservice restaurants in 2004 owes more to higher sales at existing stores, than to the opening of new ones. The NRA believes the negative economic impact of the recession, 9/11 terrorist attacks, and national economic policy has been less pronounced for quickservice restaurants than for table service restaurants because the former are less dependent on out-of-town visitors. Visitors account for only about 15% of the quickservice restaurant market, compared with about a third of the full service restaurant market. Growth in the quickservice restaurant market continues to be driven primarily by convenience and value. Quickservice restaurants face many of the same challenges as table service restaurants. They ranked recruiting and retaining employees, maintaining sales volume, and the rising cost of health insurance as their greatest operational challenges in 2004. 3.1.3 OPERATIONAL TRENDS Remodeling is claiming a larger share of many restaurateur’s budgets. Nearly half of table service respondents in the NRA’s survey did some remodeling in 2004, and 60% CHAPTER 3 RESTAURANT ECONOMICS 3-3 purchased new equipment. More than one-third of table service operators and more than half of quickservice operators report they will spend more on remodeling in 2005 than in 2004. More than 60% of table service operators say the productivity of their operations was higher (higher ratio of gross sales to labor costs) in 2004 than two years ago, and these perceptions of productivity gains are confirmed by government data for all US eating and drinking places. Rising restaurant productivity is attributed primarily to embracing new technology. More than three-fourths of table service operators report personal computers have improved their efficiency; about half say the Internet and e-mail have improved efficiency; and 30% volunteered the ability to order supplies on line has improved efficiency. Two-thirds of table service operators and half of quickservice operators have unit-level Internet access. Currently, fewer than 10% offer Internet access to their customers, but this trend is expected to grow. Most full service (80%) and quickservice (75%) operators nationwide report an upsurge in utility costs. Among operators reporting higher utility costs, the median increase was about 10% in 2003 for both full service and quickservice establishments. 3.2 CALIFORNIA RESTAURANT INDUSTRY The California restaurant industry in 2005 is projected to employ 1.3 million people at 86,310 locations with collective annual sales of $51.5 billion.4 The Golden State’s restaurant industry sales are by far the largest of any state, being more than 75% greater than second ranked Texas, and more than twice as large as third ranked New York as shown in Table 3.1. Table 3.1 Top Five State Restaurant Industries in the United States Establishments (2003), Employees (2005), Sales (2005) State California Texas New York Florida Illinois Establishments 86,310 51,088 55,983 39,027 29,996 Employees 1,348,200 879,500 638,200 736,000 503,100 Sales (billions) $51.5 $29.2 $23.3 $19.9 $16.7 Source: National Restaurant Association, www.restaurants.org. State multipliers that measure the impact of California restaurant sales on only the State’s economy are lower than the national restaurant industry multipliers discussed in Section 3.1. This is because the part of the economic impact of restaurant sales in a specific state that occurs in industries outside that state is reflected in the national multiplier, but not in Data on the California restaurant industry are taken from the National Restaurant Association’s web site, www.restaurant.org, the California Department of Finance web site, www.calmis.ca.gov, and the California Employment Development Department web site, www.edd.ca.gov. The number of locations is for 2003; all other data in the table are 2005 projections. 4 CHAPTER 3 RESTAURANT ECONOMICS 3-4 the state multiplier. The California multiplier is 1.22, which means that every $1 spent at California restaurants and bars generates $1.22 of additional sales in California in other California industries. Each additional $1 million spent at California eating and drinking places generates an additional 31.2 jobs in the State. Although the State restaurant industry multiplier is lower than the national multiplier for dollars spent at California restaurants, the economic impact on the California economy is substantial. 3.3 SAN FRANCISCO RESTAURANT INDUSTRY Currently there are about 4,370 eating and drinking places in San Francisco, including 3,382 table service restaurants, 597 limited or quickservice restaurants, and 391 bars. A finer breakdown of these numbers, and definitions of various categories of restaurants, is presented in Table 3.2. This table also provides the codes by which various types of restaurants are identified in the records of the San Francisco Department of Public Health, their primary regulator, and the San Francisco Tax Collector. The tax codes are used for classification in the present report. Table 3.2 San Francisco Licensed Eating & Drinking Places April 12, 2005 Health Dept. Code 1001 1003 1004 1006 1007 1005 Tax Code H24 H25 H26 H28 H29 H27 Type of Establishment Restaurants < 1,000 sq ft Restaurants 1,000 to 2,000 sq ft Restaurants > 2,000 sq ft Table Service Restaurants Take-out Restaurants Fast Food Restaurants All Restaurants Bars, Taverns & Lounges All Eating & Drinking Places Number 1,230 1,180 972 3,382 535 62 3,979 391 4,370 SOURCE: San Francisco Department of Public Health, Environmental Health Section Within the San Francisco inventory of 4,300 to 4,600 restaurants and bars in recent years, tax records suggest 500 to 600 new businesses open each year and a similar number close. The exact number of openings and closing within this range determines whether there was a net gain or a net lost of businesses. Prior to 2001 the size of the inventory was very stable year to year, with stronger growth in up-economy years and slower growth in down-economy years, but always on a fairly predicable slow upward trend. That changed radically in 2001. San Francisco had a net loss of 298 restaurants and bars, or 6.4% of all such businesses in the City, between June 1, 2001 and December 1, 2001. What happened between those two dates were the dot.com bust and the 9/11 terrorist attacks on New York City and CHAPTER 3 RESTAURANT ECONOMICS 3-5 Washington, DC. What followed were the deepest and most protracted recession in San Francisco since the depression of the 1930s, and the avalanche of increases in Cityregulated cost of doing business in San Francisco described in Section 3.8 of this report. Despite the unfortunate events between June and December in 2001, San Francisco’s restaurant inventory was expanding again in 2003 before the City used its “nuclear option.” It imposed a 26% increase in the minimum wage that, unlike federal law, does not recognize the unique and major role of tips in the compensation of employees in the hospitality industry. The indexed minimum wage, passed in November 2003 and effective in February 2004, in just 12 months forced a 10% increase in the overall cost of labor in one of San Francisco’s most labor-intensive industries, and one that operates on the thinnest of margins. One major consequence of the City-imposed minimum wage was that the inventory of restaurants ceased growing with the recovering economy and fell to a level near that of the dark days in December 2001 after the dot.com bust and terrorist attacks. To many it appears the “tipping point” restaurateurs feared may be at hand because the minimum wage and its ripple effects have driven prime costs (cost of goods sold + cost of employees) above the 66% of revenue considered to be the maximum sustainable figure in the restaurant industry. The challenge for City government – Mayor and Board of Supervisors – is to refine the minimum wage law to recognize that not all employees are compensated in the same way, and to redress discrimination against hospitality industry businesses in the present law. And they need to do this soon before the current minimum wage law transforms the City’s restaurant industry in ways that weaken the overall hospitality industry and are very unappealing to most San Francisco residents. Tracking the inventory of San Francisco restaurants and bars is more challenging than one might think. One choice is a fairly accurate picture from the Department of Public Health (DPH) that unfortunately can tell you only how many establishments there are today. Even though DPH is the primary regulator of restaurants in San Francisco, it keeps no statistical history to reveal the effects of its decisions on the industry it regulates. The other choice is a historically long statistical picture from the Tax Collector’s Office that was not maintained properly prior to 1998 and continues to have a great many errors and omissions. Table 3.3 presents the San Francisco Restaurant and Bar Inventory for selected dates. The only reason these DPH historical data are available, and the reason they have rather odd “as of” dates, is that the author of the present report requested these data on those dates for previous reports prepared for Golden Gate Restaurant Association. The table shows how close the April 12, 2005 inventory of 4,370 is to December 1, 2001 inventory of 4,333. It also shows that, of the 298 net loss of restaurants between June and December 2001, four years later San Francisco still is down 261 restaurants in what prior to this period had been a very stable inventory. Something significant has changed in the equation, and it now seems clear that something is the City-regulated costs of restaurants and bars doing business in San Francisco. CHAPTER 3 RESTAURANT ECONOMICS 3-6 Table 3.3 San Francisco Restaurants & Bars Open Establishments in the Records of the Department of Public Health Selected Dates June 1, 2001 H24 (<1,000 sq') H25 (1,000-2,000 sq') H26 (>2,000 sq') Full Service Restaurants H28 (Take-out) H29 (Fast Food) Ltd Service Restaurants All Restaurants H27 (Bars) All Bars & Restaurants Full Service Restaurants Ltd Service Restaurants All Restaurants H27 (Bars) All Restaurants & Bars Full Service Restaurants Ltd Service Restaurants All Restaurants H27 (Bars) All Restaurants & Bars 1,313 1,202 1,043 3,558 630 46 676 4,234 397 4,631 Dec. 1, 2001 Feb. 26, April 12, 2003 2005 April '05 June '01 -83 -22 -71 -176 -95 16 -79 -255 -6 -261 -176 -79 -255 -6 -261 -5.2% -13.2% -6.4% -1.5% -6.0% Inventory 1,227 1,252 1,230 1,142 1,192 1,180 968 1,011 972 3,337 3,455 3,382 565 567 535 44 44 62 609 611 597 3,946 4,066 3,979 387 387 391 4,333 4,453 4,370 Change in Inventory -221 118 -73 -67 2 -14 -288 120 -87 -10 0 4 -298 120 -83 Percent Change in Inventory -6.2% -9.9% -6.8% -2.5% -6.4% 3.5% 0.3% 3.0% 0.0% 2.8% -2.1% -2.3% -2.1% 1.0% -1.9% 3.3.1 SAN FRANCISCO MARKET Three distinct groups of patrons form the market for San Francisco’s 4,370 restaurants and bars: residents, metropolitan area day visitors, and overnight visitors most of whom come from outside the metropolitan area. The size of each groups decreased markedly in the recent recession and has yet to recover fully for reasons explained in Chapter 2 of this report. Nevertheless, these patrons still form one of the nation’s most discerning and competitive restaurant markets. 3.3.1.1 RESIDENTS A densely developed, 47 square mile peninsula, San Francisco has a population of about three-quarters of million people living in 330 thousand households. This smallest of California’s counties is among the most ethnically diverse places in the nation with large Asian, Hispanic, European, Middle Eastern and African-American communities. Although the incomes of city residents range between extremes of wealth and poverty, on average San Franciscans are richer than residents of most American cities. The City’s census year 2000 mean household income of $84,000 is well above the $55,263 national CHAPTER 3 RESTAURANT ECONOMICS 3-7 average, although below the $93,800 Bay Area average.5 City residents also are better educated than most Americans, with nearly a quarter college graduates (24%), and 13% holding a graduate or professional degree. San Francisco is an adult city. Fewer than 15% of the population is under 18 years old, compared with more that 27% of California’s population, and less than 20% of the city’s households have children under 18 years of age, compared with 40% of all California households. This affluent, well educated, ethnically diverse, largely adult population is a major market for San Francisco restaurants, especially establishments located outside the downtown area and away from major visitor destinations. 3.3.1.2 DAY VISITORS The day visitor market comprises more than a quarter of million metro area commuters to jobs in San Francisco, and metro area residents who collectively made 3.7 million trips to the City in 2002 for purposes other than employment. Day visitors are a key part of the restaurant market in the City’s downtown office and shopping districts, and areas near major culture and entertainment venues. The day visitor market has been reduced by the loss of 80,000 San Francisco-based jobs, about half of which previously were held by commuters, and by a 7% decline in the number of day visitors in town for purposes other than employment. This latter group (non-commuters) spent well over a billion dollars in the City in 2002. 3.3.1.3 OVERNIGHT VISITORS Visitors from outside the Bay Area who stay overnight in the City are the third major market for San Francisco restaurants and bars. This market includes visitors in town for a convention, individual business purpose, or leisure activities. The San Francisco Convention and Visitors Bureau markets San Francisco as a visitor destination in partnership with its 2,000 members throughout Northern California, and major travel-related businesses nationwide. The Bureau estimates 13.7 million people visited San Francisco from outside the 9-county Bay Area during 2002 and spent $5.9 billion in San Francisco. A little over half the spending by overnight visitors is attributed to the 3.5 million visitors who stayed overnight in San Francisco hotels in 2002. The current hotel labor dispute and union tactics of attempting to persuage conventions to pull out of San Francisco, has had a negative impact on the entire hospitality industry, including restaurant. 3.4 OPERATING PROFILE – RESTAURANT INCOME & EXPENSES Restaurants generally are small businesses that operate on slim margins compared to other businesses. Although local conditions affect the relative importance of individual restaurant expenses, the pattern is similar for most establishments. Most revenues come from food sales (75% to 80%), but alcohol sales also are very significant (20% to 25%). Prime costs (cost of food + cost of alcoholic beverages + cost of employees) run between 58% and 66% of gross sales for most establishments. If the restaurateur permits prime 5 ABAG, Projections 2002, December 2001, & US Census Bureau, Profile of Selected Economic Characteristics: 2000, United States, www.Census.gov. CHAPTER 3 RESTAURANT ECONOMICS 3-8 costs to rise above 66% of gross sales for very long, the restaurant is unlikely to be able to continue in business. Section 3.4 summarizes key operating ratios for restaurants nationwide and comments on differences at San Francisco restaurants. The disturbing message from Table 3.5 below is that San Francisco’s minimum wage has driven average prime costs at San Francisco restaurants above 66% of average sales, which certainly helps explain why the City’s inventory of restaurants is contracting even though the City’s economy is expanding. 3.4.1 REVENUES Restaurant revenues are derived almost exclusively from the sale of food and alcoholic beverages. Although revenue sources, such as the sale of novelty items related to the restaurant or local attractions, or a cover charge for live entertainment, are significant for some establishments, they are minuscule for the industry as a whole. Table 3.4 summarizes average revenue shares for food and alcohol sales at San Francisco table service restaurants and table service and quickservice restaurants nationwide. Table 3.4 Median Sources of Revenue as a Percent of Total Sales San Francisco & US Restaurants Table Service Restaurants SF US 70 % 71 % 30 % 29 % Quickservice Restaurants US 95 % 5% Food Sales Alcohol Sales Source: National Restaurant Association and Golden Gate Restaurant Association 3.4.1.1 TABLE SERVICE RESTAURANTS: Median food sales were 70% of total sales at San Francisco table service restaurants, compared with 71% of total sales at high-check table service restaurants nationwide. Median alcohol sales were 30% of total sales at San Francisco table service restaurants, compared with 29% for table service restaurants nationwide. The negligible difference between these two sets of numbers indicates the overall business profile of San Francisco survey respondents is very close to high-check table service restaurants nationwide. 3.4.1.2 QUICKSERVICE RESTAURANTS: Median food sales were 100% of total sales, and median alcohol sales were 3% of total sales, at quickservice restaurants nationwide. (100% + 3% ≠ 100% — these are medians). GGRA’s survey has insufficient data for quickservice restaurant results to be disclosed as a separate category. There are several reasons why alcohol sales are such a low median percent of sales at quickservice restaurants. These range from the value meal orientation of most such establishments to the fact that liquor laws in most States frown on by-the-drink take-out. CHAPTER 3 3.4.2 EXPENSES RESTAURANT ECONOMICS 3-9 Variability in a restaurant’s expense structure reflects differences in local costs, local public policy, restaurant concept, and the skills and choices of restaurant management. Table 3.5 summarizes cost shares of total sales at San Francisco table service restaurants and at table service restaurants and quickservice restaurants nationwide. All data in Table 3.5 are median percents of total sales with the following exceptions: the cost of food sold is a percent of food sales; the cost of alcohol sold is a percent of alcohol sales; and prime costs are average percents of total sales rather than medians to accommodate the availability of data from the NRA Restaurant Operations Report 2004. Table 3.5 Median Uses of Revenue as a Percent of Total Sales 1 San Francisco and US Table Service 2 and Quickservice Restaurants Table Service Restaurants SF US 28 % 35 % 27 % 30 % 27 % 33 % 39 % 34 % 66 % 67 % 8.6 % 6.3 % 68 % 63 % 4.5 % 3.1% Quickservice Restaurants US 31 % 30 % 31 % 31 % 61 % 7.0 % 59 % 7.3 % Cost of Food Sold 3 Cost of Alcohol Sold 3 Total Cost of Good Sold Cost of Employees Prime Costs (Cost of Sales + Cost of Employees) 1 Restaurant Occupancy Costs Total Operating Expense Income Before Income Taxes 1 – All values in the table are medians, except Prime Costs which are averages. The difference accommodates the availability of data from the NRA Operations Report. 2 – US Table Service Restaurants are high-check Table Service Restaurants (>$25 per person) 3 – All items are a percent of total sales, except food cost are a percent of food sales and alcohol costs are a percent of alcohol sales. 4 – Data in NRA’s Restaurant Industry Operations Report 2004 are from its 2003 survey. 3.4.2.1 FOOD & ALCOHOL The combined cost of food and alcohol sold typically is about 33% to 36% of total sales, although this is a little lower at Bay Area restaurants, perhaps because of the year-round availability of a wide variety of fresh, locally grown food. Indeed, the use of such fresh ingredients is the hallmark of “California cuisine.” Food costs run 28% to 32% of food sales at San Francisco table service restaurants, compared with about 32% to 35% at table service restaurants nationwide. Add about 2% to the top of the range for restaurants serving primarily seafood and red meat, and drop the bottom of the range about 3% for noodle and bean menus. Alcohol costs average about 25% of alcohol sales, with beer costs 20% to 29% depending on the selection, liquor 23% to 25% and wine 36% to 40%. CHAPTER 3 RESTAURANT ECONOMICS 3 - 10 3.4.2.2 EMPLOYEES The cost of employees at table service restaurants averages 34% of total sales nationally, but is about 5 percentage points higher in San Francisco, primarily because of the local minimum wage and significantly higher employee benefit costs in San Francisco. Higher benefit costs are related to instability in California’s health care delivery system, an improving though still dysfunctional worker compensation system, and local public policy that tends to drive up these costs. Wages normally are 29% to 32% of total sales, with “high” being 33% to 36%. 3.4.2.3 OCCUPANCY & TAXES Restaurant occupancy costs are a considerably higher percentage of total sales in San Francisco than in the nation as a whole due to high demand for restaurant locations, high local taxes, and local public policy that boosts building costs with a variety of restrictions, delays and exaction. Nationally, occupancy costs average about 6% of total sales, compared with 8% to 10% locally. Local taxes are a significant factor driving high occupancy costs. These include the Business Registration Tax, Payroll Tax, Unsecured Personal Property Tax, Property Tax (for owners of premises), Utility Users Tax, Parking Tax (for those who offer fee-paid parking), and License, Inspection, and Permit fees. 3.4.2.3.1 San Francisco’s payroll tax is a much larger problem for restaurants than for most small businesses because restaurant operations are labor intensive. A successful mid-sized restaurant easily can exceed the $2,500 tax liability threshold for a small business exemption from this tax because, without tax credits6, the current 1.5% tax rate produces a tax liability of more than $2,500 with a taxable payroll of just $167,000. The annual fee for obtaining a Business Registration Tax certificate is keyed to payroll tax liability. It increases from $25 for businesses exempt from the payroll tax to $500 for businesses with payroll tax liabilities in excess of $50,000. 3.4.2.3.2 Restaurant License, Permit & Inspection Fees in San Francisco range from $627 to $915 for table service restaurants (depending on the size restaurant) and are $752 for a take-out license and $852 for a fast-food license. Fees last were increased 23% for mid- and large-size restaurants January 8, 2005. The Department of Public Health (DPH) also increased inspection fees by 23% to $135 per hour and imposed a new $150 per hour re-inspection fee. Since the previous 21% to 35% fee increase on June 1, 2001, fee increases have been an administrative matter for DPH and the Controller, so that industry participants no longer have the opportunity to comment on proposed increases in hearings before the City’s Business Commission. More information about fees is presented in Section 3.8 (City-regulated costs of doing business) and Appendix Table 4. 6 Credits against the Payroll Expense Tax include the Enterprise Zone Tax Credit, New Jobs Tax Credit, Summer Youth Employment Tax Credit, and Garment Manufacturers’ Tax Credit. CHAPTER 3 RESTAURANT ECONOMICS 3 - 11 3.4.2.3.3 Port Leases: Leases for many table service restaurants located on Port of San Francisco property include provisions requiring the restaurateur to pay a percent of gross sales to the Port – 5% of gross sales in older leases, and 7% of gross sales in more recently negotiated leases. The Port demands 11% of gross sales from fast food take-out restaurants, which explains why there are virtually none of these establishments on Port property, although several are located just across the street. The Port offers some of the most sought after restaurant sites in San Francisco. These come with both advantages and disadvantages. One of the advantages is that it is relatively easy to get a new liquor license with Port support for the application, and the Port usually is inclined to support such applications since it gets a percent of the restaurant’s gross. On the down side, the Port, at the behest of city government, promotes union organization of its tenants by requiring lessees to agree to “card check” for deciding labor representation.7 3.4.2.3.4 Total Operating Costs: Median total operating costs at San Francisco table service restaurants were 68% of total sales, some 5 percentage point higher than the 63% national median. The main differences are significantly higher cost of employees and occupancy costs, only partially offset by lower cost of goods sold at San Francisco table service restaurants. 3.4.3 Bottom Line: In 2003 the median Income before Income Taxes of table service restaurant respondents to the Golden Gate Restaurant Association’s survey was 3.7% of total sales and their average Income before Income Taxes was 3.0% of total sales. By the end of 2004, their median Income before Income Taxes had recovered to 4.5% of total sales, and their average Income before Income Taxes, to 4.1% of total sales. These rates may be compared with the national average for table service restaurants in 2003 of 3.1% of total sales. The panel of respondents to the San Francisco Restaurant Survey includes a few very large restaurants that account for the substantial difference between the median and average values of Income before Income Taxes. For this reason the median is more representative of profitability in the universe of San Francisco table service restaurants. The composition of survey respondents is discussed in more detail in the description of the Restaurant Survey in Chapter 4 of this report. The most remarkable thing about these income data is just how small a percent of total sales restaurants, locally and nationally, are able to convert to income. Operating on such slim profit margins, restaurants are vulnerable to losses from relatively small increases in costs or decreases in revenue. This is a major reason so many restaurants have a short life. “Card Check” replaces the secret ballot with a procedure that forces employees to disclose their votes to union organizers. 7 CHAPTER 3 3.5 INSURANCE COSTS RESTAURANT ECONOMICS 3 - 12 San Francisco restaurants, like other California businesses and their employees, have confronted an insurance nightmare in recent years. The matrix includes escalating insurance costs, health care system instability, State Compensation Insurance Fund’s dwindling reserves, and a series of State and federal government unfunded health care mandates. The underlying flaw in the present insurance setup is that upward of 40% of the dollars go to pay people whose jobs are to get someone else to pay the patient’s bill. The leading available alternative to this waste is move to a “no fault” system that as one proponent put it, “doesn’t have the lunatics (doctors, lawyers, insurance companies) running the asylum.” Other fundamental flaws include: • people claiming work-related injuries who are covered by worker compensation insurance have little or no incentive to return to work as quickly as possible. • people covered by health insurance have inadequate incentives to regard health care as a scarce resource and to exercise good judgment in their personal use of that resource. • people without health insurance end up getting most of their health care from the most expensive source, namely hospital emergency rooms. The bad news is there is virtually no progress to report on fixing the basic system. The good news is that niggling around the edges has helped to reduce premiums. 3.5.1 WORKERS COMPENSATION INSURANCE Prior to 1995, the State of California set workers comp rates, but since 1995, carriers have set their rates competitively. Stiff price competition that followed deregulation of the workers comp market forced rates down from $8.22 per 100 payroll in 1992 to as low as $1.74 per 100 in the years following deregulation. These low rates put carriers in a “reverse position” with aggregate pay-outs for claims running about 140% of aggregate premiums. Several carriers left the industry and others, downgraded by investment analysts, were forced to raise premiums to stay in business. Currently premiums are running $6.00 to $8.00 per 100 payroll – high, maybe, but much more available. Effective workers comp reform is not easy. Repositioning the system and inserting incentives for employees to return to work as soon as possible is only half the equation, though an important half. The Work Loss Data Institute8 gives California (along with Texas and New York) a “failing grade” for getting people back to work in a reasonable length of time. The other half of the equation is for employers to develop a work place culture that minimizes claims in the first place. This is about more than better training and other safety measures. It also involves creating a work place atmosphere to which 8 The west coast office of the Work Loss Data Institute, an independent database development company, is located at 964 Fifth Avenue, Suite 511, San Diego 92101 or on the web at www.worklossdata.com. CHAPTER 3 RESTAURANT ECONOMICS 3 - 13 employees want to return. This should be a no brainer for small shops were employees are treated like (if they are not in fact) family, but larger employers need a plan. The most recent initiative in California is Senate Bill 899 Workers Compensation Reform legislation. The thrust of this law is to control workers comp costs by placing limits on a number of treatment options. SB 899 • • • • • • • limits medical benefits paid to workers injured on the job for Temporary Disability requires that treatments conform to American Medical Association Guidelines ends disability payments after two years instead of the current five years for partly disabled workers requires workers to select a doctor from a pool of doctors selected by their employers and their employers’ insurance companies relieves employers of liability for previously existing conditions or injuries that did not occur on the job site requires immediate treatment for injuries confers higher benefits on permanently disabled workers, and grants them employerauthorized medical treatment The California Worker Compensation Rating Bureau on May 17, 2005 recommended a 13.8% decrease in the pure premium rate for workers comp coverage. The new rate must be approved by the California Department of Insurance Commissioner and, if approved, will take effect July 1, 2008. This recommendation would bring the total decrease from the proposed January 1, 2004 pure premium rates to 40%. 3.5.2 HEALTH INSURANCE California’s health care delivery system has evolved into a war among consolidating financial interests in the health care field. Doctor-sponsored HMOs were the initial battlefield of this war. Health maintenance organizations (HMOs) charge their members a fixed monthly fee called “capitation” to provide all of their members’ health care services. Capitation severs the link between the cost of a specific health care service and the amount an HMO member pays for health care. HMOs ration (“manage”) member access to health care in an attempt to assure the HMOs aggregate costs don’t exceed aggregate member capitation payments. Kaiser Permanente pioneered the concept of capitation, but its health care delivery model is much more comprehensive that most doctor-sponsored HMOs that embraced capitation. Kaiser employs the workers who provide health care to its members; owns and operates the hospitals, clinics and pharmacies where its health care is delivered; acts as its own insurer; and captures significant economies of scale by central management and purchasing. Doctors banding together in HMOs in the 1990s significantly increased their leverage for negotiating reimbursements from the then fragmented insurance industry which, in turn, prompted consolidation of insurance carriers to meet this new challenge. The newly consolidated insurance industry used its enhanced bargaining power to hold down both CHAPTER 3 RESTAURANT ECONOMICS 3 - 14 insurance premiums and the level of reimbursements to doctor HMO groups. As a result, health insurance premiums for small businesses like restaurants rose only about 2% a year during the 1990s. Finding themselves squeezed between relatively flat reimbursements from insurance companies and rising costs driven by new drugs, technology and patient demands, doctor HMOs began consolidating in an effort to counter the enhanced bargaining power of the consolidated insurance industry. The dramatic result was the emergence of Sutter Health which now controls more than a third of all doctors practicing in Northern California and more than 100% of the doctors in some counties. This has set off another wave of consolidation in the insurance industry that likely will result in three giants dominating the California health insurance market – Health Net, Kaiser and Blue Cross. Many health care industry analysts agree a fundament problem underlying the present system is inadequate incentives for the insured to treat health care as a scarce resource. That is why many believe employer-based health care that exposes both employers and their employees to a larger share of health care cost is a good thing, because they encourage both groups to consider the costs more carefully before making health care decisions. Another major factor driving the increase in health insurance costs is the nation’s aging population. Assembly Bill 1672 has greatly improved the availability of health insurance to small employer groups like restaurants. This California legislation mandates insurance availability to employer groups of 2 to 50 employees. It also guarantees the premium can vary no more than 10% above or 10% below the standard rate. The insurance challenge for restaurants includes the fact they tend not be the best opportunity for insurers. Relatively high turnover of relatively low paid service workers is high maintenance for the premium dollar. Many restaurant employees in San Francisco have grown accustomed to receiving their health care at free clinics and San Francisco General Hospital. They are satisfied with the quality of their health care; it is available evenings and on weekends so they don’t have to take off work; and generally personnel are available to converse with them about their health problem in the language they speak at home. For all these reasons, many restaurant workers would choose another dollar in their paycheck over a dollar of health insurance. The newest innovation in the medical insurance mix is federally authorized Health Savings Accounts (HSA) that came into existence in January 2004. Participants must be enrolled in a qualified high deductible ($1,000+) insurance plan. An individual may deposit up to $2,150 pre tax per year in these IRA-like account designed to pay medical costs below the deductible amount. Proceeds of the account may be invested and payment of medical expenses from the account is not a taxable event. These accounts are likely to have the most appeal to middle and upper income groups. They have little or no appeal to workers more interested in a larger pay check than in health insurance. CHAPTER 3 RESTAURANT ECONOMICS 3 - 15 Health insurance costs continue to rise faster than inflation, but the rate of increase has come down a bit. Two or three years ago double digit increases of 25% to 40% were common. Last year there was breather with single digit increases, and this year the range is 7% to 12%. The standard breakdown of the 12% rate is 5% for health care inflation, 5% for utilization, and 2% for new technology. 3.5.3 PROPERTY INSURANCE Property Insurance underwriters have been looking more carefully at what they insure after many experienced losses. Often they find assumed replacement costs are undervalued. The Bush Administration’s rainbow terrorist alerts suggest a new risk that should be factoring into rates, but how to evaluate this risk is unclear because the motivation and meaning of the alerts is unclear. Property insurers often are in a reverse position. They pay out more in claims than they receive in premiums, and make their money primarily from investing their reserves rather that from premium income. Two or three years ago premium prices were very high and insurance was difficult to obtain. It’s a very different market now. Rates are decreasing and insurance is much more available. 3.6 POWER COSTS Most Californians know the State has had a major surge in energy prices, even if they are not aware the shortages that caused the price surge were manufactured by Enron and other power sales companies as part of a successful scam of California’s energy markets. The scammers’ reward was more than extraordinary profits. They got to draft the nation’s energy policy with fellow oil-industry partisan, Dick Cheney. Just how major the surge in energy prices affecting San Francisco restaurants and other California businesses and households is can be seen in Tables 3.5 and 3.7. The four principal rate schedules for electric power for the years 2000 to 2005 are summarized in Table 3.6. The time-of-day, high-peak-period, and demand-metered-timeof-use rates are lower than the Basic General Service Rate to encourage spreading the demand load more evenly over a 24-hour period. However, these concessional rates have become less of a deal as PG&E has raised them more rapidly than the Basic General Service Rate. In the period under consideration, depending on the type of service a restaurant selected, rates rose 32% to 45%, and today the cost of electricity is at record levels. The gas story is different in that there was a significant jump in natural gas prices in 1999 that has been included in the comparison in Table 3.7. The major division in the commercial gas rate schedule is between small and large users, and within those schedules, a further division between charges for the first 4,000 therms and charges for additional usage beyond 4,000 therms. A public programs surcharge was added in 2005 to shift the cost of some of PG&E public relations projects to the rate payers. CHAPTER 3 RESTAURANT ECONOMICS Table 3.6 PG&E Electricity Charges per Kilowatt Hour A-1, A-2, A-3 & E-19 Rates 2000 to March 2005 A-1 Basic General Service Rate 2000 2001 2002 2003 2004 2005 $0.12 $0.16 $0.18 $0.18 $0.16 $0.16 A-6 Variable depending on time of day $0.09 $0.13 $0.14 $0.14 $0.13 $0.12 A-10 High Peak Period Electric Use $0.10 $0.14 $0.15 $0.15 $0.14 $0.14 E-19 Demandmetered time-of-use Service $0.09 $0.12 $0.14 $0.14 $0.13 $0.13 3 - 16 32.30% 39.90% 45.10% 46.70% 2000-2005 SOURCE: Pacific Gas & Electric Company NOTE: Rates shown are PG&E’s projected average of applicable Summer (May-October) & Winter (November-April) rates. Table 3.7 PG&E Gas Charges per Therm Small Commercial & Large Commercial Rates 1999 – April 2005 Public Sum of 1st 4,000 > 4,000 Programs 3 Columns therms therms Surcharge to the Left small commercial 0.606988 0.437577 1.0445653 1999 0.764688 0.578946 1.3436342 2000 0.962255 0.732323 1.6945778 2001 0.618546 0.485816 1.1043622 2002 0.861511 0.702354 1.5638648 2003 0.856205 0.749657 1.6058617 2004 1.000925 0.816363 0.03615 1.8534375 2005 2000-2005 12.0% 29.5% 37.9% 1999-2005 64.9% 86.6% 77.4% large commercial 0.594501 0.425089 1.01959 1999 0.751923 0.478778 1.2307005 2000 0.910017 0.757285 1.6673018 2001 0.600017 0.467288 1.067305 2002 0.844293 0.743342 1.5876342 2003 0.83295 0.726392 1.5593417 2004 0.9725 0.787938 0.04245 1.8028875 2005 2000-2005 10.8% 51.7% 46.5% 1999-2005 63.6% 85.4% 76.8% SOURCE: Pacific Gas & Electric Company NOTE: Rates shown are PG&E’s projected average of applicable Summer (May-October) & Winter (November-April) rates. CHAPTER 3 RESTAURANT ECONOMICS 3 - 17 For comparison, the three rate-columns in the table (1at 4,000 therms, usage greater than 4,000 therms, and public programs surcharge) have been summed to give the highest applicable rate. The 6-year rate increase for small commercial gas customers is 65% to 77%, and the 6-year rate increase for large commercial customers is 64% to 77%. 3.7 WAGES & SALARIES In the census year 2000, before the onset of the current recession, San Francisco’s visitor industry9 employed 72,000 people who held 12% of the 595,000 jobs in San Francisco. Eating and drinking places employed 42,700 people, representing 59% of visitor industry employment, 8.3% of private sector employment, and 7.2% of all City-based jobs. Knowledge-based industries requiring a highly educated work force makeup most of the City’s economic base. The visitor industry is an important exception because it provides a large number of entry-level jobs that do not require extensive formal education. Once employed in the industry, there are ample opportunities for advancement through on the job training, employer-sponsored off-site training, and self-initiated career development programs at a wide variety of local institutions, including nationally renowned culinary schools. Ninety percent of salaried restaurant employees began work in the restaurant industry as hourly employees, and more than half the owners of restaurants began in the industry as kitchen or wait staff. Wages and salaries for 16 types of food preparation and service workers published by the California Employment Development Department (EDD) for the three West Bay counties10 that comprise the San Francisco Metropolitan Statistical Area (MSA) are presented in Table 3.8. It is important to understand the base wages shown in Table 3.8 do not include direct or indirect tips11 that generally amount to a little over three times wages for front-of-house staff. Estimated effective wages, including tips, are presented in Table 3.9. The change in food preparation and service worker salaries between 2003.3 and 2004.3 is summarized in Table 3.10. Data presented in these tables provide the first statistical reflection of the 26% increase in the minimum wage in San Francisco that occurred in February 2004. However, the effects are somewhat diluted in these metropolitan statistical area (MSA) data by the presence of food preparation and service staff from Marin and San Mateo Counties who were not affected by San Francisco’s minimum wage. Table 3.8 shows that the average hourly wage for all occupations exceeds the median hourly wage.12 This indicates the The visitor industry is all businesses for which the San Francisco expenditures of nonresidents are a primary market. 10 San Francisco Metropolitan Statistical Area (MSA) includes San Francisco, San Mateo and Marin Counties. 11 Direct tips are gratuities given directly to a front-of-house staff person. Indirect tips are gratuities given to a front of house staff person, or deposited in a common “tip bin,” that are shared with other employees of the establishment. 12 The single exception is short order cooks where the average is 0.5% less than the median. 9 CHAPTER 3 RESTAURANT ECONOMICS 3 - 18 presence of a significant number of employees whose salaries greatly exceed the median wage for all members of the occupation in the MSA. These well above market rate earners are the beneficiaries of San Francisco’s minimum wage. The occupations most affected by San Francisco’s minimum wage (shaded area in the table) are waiters, waitresses and bartenders who typically are paid minimum wage because they receive about 75% of their compensation in tips, and are among the highest earning restaurant employees as shown in Table 3.9. The average wages of waiters, waitresses, and bartender’s exceeded median wages for these occupations by 19% in the third quarter of 2004. Because these occupations represent a quarter of all food preparation and serving jobs in the San Francisco MSA, they pushed average hourly wages 17% above median hourly wages for all such workers in the MSA. Table 3.10 shows the percentage increase in entry-level, average hourly, and average annual wages for food preparation and services workers. The shaded areas in Table 3.10 are the wages that were below San Francisco’s new $8.50 per hour minimum in the third quarter of 2003, and thus are the wages affected by the ordinance. Only entry-level wages Table 3.8 2004.3 Wage Data Food Preparation & Serving-Related Occupations San Francisco MSA (Marin, San Francisco & San Mateo Counties) Number of Workers EntryPercent Level Average Median Average Average Hourly Hourly Hourly Exceeds Annual Wage Median Wage Wage Wage 10.46 20.60 15.99 9.55 15.32 12.56 9.36 9.73 10.80 9.33 9.09 9.83 10.96 8.63 8.89 10.55 14.11 8.97 18.29 15.65 9.42 15.04 11.88 9.41 8.99 9.10 8.52 8.76 8.23 10.33 7.95 8.30 9.30 10.71 16.6% 12.6% 2.2% 1.4% 1.9% 5.7% -0.5% 8.2% 18.7% 9.5% 3.8% 19.4% 6.1% 8.6% 7.1% 13.4% 31.7% 21,763 42,836 33,256 19,856 31,875 26,124 19,457 20,235 22,463 19,395 18,915 20,461 22,794 17,936 18,499 21,954 29,346 Occupation All Food Preparation & Serving Jobs Chefs & Head Cooks First-Line Supervisors Cooks, Fast Food Cooks, Institutions & Cafeterias Cooks, Restaurants Cooks, Short Order Food Preparation Workers Bartenders Combined Food Prep & Serving Workers Counter Attendants Waiters & Waitresses Non-restaurant Food Servers Dining Room Attendants & Bar Helpers Dishwashers Hosts & Hostesses Food Prep & Serving-Related Workers. 84,950 7.66 1,110 12.08 5,600 10.31 2,430 7.77 1,570 10.89 6,250 8.96 4,180 7.50 7,650 7.87 4,250 7.58 11,390 7.73 9,240 7.89 17,140 7.37 1,820 7.83 5,060 7.27 5,100 7.73 1,970 7.80 210 7.67 Source: California Employment Development Department. Note: Employment data are for 2003. Wage data are for 2004.3. CHAPTER 3 RESTAURANT ECONOMICS 3 - 19 Table 3.9 2004 Effective Wages Including Tips Wait Staff at San Francisco Table Service Restaurants & Bars Entry Level Hourly Compensation Wages Waiters & Waitresses Bartenders Estimated Tips Waiters & Waitresses Bartenders Effective Wages Waiters & Waitresses Bartenders 7.37 7.58 22.85 23.50 30.32 31.08 Average Hourly Compensation 9.83 10.80 30.47 33.48 40.30 44.28 Average Annual Compensation 20,461 22,463 63,429 69,635 83,890 92,098 Sources: Wage data are from the California Employment Development Department. Tips are estimated to be 3.1 times wages, based on a survey of San Francisco table service restaurants that are members of the Golden Gate Restaurant Association. Table 3.10 Change in Wages of Food Preparation & Serving-related Occupations San Francisco MSA (Marin, San Francisco & San Mateo Counties) 2003.3 to 2004.3 Entry- Average Average Level Hourly Annual Hourly Wage Wage Wage All Food Preparation & Serving Jobs 2.8% 0.1% 0.1% Chefs & Head Cooks 4.2% -1.0% -1.0% First-Line Supervisors -7.7% -5.0% -4.8% Cooks, Fast Food 5.3% 6.2% 6.2% Cooks, Institutions & Cafeterias 6.9% 6.8% 6.9% Cooks, Restaurants 0.8% -9.9% -9.9% Cooks, Short Order -0.3% -0.2% -0.2% Food Preparation Workers 1.5% 2.4% 2.5% -1.5% -1.4% Bartenders -0.3% 0.4% 0.3% Combined Food Prep & Serving Workers 0.5% Counter Attendants 2.1% 2.0% 2.1% Waiters & Waitresses 3.7% 2.5% 2.6% Non-restaurant Food Servers -1.4% 7.5% 7.5% 1.4% 1.3% Dining Room Attendants & Bar Helpers 2.4% 0.8% 0.9% Dishwashers 3.5% Hosts & Hostesses 0.3% 7.3% 7.4% Food Prep & Serving-Related Workers, Otr 4.2% 5.5% 5.4% Source: California Employment Development Department CHAPTER 3 RESTAURANT ECONOMICS 3 - 20 were affected because all of the averages already were above $8.50 per hour. The bolded occupations in Table 3.10 have entry-level hourly wages increases more than their average level after the minimum wage took effect or, in the case of bartenders, declined significantly less than the average. Prominent among these occupations are front of house jobs that receive tips, with the notable exception of dishwashers. 3.7.1 MINIMUM WAGES & TIPS Most people understand that tips are income, and that both State and federal law require the person receiving a tip to declare it as income. Less widely understood is that the federal government regards tips as part of an employee’s wages on which both the restaurant and the employee owe Social Security Taxes. From the government’s point of view, it’s immaterial whether the restaurant receives the tip from the customer and pays it to the employee (as is the case with charge card transactions), or the employee receives the tip directly from the customer as cash. A tip still is seen as part of the employee’s wages on which Social Security Tax is owed. It is to the government’s credit that it extends this logic to administration of the federal Fair Labor Standards Act (FLSA). The current federal minimum wage is $5.15 per hour. The federal government requires restaurants to pay their employees a minimum cash wage of $2.13 per hour and allows a “tip credit” of $3.02 per hour toward meeting the federal minimum wage. Forty-three states follow the federal minimum wage law and regulations and allow a tip credit against their own (higher) state minimum wage. California is one of only seven states, and the only large state that does not base its minimum wage compliance requirements on the full amount of wages reported to State and federal government for tax purposes. 3.7.2 SAN FRANCISCO’S MINIMUM WAGES San Francisco has two minimum wage ordinances. The first, called the San Francisco Minimum Compensation Ordinance, was adopted in November 2001 and applies only to employers “doing business with city government.” It operates in tandem with a second ordinance called the San Francisco Health Care Accountability Ordinance, that mandates the provision of employee healthcare benefit by firms affected by the law. The second minimum wage ordinance, adopted in November 2003 and called the Minimum Wage Ordinance, applies to all employers in the City and County of San Francisco, although it will not be fully phased in for nonprofit corporations and business with fewer than 10 employees until January 1, 2006. 3.7.2.1 MINIMUM COMPENSATION ORDINANCE San Francisco’s Minimum Compensation Ordinance imposes an exceptionally high minimum wage on the limited number of firms subject to this law. Unlike the federal government, the City does not base required minimum compensation on the wages the CHAPTER 3 RESTAURANT ECONOMICS 3 - 21 State and federal governments require restaurants to report for tax purposes.13 Reported wages for tax purposes must include tips, but the City does not recognize the tip portion of wages for purposes of compliance with its Minimum Compensation Ordinance. This City minimum wage began at $9.00 per hour but had risen to $10.77 by January 1, 2005 under provisions of the law. The Minimum Compensation Ordinance also requires covered employers to grant 12 days paid leave, including paid holidays, to full time (40 hours per week) employees each year, and to prorate paid leave for less than full time employees. Further, covered employers must grant 10 days of unpaid leave to full time employees, and prorate unpaid leave for less than full time employees. San Francisco’s Minimum Compensation Ordinance works in tandem with its Health Care Accountability Ordinance that mandates healthcare benefits14 for the employees of covered employers. Covered employers are required to provide their employees with health plan benefits that meet minimum standards established by the San Francisco Health Commission, OR pay city government $1.50 per hour for each hour worked by each covered employee up to a maximum of $60 per week per employee, OR participate (fund) a health benefits program developed by the San Francisco Department of Public Health based on the Department’s health facilities and medical personnel. The Health Care Accountability Ordinance effectively increases the current minimum wage to at least $12.27 per hour. Both of these laws apply only to employers doing business with San Francisco city government, but what “doing business with city government” means has been subject to some negotiation. The case was made that leaseholds should not be sufficient to trigger application of the laws, because that would create unfair competition between restaurants located on Port property (subject to the law though a leasehold) and competitors across the street not on Port property. It was decided the laws would apply to leaseholds at the Airport (which is not even in San Francisco County), but not at the Port. 3.7.2.2 MINIMUM WAGE ORDINANCE San Francisco voters approved the Minimum Wage Ordinance as Proposition L in the general election on November 4, 2003 and it took effect on February 23, 2004. Therefore, the City’s restaurants and bars had had a little over 12 months experience with the effects of the law when the survey for the present report was conducted in April 2004. The ordinance applies to all business operating in the City and County of San Francisco and is inflated annually by the Bay Area cost of living index. The ordinance imposed an initial 26% increase in the minimum wage, from the prevailing State minimum of $6.75 an hour to a new “only in San Francisco” minimum of $8.50 an hour. The index feature Minimum Wage and Minimum Leave, San Francisco Administrative Code Sections P.1-P.16 and Rules and Regulations Implementing the San Francisco Minimum Compensation Ordinance (MOC), November 2001. 14 San Francisco Health Care Accountability Ordinance, San Francisco Administrative Code Sections 12Q.1-12Q.11. became law July 1, 2001. 13 CHAPTER 3 RESTAURANT ECONOMICS 3 - 22 of the law made that a 28% increase on January 1, 2005 when the San Francisco minimum went to $8.62 an hour. Like its predecessor, the Minimum Compensation Ordinance, the San Francisco Minimum Wage Ordinance is not based on total wages reported to the IRS, but is discounted by subtracting tips for purposes of compliance with the Minimum Wage Ordinance. The disingenuous framers of Proposition L, members of the San Francisco Board of Supervisors, specifically rejected calls for the ordinance to be based on the amount of wages on which restaurants and their employees pay taxes. They also refused to hold public hearings in which the public would have learned of this slight of hand prior to the election. The initial result of the Ordinance was to give a substantial raise to front of house service staff. Most of these employees, with tips, already make $30 to $40 an hour and, because of their high earnings potential, generally are the only employees at San Francisco table service restaurants typically paid minimum wage. Raises for already well paid front of house service staff generally came at the expense of normal raises for back of house employees who typically earn about what the new minimum wage specified. Another initial casualty of this ill-conceived law was the elimination of employer-paid health insurance for many restaurant employees because the raises the City mandated for front of house staff had to come from somewhere. The run up in labor costs did not end with raises for minimum wage employees. Restaurants, like most businesses, have a salary structure. In restaurants this structure involves hourly minimum wage employees, hourly non-minimum wage employees, and salaried employees. A 26% increase in the wages of the bottom rung of this structure set off a series of demands from other employees who naturally wanted to restore their positions in what previously had been a market-determined structure. In the first 12 months of the new minimum wage respondents to the survey conducted for this report indicate the initial 26% increase for just minimum wage employees plus ripple effect throughout the salary structure added 10% to their total cost of employees. That is very tough for businesses that typically convert less than 5% of their margin on gross sales to before tax profits. 3.8 OTHER CITY-CONTROLLED COSTS OF DOING BUSINESS Since the onset of the recession in 2001, San Francisco City Government has imposed double digit increases in most City-regulated costs of doing business. Many of these large cost increases are in areas such as water (18%), sewer (11%) and garbage collection service (47%) that are difficult for restaurants and bars to economize. Others, like the 50+% increase in DPH fees, cannot be economized at all. The run up in these fees to sustain the City bureaucracy through the recession (see Appendix Table 10) are in addition to the massive increase in City-regulated labor costs described in Section 3.7 of this report. Predictably, they are inflicting significant damage on the City’s hospitality industry as described in Section 3.3, and more problems lie ahead. Water rates are scheduled to rise 101%, and sewer rates 48% in the next five years. CHAPTER 3 RESTAURANT ECONOMICS 3 - 23 3.8.1 DEPARTMENT OF PUBLIC HEALTH FEES The current range for restaurant license fees for table service restaurants is $627 – $951, depending on the size of the restaurant. Limited service restaurant license fees range from $752 for take-out to $825 for a fast food. These fees, which became effective February 8, 2005, represent a 23% median increase in food preparation and service license fees on top of the 21% – 37% fee increase imposed June 1, 2001, or more than a 50% increase in the last five year. In addition to the 23% increase in the charge for mandatory inspections to $135 per hour, DPH added a punitive fees of $175 per hour charge for re-inspections should their inspector decide he/she needs to return to the site. The Department of Public Health’s objective in imposing a 50+% increase in its fees in the last five years, with similar plans for future years is to bypass the appropriations process and to extract the full cost of funding DPH Consumer Protection Programs from regulated businesses. DPH’s June 1, 2001 fee increase marked the last time DPH has to hold public hearings on fee increases, because that ordinance made raising fees and administrative matter if DPH and the Controller agree on the amount. The current plan would fund an increase in the cost of the Program from $130,000 per employee in FY 2002-03 to $165,000 per employee in FY 2007-08. 3.8.2 WATER & SEWER RATES San Francisco restaurants pay a three-part monthly San Francisco Public Utilities bill for water and sewer service. The water bill includes a flat Water Service Charge based on the size of the pipe that provides the service, currently $4.00 per month for a 5/8” pipe up to $473.50 per month for a 12” pipe. The SFPUC characterizes the Water Service Charge as the “cost of keeping an account open.” Restaurants also pay a volumetric Water Consumption Charge assessed per unit of water used. One water unit (100 cubic feet, or 748 gallons of water) currently costs $1.49, or slightly less than two-tenths of a cent per gallon. The Sewer Charge also is volumetric and is assessed per unit of sewerage discharged into the SFPUC’s wastewater collection and treatment system. About 90% of the water used by restaurants is returned as sewage to the wastewater system. The SFPUC applies different unit charges to different types of businesses based on federal standards for the assumed content of their sewerage. Currently these charges range from a low of $4.93 per unit to a high of $16.54 per unit. Charges are higher for sewerage with higher levels of suspended solids, chemical/biological oxygen demand, and fats/oils/greases that are more expensive to remove from wastewater. Restaurants currently pay $7.75 per unit because their sewerage is presumed to contain higher levels of fats, oils and grease than, say, office buildings or retail stores. Sewer rates are higher than water rates because it costs more to clean raw sewage sufficiently for it to be discharged safely into swimmable waters such as the Bay than it costs to marginally purify the already extremely clean source water from Hetch Hetchy reservoir. CHAPTER 3 RESTAURANT ECONOMICS 3 - 24 PUC staff estimate the average restaurant customer uses about 200 units of water and 180 units of sewer per month, although water and sewer use could be much lower at a small restaurant and much higher at a large restaurant. Restaurants with this average volumetric usage currently pay $298 per month (excluding the flat Water Service Charge based on size of pipe) and $1,396 per month for sewer service, or a total of $1,694 per month for water and sewer service. Sewer and Water rate history applicable to the average restaurant, and projected Sewer and Water rates for the next five years are summarized in Table 3.11298. The shaded area in the table represents the moratorium imposed on Sewer Charge increases by passage of Proposition E in November 2002. This ill-conceived initiative throttled maintenance of the City’s aging sewer system and is largely responsible for the spike in sewer rates projected through 2010. The even larger (in percentage terms) spike in water rates is related to similar deferral of essential maintenance for the Hetch Hetchy water system. Table 3.11 Average San Francisco Restaurant Actual & Projected Monthly Volumetric Water & Sewer Charges Fiscal Years ended June 30, 1996 - 2010 Sewer Amount Percent ∆ Actual 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Projected 2006 2007 2008 2009 2010 Exhibit 1996-2001 2000-05 2005-10 $1,195.84 $1,192.09 $1,257.66 $1,257.66 $1,257.66 $1,257.66 $1,257.66 $1,257.66 $1,257.66 $1,396.00 $1,577.48 $1,782.55 $1,907.33 $2,002.70 $2,062.78 $61.82 $138.34 $666.78 6.7% 7.8% 5.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.0% 13.0% 13.0% 7.0% 5.0% 3.0% 5.2% 11.0% 47.8% Water Consumption Amount Percent ∆ $234.61 $252.44 $252.44 $252.44 $252.44 $252.44 $274.40 $298.00 $298.00 $298.00 $342.70 $394.11 $453.22 $521.20 $599.38 0.0% 7.6% 0.0% 0.0% 0.0% 0.0% 8.7% 8.6% 0.0% 0.0% 15.0% 15.0% 15.0% 15.0% 15.0% Water & Sewer Amount Percent ∆ $1,430.45 $1,444.53 $1,510.10 $1,510.10 $1,510.10 $1,510.10 $1,532.06 $1,555.66 $1,555.66 $1,694.00 $1,920.18 $2,176.66 $2,360.55 $2,523.90 $2,662.16 $79.65 $183.90 $968.16 1.0% 4.5% 0.0% 0.0% 0.0% 1.5% 1.5% 0.0% 8.9% 13.4% 13.4% 8.4% 6.9% 5.5% 5.6% 12.2% 57.2% $17.83 7.6% $45.56 18.0% $301.38 101.1% SOURCE: San Francisco Public Utilities Commission * PUC staff project the “average San Francisco restaurant” uses 200 units (149,000 gal) of water, and discharges 180 units (134,640 gal) of sewerage per month. ** Projected rates for FYs 2006 & 2007 are included in the PUC’s FY 05-06 budget but have yet to be proposed by the SFPUC General Manger & approved by the PUC and Board of Supervisors. Projected rates for FYs 2008-2010 are staff projections. CHAPTER 3 RESTAURANT ECONOMICS 3 - 25 • The Water Consumption Charges paid by the average San Francisco restaurant rose 18% in the last five years, and they are projected by PUC staff to rise another 101.1% in the next five years. The Sewer Charges paid by the average San Francisco restaurant rose 11% in the last five years, and they are projected by PUC staff to rise another 47.8% in the next five years. • The cost impact of these rate increases for restaurants is magnified by the fact the PUC subsidizes residential water and sewer rates with higher commercial rates. More than two-thirds of capital costs are attributable to residential users, but only 50% of capital costs are allocated to regular residential accounts and none to lifeline accounts. 3.8.3 REFUSE COLLECTION FEES 3.8.3.1 1932 Ordinance An Initiative Ordinance approved by local voters in 1932 dictates how garbage is collected and disposed of, how permits and licenses are issued to refuse collectors, and how fees customers are charged for refuse collection are set in San Francisco.15 In accordance with the 1932 Ordinance, fees residential customers are charged are set by the City,16 but currently the City has no authority to regulate rates for commercial customers. Commercial rates are set by separate agreements between refuse collectors holding permits and licenses from the City and individual commercial producers of refuse. Any change to these provisions of the 193 2 Initiative Ordinance can be made only by another voter-approved initiative.17 3.8.3.2 Norcal Monopoly Refuse collection and disposal in San Francisco became a regulated monopoly owned by Norcal Waste System, Inc. in the 1980s when Norcal acquired both of the refuse collection companies that previously were independently licensed and permitted to operate in the City. In FY 1988 the Board of Supervisors approved the existing Waste Disposal Agreement designating the Tunnel Road Transfer Station, jointly owned by the two refuse companies Norcal had acquired, and the Altamont landfill, owned by Waste Management, Inc. in Alameda County, as exclusive disposal facilities for the City.18 Norcal’s two subsidiaries, Sunset Scavenger Company and Golden Gate Disposal and 15 The Refuse Collection and Disposal Ordinance of 1932, Ordinance No. 17.083, was approved by initiative in the November 8, 1932 general election. 16 The review of rate applications filed by operators is conducted by the Director of the Department of Public Works (DPW). Residential collection and disposal rates are set by a Rate Board consisting of the City Administrator, Controller and General Manager of the Public Utilities Commission (PUC). 17 Discussion of the history of laws and agreements governing refuse collection and disposal in San Francisco is taken from the February 14, 2002 report of the Board of Supervisors Budget Analyst. 18 The transfer station is used to sort and transfer the refuse from individual Norcal garbage collection trucks to larger, longer haul Norcal trucks for transport to the Altamont landfill. CHAPTER 3 RESTAURANT ECONOMICS 3 - 26 Recycling Company, already shared the exclusive right to collect refuse in San Francisco.19 A third Norcal subsidiary, Sanitary Fill Company, is responsible for the collection of waste from the other two Norcal subsidiaries at the transfer station, and transporting it for disposal at the Altamont landfill. The Waste Disposal Agreement is in effect for up to 56 years or until 15 million tons of San Francisco’s solid waste are deposited in the Altamont landfill. At current disposal rates, the agreement should expire within the next 10 years. 3.8.3.3 Recycling Driving Rate Increase Currently, refuse collection and disposal fees are in the fourth year of a more than 50% increase in rates that will be accomplished in steps between FY 2002 and FY2006. This substantial increase was proposed to underwrite the cost of establishing an aggressive program of residential and commercial recycling to meet the State’s mandate that California cities divert (recycle) at least 50% of their solid waste stream from landfill on and after January 1, 2000.20 At the time rate orders implementing the present fee structure were issued, the City was diverting 42% of its solid waste to recycling. The diversion/recycling program is handled by the two Norcal subsidiaries, West Coast Recycling Company and Recycle Central, Inc. 3.8.3.4 Absence of Commercial Rate Regulation The maximum rate per ton that Norcal subsidiary Sanitary Fill Company can charge Norcal subsidiaries Golden Gate Disposal and Sunset Scavengers for disposing of the refuse they collect21 is set by a San Francisco Department of Public Works (DPW) rate order. A second rate order establishes how much these refuse collection subsidiaries can charge residential customers.22 Since the City currently has no authority to regulate refuse collection fees for commercial establishments, such as restaurants, there is no rate order pertaining to commercial rates. According to the Director of Public Works, “the City presumes the Companies would increase commercial rates at the same level that residential rates were raised.”23 However, legally Norcal can use its City-endorsed monopoly to charge commercial establishments whatever it wishes and can raise its commercial fees whenever it wishes. 19 Golden Gate Recycling and Disposal Co. collects refuse in Pacific Heights, Fillmore, Marina, Chinatown, Telegraph Hill, Financial District, North of Market and Fisherman’s Wharf, and serves most of the City commercial customers. Sunset Scavenger Co. collects refuse in Excelsior, Mission, Twin Peaks, Bayview, Hunters Point, Richmond and Sunset, and serves mainly residential customers. 20 California Public Resource Code § Section 41780(a)(2). Extensions are available if the City can demonstrate it is making its best efforts to achieve the diversion goal. California Public Resource Code § Section 41820(a). 21 DPW Amended Order No. 172,929 22 DPW Amended Order No. 172,930 23 Director’s Report on the 2001 Rate Application From Sanitary Fill Company, Sunset Scavenger Company, and Golden Gate Disposal and Recycling Company, Section IV.C.8.a, April 30, 2001 CHAPTER 3 RESTAURANT ECONOMICS 3 - 27 3.8.3.5 Operating Ratios, Rates & Excess Profits The City uses the ratio of a regulated company’s projected annual expenses to its projected annual revenues (operating ratio) to develop its residential rate order. It targets an operating ratio of 91.55% to give the regulated company an annual profit margin of 8.45%.24 The Board of Supervisor’s Budget Analyst’s review of the audited financial statement and financial data of the Norcal group of companies operating in San Francisco in the five years (1996 – 2000) preceding issuance of the rate orders now in effect found these companies made substantially more than the City believed they would based on Norcal’s rate application for that period. Table 3.12 compares the City-approved margin with the actual margin. Table 3.12 Profit Margins of Norcal San Francisco Subsidiaries Compared to City-Approved Profit Margins 1996 - 2000 City- Actual Approved Profit Margin Margin 8.45% 10.86% 8.45% 27.24% 8.45% 15.84% Percent Excess Profit 28.52% 222.37% 87.46% Sunset Scavenger Golden Gate Disposal Sanitary Fill Company SOURCE: San Francisco Board of Supervisors Budget Analyst report, February 14, 2002. The 222% excess profit for Golden Gate Disposal is particularly relevant for the present report since Golden Gate Disposal serves the majority of San Francisco’s commercial establishments, such as restaurants. As part of his review, the Budget Analyst surveyed refuse collection and disposal rule-making in 38 other Bay Area jurisdictions.25 Twentyfive of the 38 jurisdictions, like San Francisco, use operating ratios to determine refuse collection and disposal fees, but unlike San Francisco, all 25 use operating ratios to set both residential and commercial rates. The only two cities in the survey that do not regulate commercial rates are Los Altos Hills, which has no commercial businesses, and San Jose which has a highly competitive commercial market with 23 commercial refuse collectors. The telling result of this situation is San Francisco’s commercial customers pay the highest refuse collection rates in the entire Bay Area, a rate that was 45.9% higher than the average of the surveyed jurisdictions. 3.8.3.6 COLA Adjustments San Francisco’s current five-year collection and disposal rate plan includes a series of relatively complex, cumulative, annual cost of living (COLA) adjustments in rate years 24 25 100 – 91.55 = 8.45 The 38 jurisdiction are Alameda, Atherton, Belmont, Burlingame, Campbell, Cupertino, Danville, East Palo Alto, Foster City, Gilroy, Hillsborough, Lafayette, Livermore, Los Altos, Los Gatos, Milpitas, Menlo Park, Moraga, Morgan hill, Mountain View, Napa, Oakland, Orinda, Pacifica, Palo Alton, Redwood City, San Carlos, San Jose, San Leandro, San Mateo, Santa Clara, Santa Rosa, Saratoga, Sunnyvale, Walnut Creek, Town of Los Altos Hills, and unincorporated areas of Contra Costa and San Mateo Counties. CHAPTER 3 RESTAURANT ECONOMICS 3 - 28 2003-2006. By Rate Year (RY) 2004 these COLA adjustments, together with moving to the contingent rate schedule July 1, 2003, had increased the cumulative rate of increase from 32.7% approved in the rate order, to 44.2% as shown in Table 3.13. The weighted, three-part cost of living adjustment is based on published California Department of Finance Inflation Forecasts (61%), the Consumer Price Index for Urban San Francisco Consumers (9%), and the Producer Price Index for Industrial Commodities (30%). Table 3.13 presents the per ton disposal rates at the Transfer Station approved in DPW’s Table 3.13 San Francisco Refuse Disposal Fees per Ton With COLA adjustments through RY 2004 Rate Year 2001 Original Rate $59.04 Annual % Change Cumulative % Change Base Rate Annual % Change Cumulative % Change COLA ($) Annual COLA (%) Cumulative COLA (%) $59.04 2002 $70.99 20.2% 20.2% $70.99 20.2% 20.2% 2003 $74.57 5.0% 26.3% $76.58 7.9% 29.7% 2004 $78.36 5.1% 32.7% $81.05 5.8% 37.3% 2005 $83.50 6.6% 41.4% $86.53 6.8% 46.6% 2006 $87.04 4.2% 47.4% $90.38 4.4% 53.1% $0.98 $4.09 1.280% 3.724% 1.280% 5.004% Base Rate + COLA $59.04 $70.99 $77.56 $85.14 $86.53 $90.38 Annual % Change 20.2% 9.35% 9.8% 1.6% 4.5% Cumulative % Change 20.2% 31.4% 44.2% 46.6% 53.1% SOURCE: www.sfdpw.org/sfdpw/garbagerate/finalrateorder/ 1. Base rate for Rys 2003-2006 are from contingent rate schedule D, which includes costs of the iMRF and PDRA. The contingent rate schedule took effect July 1, 2004. 2. The cumulative COLA is multiplicative (1+Annual COLA1) x (1+Annual COLA2), etc. 2001 rate order, and rate escalation through RY 2004 that has arisen from COLA adjustments in RY 2003 and RY 2004. The rates shown for RYs 2005 and 2006 will increase even more with additional COLA adjustments in those years. 3.8.3.7 Residential Rate Schedule The residential refuse collection rate structure that is presumed by City government to be the basis for Norcal’s commercial rate structure is quite complex because different rates are charged for different size garbage cans, the weight and location of the cans, and the frequency of refuse collection service. For example, there are surcharges for cans located above or below street level, for can access that requires use of a key, key pad, automatic door opener or other entry mechanism, and for cans located more than 25 feet from the curb of the street. The effective rates for RYs 2002 to 2005 are the sum of the Base Refuse Rates plus and surcharges for conditions of service, a COLA adjustment, and possibly an environmental CHAPTER 3 RESTAURANT ECONOMICS 3 - 29 surcharge to cover capital costs to convert many Norcal trucks to liquefied natural gas (LNG) fuel. Recycling and composting collection services are mandatory in residential refuse collection service and, therefore, are included in the Base Refuse Rates rather than being priced separately.26 Table 3.14 summarizes the monthly charge for weekly collection of one 32-gallon refuse container, not exceeding 60 pounds in weight, from street level, not more than 25 feet from the curb. The rates in Table 3.14 are taken from the final rate order and do not reflect increases from cumulative COLA adjustments in 2003 and 2004. The detailed DPW Rate Order is reproduced in Appendix 5. Table 3.14 San Francisco Residential Refuse Collection Fees Base Rate & Contingent Rate Schedules RY 2001 through RY 2005 Base Contingent Rate Schedule Rate Schedule Dollars $14.83 $14.83 $16.16 $16.28 $17.58 $17.73 $17.27 $17.42 $16.65 $16.79 Percent Change 9.0% 9.8% 8.8% 8.9% -1.8% -1.7% -3.6% -3.6% Cumulative % Change 9.0% 9.8% 18.5% 19.6% 16.5% 17.5% 12.3% 13.2% 2001 2002 2003 2004 2005 2002 2003 2004 2005 2002 2003 2004 2005 SOURCE: www.sfdpw.org/sfdpw/garbagerate/finalrateorder/ Currently, the extent to which commercial rates track residential rates as the City assumes cannot be accurately assessed because each commercial customer negotiates a separate contract with the Norcal subsidiary that collects its refuse. Restaurants can mitigate some of the increased costs of refuse collection by taking advantage of a 25% discount Norcal grants on segregated organic wastes it collects from food service businesses. Restaurants also can take advantage of an additional 10% discount negotiated for members of the Golden Gate Restaurant Association. 26 The 1932 ordinance, Section 3, provides that if a producer delivers “waste paper or other refuse having a commercial value to a refuse collector, the collector shall receive the same and no additional charge shall be made for its removal.” CHAPTER 3 RESTAURANT ECONOMICS 3 - 30 3.8.3.8 Conclusion San Francisco residential refuse collection charges are nearing the end of a 5-year, 50+% increase driven by the City’s adoption of an ambitious recycling program. This major rate hike began from a base where San Francisco commercial rates already were about 46% higher than average commercial rates in the Bay Area. The level is becoming a problem for small businesses like restaurants. Although currently there are no published data on commercial rates in San Francisco, circumstantial evidence suggests excess profits recorded by Norcal subsidiaries, especially Golden Gate Disposal which serves most of the City commercial customers, may be due to Norcal charging customers in its unregulated commercial market higher rates than customers in its regulated residential market. This would contradict the City’s assumption that rates in the two markets move in tandem. CHAPTER 4 DESCRIPTION OF SURVEY 4-1 4.1 GENERAL DESCRIPTION In March and April 2005 Golden Gate Restaurant Association (GGRA) conducted a survey of GGRA members and a 25% random sample of other San Francisco restaurants. The 25% sample was drawn from the San Francisco Tax Collector’s database of food and beverage service licensees.1 GGRA San Francisco restaurant and bar members were purged from the database to avoid duplicate mailings. The database then was sorted by type of license and every fourth record from each of the six types of restaurant and bar licenses was selected. The resulting survey panel of 1510 establishments detailed in Table 4.1 represents approximately 34% of the 4,405 active restaurant and bar licenses in San Francisco on the March 18, 2004 “as of data” for the version of the Tax Collector’s database used for this survey. Survey questionnaires were mailed to potential respondents on March 28, 2005. A covering letter explained the purposes of the survey and asked for completed questionnaires to be return directly to GGRA’s research association by April 9, 2005 in the stamped, addressed envelope provided with the questionnaire. Completed questionnaires the research associate received by April 22, 2005 were included in the tabulation of survey results. The Survey was “blind” and confidential. The identity of individual participants is not known, and data submitted by individual participants cannot be identified in tables published in the present report. Copies of survey questionnaire and its covering letter are presented in Appendix Exhibits 4 through 8. Table 4.1 Survey Panel & All San Francisco Restaurants Distribution by Type of License held on March 18, 2005 SF Tax License Description H-24 Less than 1,000 sq ft H-25 1,000 to 2,000 sq ft H25 more than 2,000 sq ft Table Service Restaurants H-28 Take-Out H-29 Fast Food Limited Service Restaurants H-27 Bars, Taverns & Lounges Restaurants at SFO All Restaurants & Bars GGRA SF Random SF Members Sample Panel 52 304 345 96 299 385 213 247 434 361 850 1,164 21 138 151 0 16 16 21 154 167 26 98 120 9 0 9 417 1,102 1,510 All SF Licenses 1,216 1,194 987 3,397 552 63 615 393 0 4,405 SOURCE: San Francisco Tax Collector & GGRA Membership Department Such licenses are granted pursuant to SEC. 249.1 Food Preparation & Service of the San Francisco Health Code. 1 CHAPTER 4 DESCRIPTION OF SURVEY 4-2 The principal focus of the survey is full service restaurants, also referred to as table service restaurants in this report. These are establishments where seated customers order prepared food and beverages from wait staff who serve the meal and typically collect payment after the meal is consumed. Most full service restaurants serve some type of alcoholic beverage as well as food. However, if an establishment’s alcohol sales exceed its food sales, the establishment is classified as a bar. Full service restaurants were 80% of the San Francisco survey panel and 77% of all San Francisco restaurants and bars at the time of the survey as shown in Table 4.2. iQuickservice restaurants, which include “take-out” and all “fast food” concepts, are establishments where customers order and pay for their food and beverages before picking up their orders at a counter or drive-thru window for consumption either on or off the premises. Limited service restaurants were 12% of the San Francisco survey panel and 14% of all San Francisco restaurants and bars at the time of the survey. Table 4.2 Survey Panel & All San Francisco Restaurants Percent Distribution of Type of License held on March 18, 2005 SF License Description H-24 Less than 1,000 sq ft H-25 1,000 to 2,000 sq ft H25 more than 2,000 sq ft Table Service Restaurants H-28 Take-Out H-29 Fast Food QuickService Restaurants H-27 Bars, Taverns & Lounges Restaurants at SFO All Restaurants & Bars SOURCE: Table 4.1 GGRA SF Random SF Members Sample Panel 13% 28% 24% 23% 27% 26% 51% 22% 30% 87% 77% 80% 5% 13% 10% 0% 1% 1% 5% 14% 12% 6% 9% 8% 2% 0% 1% 100% 100% 100% All SF Licenses 28% 27% 22% 77% 14% 1% 14% 9% 0% 100% Bars, taverns and lounges are establishments where sales of alcoholic beverages are more than 50% of total sales. Many of these businesses also sell some type of food, and some offer full meal service. Bars are included in GGRA’s membership and the present study because they share many characteristics with restaurants, indeed, some establishments are close enough to the 50% margin that on any given day they might be classified as either a bar or a restaurant. Bars, taverns and lounges were 8% of the San Francisco survey panel and 9% of all San Francisco restaurants and bars at the time of the Survey. 4.2 CLASSIFICATION OF SURVEY RESPONDENTS Survey questionnaires contained a pre-printed license type drawn from the Tax Collector’s database along with the address of the business. Only two or three businesses returned survey questionnaires describing operations that did not appear to match the CHAPTER 4 DESCRIPTION OF SURVEY 4-3 license type because of either their size or the composition of their sales. Some mismatch between license types and the scale and nature of operations is expected because businesses are evolving all the time. All respondents were classified by the type license held regardless of how they described themselves in the survey questionnaire. 4.3 GEOGRAPHIC DISTRIBUTION The geographic distribution of establishments in the survey panel by major area of the City and the number respondents in each area are summarized in Tables 4.3 and 4.4. A similar distribution by each of the 28 ZIP codes covered in these tables is presented in Appendix Table 6. The two major concentrations of survey panel establishments are in the same areas as the two major concentrations of all San Francisco restaurants and bars as shown in Tables 4.3 and 4.4. Some 23% of all San Francisco restaurants and bars, and 26% of the survey panel, are from the Fisherman’s Wharf–Northbeach–Pacific Heights–Marina area. Some 15% of all San Francisco restaurants and bars, and 18% of the survey panel, are from the Downtown–Chinatown–Central Waterfront area. Table 4.3 San Francisco Survey Panel & Questionnaires Returned Distribution by Geographic Area Establishments Random Panel Return 163 266 9 134 262 127 167 27 111 78 33 0 1,102 191 390 171 204 36 132 85 35 9 1,519 3 17 11 4 1 5 0 0 2 52 Downtown–Chinatown–Central Waterfront 94104, 94105, 94108, 94111 South of Market–South Waterfront 94103, 94107 N. Waterfront–Northbeach–Pacific Heights–Marina Nob & Russian Hills 94109, 94115, 94119, 94123, 94133 Civic Center–Hayes Valley–Haight Ashbury 94102, 94117 Mission–Noe Valley–Castro–Bernal Heights 94110, 94114 Twin Peaks–Diamond Heights–Miraloma–West Portal–UCSF 94127, 94131, 94143 Presidio–Richmond–Sunset 94118, 94121, 94122, 94129 Southwest Neighborhoods 94112, 94116, 94132 Southeast Neighborhoods 94124, 94134 Airport Mail Centers 94125, 94127 TOTALS GGRA 103 57 128 44 37 9 21 7 2 9 417 SOURCE: San Francisco Tax Collector & www.usps.com Note: ZIP code 94119 is the mailing address for Pier 39, a shopping center physically located in ZIP Code 94133. Zip codes 94125 & 94128 are mail centers for SFO & ZIP codes for restaurants located at SFO. CHAPTER 4 DESCRIPTION OF SURVEY Table 4.4 San Francisco Survey Panel & Questionnaires Returned Percent Distribution & Return Rate by Geographic Area % Distribution Panel All SF Return 18% 15% 17% 13% 26% 11% 13% 2.4% 8.5% 5.5% 2.3% 0.6% 11% 23% 12% 13% 2.3% 12% 6.4% 2.9% 1.5% 5.8% 33% 21% 7.7% 1.9% 10% 0.0% 0.0% 3.8% 100.0% 4-4 Downtown -- Chinatown -- Central Waterfront 94104, 94105, 94108, 94111 South of Market–South Waterfront 94103, 94107 N. Waterfront–Northbeach–Pacific Heights–Marina— Nob & Russian Hills 94109, 94115, 94119, 94123, 94133 Civic Center–Hayes Valley–Haight Ashbury 94102, 94117 Mission–Noe Valley–Castro–Bernal Heights 94110, 94114 Twin Peaks–Diamond Heights–Miraloma–West Portal–UCSF 94127, 94131, 94143 Presidio -- Richmond -- Sunset 94118, 94121, 94122, 94129 Southwest Neighborhoods 94112, 94116, 94132 Southeast Neighborhoods 94124, 94134 Airport Mail Centers 94125, 94127 TOTALS Return Rate 3.4% 1.6% 4.4% 6.4% 2.0% 2.8% 3.8% 0.0% 0.0% 22.2% 3.4% 100.0% 1.00.0% SOURCE: San Francisco Tax Collector & www.usps.com Note: ZIP code 94119 is the mailing address for Pier 39, a shopping center physically located in ZIP code 94133. Zip codes 94125 & 94128 are mail centers for SFO & ZIP codes for restaurants located at SFO. The shares of the survey panel drawn from each of the first three geographic areas shown in Tables 4.3 and 4.4 are 2–3 percentage points greater than the shares of all San Francisco restaurants and bars in each of these three areas. The explanation for this difference is that GGRA members represent a larger share of restaurants and bars in these three areas than GGRA members represent in the overall panel (29%). Put differently, a larger percentage of restaurants and bars in these three areas are members of GGRA than is the average for the City as a whole. These shares are summarized in Appendix Table 7. The Airport Mail Centers (94125 & 94127) shown in the last line of Table 4.3 and 4.4 are San Francisco ZIP codes for businesses located at San Francisco International Airport. The San Francisco Tax Collector’s license database includes no restaurants or bars with these ZIP codes because restaurants and bars located at the airport are licensed by San Mateo County, rather than San Francisco County. The random sample did not included either of these ZIP codes, because the database from which it was drawn does not include them. However, nine of these businesses are in the survey panel because they are members of GGRA. CHAPTER 4 4.4 NUMBER OF RESPONDENTS DESCRIPTION OF SURVEY 4-5 Part I of the survey questionnaire covers mainly nonfinancial characteristics of respondents and its tabulation is based on the group of 52 respondents shown in Tables 4.3 and 4.4. This group includes three bars and one restaurant operating with a limited service (take-out) license. The overall response rate for Part I of the Survey is 3.4%. Part II of the survey questionnaire requests Income and Expense Statements for 2003 and 2004. It was returned by 32 restaurants and bars, or 61% of the respondents that completed Part I. For comparison, Deloitte & Touche LLP’s most recently published study of the entire California restaurant industry for the National Restaurant Association was based on Income and Expense Statements form just 69 restaurants. The overall response rate for Part II of the Survey is 2.1%. Part III of the survey questionnaire is new for the 2005 edition of GGRA’s annual study of the San Francisco restaurant industry. It was completed by 49 restaurants and bars, or 94% of the respondents that completed Part I. The overall response rate for Part III of the Survey is 3.2%. Part III seeks to: • • • • • • identify trends in the industry over the last five years, assess the effects of the 26% increase in the minimum wage in San Francisco that occurred 13 months prior to the survey, assess the strength and direction of San Francisco as a culinary center, assess service trends in San Francisco restaurants, assess the impact of the enormous increase in City-regulated business costs that has occurred in the last five years on the provisions of employee health insurance, and understand the issues currently of most concern to San Francisco restaurateurs. Surveys completed for GGRA’s 2002 and 2003 San Francisco Restaurant Industry Studies drew 42 and 64 respondents, respectively. The fact that the 2005 survey questionnaire is twice as long as questionnaires used in the two previous studies (12 pages vs. 6 pages) may have helped limit the 2005 respondents to 52, roughly half way between the number of respondents in the two previous survey. The 2005 survey questionnaire has 31 questions that request 338 individual pieces of information. The length and complexity of the questionnaire likely accounts for the fact that the questionnaire most often was returned by relatively large restaurants that have sufficient staff to assist with its preparation. Completing the questionnaire can be a fairly challenging task for a small shop where everyone is engaged primarily in food preparation and service, rather than in managing and accounting. The relatively high response rate among large restaurants also may be attributed to the fact that GGRA’s membership is weighted toward larger restaurants. Restaurants of more than 1,000 sq ft comprise 69% of its membership, and restaurants of more than 2,000 sq ft, 47%. These businesses have the financial stability to invest their time and other resources in a trade organization like GGRA that can give their industry a voice in CHAPTER 4 DESCRIPTION OF SURVEY 4-6 public policy, negotiate group service discounts, and address perennial concerns about what the law requires a restaurateur to do to comply? As they are the voice of their industry, they also are the primary voice of this survey. Table 4.5 shows that more than 75% of respondents are restaurants of more than 1,000 sq ft, and 50% to 60% are more than 2,000 sq ft. Table 4.5 Distribution of Survey Returns Part of Questionnaire & Tax Classification Part I H24 H25 H26 H27 H28 Total H24 H25 H26 H27 H28 Total restaurant < 1,000 sq ft restaurant 1,000 to 2,000 sq ft restaurant > 2,000 sq ft bar, tavern, lounge take-out restaurant restaurant < 1,000 sq ft restaurant 1,000 to 2,000 sq ft restaurant > 2,000 sq ft bar, tavern, lounge take-out restaurant 8 13 27 3 1 52 15% 25% 52% 6% 2% 100% Part II 2 10 21 2 0 35 6% 29% 60% 6% 0% 100% Part III 7 11 27 3 1 49 14% 22% 55% 6% 2% 100% 4.5 SURVEY INSTRUMENTS & RESULTS Appendix Exhibits 4 through 8 of this report presents copies of the survey questionnaire, its covering letter, and a full tabulation of survey results. The Part I tabulation focuses on the number and percent of respondents giving specific answers to 24 questions about the nature and dimensions of the respondent’s operation. Part I also requests estimates of average check per person served and annual number of persons served, estimates that, when read together, imply a level of current gross sales. The Part II tabulation presents the average and median value, and the number of respondents providing information for each item in the Statement of Income & Expenses. Averages and medians are used to report results thoughout the present report to maintain the confidentiality of individual responses and give a representative portrayal of industry participants. Each item is analyzed separately, and therefore averages and medians permit use of information provided by respondents who did not complete every item in the Statement of Income and Expenses. The downside of analyzing each item separately is line items in the Statement of Income and Expenses do not sum to totals in the statement, each of which also is analyzed separately. CHAPTER 4 DESCRIPTION OF SURVEY 4-7 The Part III tabulation probes a variety of trends in San Francisco’s restaurant industry. Q-26 Business Measures captures business trends with questions about whether several business measures increased, decreased, or stayed about the same. The measures are customers, employees, hours of operation, wage & benefits costs, food & beverage costs, all other costs, gross sales, and profits. Q-27 Minimum Wage captures direct and indirect economic effects of the 26% increase in the minimum wage imposed on San Francisco businesses in February 2004. Bottom line is the minimum wage forced the cost of employees for San Francisco restaurants and bars up 10%. Q-28 Culinary Center & Q-29 Service Trends explore the evolving nature of San Francisco’s culinary center – trends now driven by the enormous increase in Cityregulated costs during the last five years. Q-29 Service Trends looks at current service trends and growth prospects and finds a tilt toward fewer services to absorb the impact of the 26% increase in the minimum wage and even greater percentage increases in other government regulated costs. Q-30 Health Insurance examines the effects of the rapidly rising cost of health care and government-regulated costs on restaurants’ provision of employee health insurance. Q-31 Issues asks respondents to rate the importance of a dozen different issues affecting the restaurant industry. Top dog is San Francisco’s indexed minimum wage, followed by State tip credit, other labor costs, worker’s comp costs, and health insurance costs. 4.6 RELATION TO PREVIOUS SURVEYS The present study used methods similar to those of previous GGRA annual restaurant industry studies. There is some continuity among the three surveys that have been conducted because the entire San Francisco GGRA membership is included in each of the survey panels. In addition there are about 100 restaurants that have appeared in the random pick in all three surveys. However, since the identity of survey respondents is not known, how many, if any businesses included in all three surveys actually responded to one or more of the three surveys is not known. The reader is cautioned that the three surveys are entirely independent of one another. CHAPTER 5 QUESTIONNAIRE PART I NONFINANCIAL INFORMATION 5-1 5.1 INTRODUCTION This chapter describes the nature and dimensions of the operations conducted by respondents to the Golden Gate Restaurant Association’s restaurant industry survey 2005. Information presented is taken from respondents’ answers to 24 questions that comprise Part I of a three-part survey questionnaire, a copy of which is presented in Appendix Exhibit 6. Part I requests nonfinancial information with two exceptions: Question 23 asks respondents to select a range for their annual Gross Sales of Food and Alcoholic Beverages from a list of ranges stated in half million dollar increments; Question 19 asks for an estimate of the respondent’s Average Guest Check per Person. Fifty-two respondents returned Part I of the survey questionnaire to GGRA’s research associate. These responses include 48 table service restaurants, 1 limited service restaurant, and 3 bars. There were insufficient numbers of respondents with limited service restaurant or bar licenses to present results for these groups separately without risking identification of an individual respondent in the data. Since data provided by the limited service restaurant and bar respondents were closer to medians for the 48 table service restaurants than data provided by many individual table service restaurants, data for all 52 respondents were analyzed together for this report. Q.1 – LICENSE & SIZE Table 5.1 compares the survey panel, survey returns and GGRA membership to the universe of restaurants and bars in San Francisco. Table service restaurants are 78% of the universe, 80% of the survey panel, 87% of GGRA’s membership and 92% of Part I returns in this survey. Quickservice restaurants were 12% of the survey panel, but produced only 2% of the returns. Bars, at 8% of the survey panel, did much better accounting for 6% of returns. Although the proportion of survey panel is roughly in sync with the universe, the progression of shares from table service restaurants the smallest (H-24) to the largest (H26) restaurants is the reverse of the universe. Panel shares of 23%, 26%, 30% are matched to universe shares of 28%, 27%, 23%. Survey returns exhibit larger variance from the universe than the survey panel. The survey returns progression from the smallest (H-24) to the largest (H-26) restaurants is 15%, 25%, 52%. It closely matches the GGRA membership progression of 12%, 23%, 51%, but is noticeably different from the universe progression of 28%, 27%, 23%. There is a difference between the average size of table service restaurants in the panel and in the universe. This arises from a higher concentration of large restaurants in GGRA’s San Francisco membership than in the universe of all San Francisco restaurants. The survey was mailed to all GGRA members and a 25% random sample of all San Francisco restaurants and bars except GGRA members. These two, non-duplicative mailings together constitute a 34% sample of the universe. CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-2 GGRA members are 27% of the businesses solicited to participate in the survey, but they probably represent a much larger percentage of actual respondents. This is the third annual survey conducted by their organization and they are familiar with both the drill and the final product. Moreover, they receive lots of information from GGRA about the importance of their participation. Even without being a member of the organization conducting the survey, this group of businesses is inclined to participate. Their number includes many of the oldest, largest and most successful restaurants in San Francisco who long have been involved in efforts to better understand and improve their industry. Nearly 60% are large restaurants with the financial stability to devote resources to completing a lengthy questionnaire. The reader should be aware we are looking a some of our City’s most successful restaurants in these data – whatever their current level of profit or loss. Tables 5.1 and 5.2 present the distributions just discussed. Table 5.1 Survey Panel & Part I Survey Returns Compared to Universe of San Francisco Restaurants & Bars Percent Distribution by Type of License March 2005 SF License Description H-24 Less than 1,000 sq ft H-25 1,000 to 2,000 sq ft H-26 More than 2,000 sq ft Table Service Restaurants H-28 Take-Out H-29 Fast Food Quickservice Restaurants H-27 Bars, Taverns & Lounges All Restaurants & Bars Survey Returns 15% 25% 52% 92% 2% 0% 2% 6% 100% Survey GGRA SF All SF Panel Members Licenses 23% 12% 28% 26% 23% 27% 30% 51% 23% 80% 87% 78% 10% 5% 13% 1% 0% 1% 12% 5% 14% 8% 6% 9% 100% 100% 100% Source: San Francisco Tax Collector; GGRA Restaurant Survey 2005 Table 5.2 Table Service Restaurant Survey Panel & Survey Returns Compared to Universe of San Francisco Restaurants & Bars Percent Distribution by Size & License License H-24 H-25 H-26 Description Less than 1,000 sq ft 1,000 to 2,000 sq ft More than 2,000 sq ft Total Survey Returns 17% 27% 57% 100% Survey Panel 29% 33% 38% 100% GGRA SF Members 14% 27% 59% 100% All SF Licenses 36% 35% 29% 100% Source: San Francisco Tax Collector, GGRA Restaurant survey 2005 CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-3 Table 5.1 highlights the fact that large table service restaurants are a larger percentage of GGRA membership than of the universe of all San Francisco restaurant and bar licenses (51% vs. 23%), and all table service restaurants as a group are a larger percentage of GGRA’s membership than they are of the San Francisco universe (92% vs. 78%). This contributes to the relative high percentage of respondents that are table service restaurants (92%) and large table service restaurants (52%), despite their smaller shares of the survey panel (80% and 30%, respectively). The small limited service restaurant and bar shares of respondents (2% and 6%, respectively) relative to their shares of the survey panel (13% and 8%, respectively) also boost the percentage share of table service restaurants. Q.2 – ZIP CODE Survey respondents are spread across 16 San Francisco zip codes. Two respondents did not report their ZIP code. Significant concentrations within San Francisco ZIP codes are summarized in Table 5.3. In general, the largest concentrations of restaurants by ZIP code among respondents track the largest concentrations of restaurants in San Francisco (shaded areas in the table). The tabulation of this information by individual ZIP code is presented in Appendix Exhibit 6. Table 5.3 Comparison of Survey Respondents with Universe of All San Francisco Restaurants & Bars Number Returns % Distribution Universe Universe Returns Downtown -- Chinatown -- Central Waterfront 94104, 94105, 94108, 94111 South of Market -- South Waterfront 94103, 94107 N. Waterfront – North Beach -- Pacific Heights -- Marina Nob Hill -- Russian Hill 94109, 94115, 94119, 94123, 94133 Civic Center -- Hayes Valley -- Haight Ashbury 94102, 94117 Mission -- Noe Valley -- Castro - Bernal Heights 94110, 94114 Twin Peaks -- Diamond Heights -- Miraloma -West Portal -- UCSF 94127, 94131, 94143 Presidio -- Richmond -- Sunset 94118, 94121, 94122, 94129 Southwest Neighborhoods 94112, 94116, 94132 Southeast Neighborhoods 94124, 94134 Airport Mail Centers 94125, 94128 TOTALS 9 3 17 11 4 1 5 0 0 2 52 452 346 718 381 411 70 378 193 87 0 3,036 17% 6% 33% 21% 8% 2% 10% 0% 0% 4% 100% 15% 11% 24% 13% 14% 2% 12% 6% 3% 0% 100% CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-4 Q.3 – GENERAL LOCATION In addition to providing a ZIP code, survey respondents were asked to select a geographic location from a prepared list. Responses are summarized in Table 5.4. If the respondents picked “neighborhood commercial” from the list, they were asked to write in the name of the neighborhood commercial area. These responses are summarized in Table 5.5. Table 5.4 San Francisco Area Location of Respondents Number of Respondents 9 7 5 7 2 2 18 2 52 Percent of Respondents 17% 13% 10% 13% 4% 4% 35% 4% 100% Location Downtown/South of Market Union Square Embarcadero Fisherman’s Wharf Mid-Market/Civic Center Van Ness Corridor Neighborhood Commercial No answer Total Table 5.4 San Francisco Neighborhood Commercial Districts Number of Respondents 2 1 2 2 1 2 1 1 1 1 3 1 18 Percent of Respondents 11% 6% 11% 11% 6% 11% 6% 6% 6% 6% 17% 6% 100% Neighborhood Castro Japan Town Marina Mission Noe Valley North Beach Ocean Beach Pacific Heights Potrero Richmond District Sunset District Western Addition Total The largest number of respondents in Table 5.4 is in the neighborhood commercial district category where 18 respondents are distributed among 12 neighborhoods. The major area concentrations in Table 5.4 are in the Downtown/South of Market area, on the Embarcadero, and at Fisherman’s Wharf. There are no significant concentrations of CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-5 respondents in neighborhood commercial districts. The largest number, three, are in the Sunset, with two each in the Castro, Marina, Mission, and North Beach. Q.4 – TYPE OF OWNERSHIP Respondents were asked to indicate the ownership form of their establishments and if it were a family-owned business. As shown in Table 5.6, Partnerships and Private Corporations each are 38% of respondents and together account for more than threefourths of survey participants (76%). Most of the remaining businesses are Sole Proprietorships (15%), with only two respondents indicating they are Public Corporations. Eight percent of respondents are family-owned businesses. Table 5.6 Respondents’ Type of Ownership Number of Respondents 8 20 20 2 2 52 4 Percent of Respondents 15% 38% 38% 4% 4% 100% 8% Sole Proprietorship Partnership Private Corporation Public Corporation no answer Total Family Owned Q.5 – TYPE OF ORGANIZATION Respondents were asked whether their businesses are independent operations or part of organizations (chains) that operate two or more such businesses. A large majority (71%) are independent with 21% of respondents indicating they are part of a larger business organization. These results are summarized in Table 5.7. Table 5.7 Type of Business Organization Number of Respondents 37 11 4 52 Percent of Respondents 71% 21% 8% 100% Independent Multi-unit no answer Total CHAPTER 5 Q.6 – FRANCHISE QUESTIONNAIRE PART I TABULATION 5-6 Respondents were asked if they are a Franchisee, Franchiser, both or neither. The vast majority (92%) are neither, but one respondent is both a Franchisee and a Franchiser, as shown in Table 5.8. Three respondents did not answer this question. Table 5.8 Franchise Arrangement, If Any Number of Respondents 0 0 1 48 52 Percent of Respondents 0% 0% 2% 92% 100% Franchisee Franchiser Both Neither Total Q.7 – NUMBER OF YEARS IN BUSINESS Respondents have enjoyed relatively great longevity considering that since 1998 on average 592 San Francisco restaurants and bars have gone out of business each year. These businesses were not quite fully replaced by an average of 574 new restaurant or bar licenses issued each year in this period. Prior to 1998 the Tax Collector did not maintain accurate records of the number of restaurants and bars that surrender their license. Table 5.9 shows that 71% of respondents have been in business more than 5 years, 67% more than 10 years, and 37% more than 20 years. Some 8% of respondents have been in business less than 2 years, which means they launched their ventures in the depths of recession. Table 5.9 Number of Years in Business Number of Respondents 4 9 12 10 15 2 52 37 25 15 Percent of Respondents 8% 17% 23% 19% 29% 24% 100% 71% 48% 29% Less than 2 years 2 to 5 years 6 to 10 years 11 to 20 years More than 20 years Not reported Total Exhibit: More than 5 years More than 10 years More than 20 years CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-7 Q.8 – PRIMARY TYPE OF BUSINESS Respondents were asked to identify their type of business from a prepared list that included three types of full service restaurants (classified by the amount of the average check per person), limited service restaurants, cafeterias, caterers and bars. They also were offered an “Other, please specify” choice that was selected by one coffee/pastry shop. Table 5.10 shows that 88% of respondents are restaurants, with three-fourths (75%) full service restaurants, and 13% limited service restaurants. Of the remaining 12% of respondents, 6% are bars, the coffee/pastry shop is 2%, and non-respondents are 4%. Fifteen percent of full service restaurants have an average check per person of less than $15, 21% have an average check per person of $15–$25, and 39% have an average check per person more than $25. Table 5-10 Primary Type of Business Number of Respondents 8 11 20 39 7 1 13 2 52 Percent of Respondents 15% 21% 39% 75% 13% 2% 6% 4% 100% Full Service Restaurant, Av Ck < $15 Full Service Restaurant, Av Ck $15 to $24.99 Full Service Restaurant, Av Ck $25 or more Subtotal: Full Service Restaurants Limited Service Restaurant Coffee/pastry Shop Bar/Tavern/Lounge Coffee House no answer Total Q.9 – LIQUOR SERVICE Most restaurants sell some type of alcoholic beverage and many bars sell prepared restaurant food. If food sales are more than 50% of total sales of food and alcohol, the establishment is classified as a restaurant; if alcohol sales are more than 50% of total sales of food and alcohol, the establishment is classified as a bar. As shown in Table 5.11 88% of survey respondents sell alcoholic beverages; 33% have a Beer and Wine license and 55% are licensed for full liquor service. Only 8%, mainly limited service restaurants, report no alcoholic beverage service. Table 5.11 Liquor Service Number of Respondents 17 29 46 4 2 52 Percent of Respondents 33% 55% 88% 8% 4% 100% Beer & Wine Full Liquor Service Subtotal: Alcoholic Beverage No Alcoholic Beverages no answer Total CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-8 Q.10 – PRIMARY MENU TYPE The primary menu themes of survey respondents summarized in Table 5.12 are eloquent testimony to the wide variety of dining choices in San Francisco. The most popular menu themes are American (29%), Italian (17%), and Seafood (13%). The remaining 41% are spread across 14 other approaches with French, Mediterranean, Café, Japanese, and Mexican each having 4% to 6% of respondents. Table 5.12 Primary Menu Theme Menu Theme American Asian Café Californian French Indian Italian International Japanese Number 15 1 2 1 3 1 9 1 2 Percent 29% 2% 3% 2% 6% 2% 17% 2% 4% Menu Theme Latin Mediterranean Mexican Pizza Sandwiches Seafood Soup no answer Total Number 1 1 2 1 1 7 1 3 52 Percent 2% 2% 4% 2% 2% 13% 2% 6% 100% Q.11 – ESTABLISHMENT SITE A substantial majority of respondents lease the land (42%) and building or other space (40%) where their business is located as shown in Table 5.13. Some 15% own the land, and 19% own the building where they do business. Two respondents did not answer this question. Table 5-13 Ownership of Establishment Site Number of Respondents Percent of Respondents Land Owned Land Leased no answer Total Building Owned Building Leased no answer Total 8 42 2 52 10 40 2 52 15% 81% 4% 100% 19% 77% 4% 100% CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5-9 Q.12 – FOOD SERVICES OTHER THAN DINING ROOM Nearly half (47%) of respondents do some take-out business, even though only 3% of them are licensed as take-out restaurants. The average share of business for establishments offering take-out service is 23% and the median share is 8%. The average share is “pulled up” by the respondent that is licensed as take-out restaurants and does 100% of its business as take-out. Therefore, the median share is the better measure of the current importance of take-out in San Francisco’s restaurant industry. Outside Catering is numerically less important than take-out, but still more than onequarter (24%) of respondents offer catering service, although the share of business catering represents for those offering the service averages only 4.4% with the median share being 3.5%. Banquet Service is offered by more than half (53%) of respondents. Its share of business for those offering the service averages 12% with a median share of 10%. These data are summarized in Table 5.14. Table 5.14 Food Services other than Dining Room Service Take Out Service Outside Catering Banquet Service Number Percent Number Percent Number Percent 23 47% 12 24% 26 53% 26 53% 37 76% 23 47% 49 100% 49 100% 49 100% 23% 4.4% 12% 8% 3.5% 10% Offered Not Offered Total Average % of Business Median % of Business NOTE: Average & Median percents of business consider only respondents offering the service. Q.13 – DAYS & MEALS OPEN FOR BUSINESS The meals respondents offer on at least one day a week and meals they offer daily are summarized in Table 5.15. The meals they offer on specific days of the week are detailed in Table 5.16. Table 5.15 Meals Offered & Meals Offered Daily Offered Number Percent 19 31% 42 81% 40 88% 0 0% Offered Daily Number Percent 13 25% 29 56% 32 62% 0 0% Breakfast Lunch Dinner 24 - 7 CHAPTER 5 QUESTIONNAIRE PART I TABULATION Table 5.16 Days Specific Meals Offered Breakfast Number Percent 15 27% 16 29% 16 31% 16 31% 17 33% 17 33% 17 33% 5 - 10 Monday Tuesday Wednesday Thursday Friday Saturday Sunday Lunch Dinner Number Percent Number Percent 35 67% 39 75% 39 75% 42 81% 40 77% 44 85% 40 77% 45 87% 41 97% 45 87% 34 65% 44 85% 31 60% 38 73% Q.14 – ESTABLISHMENT’S PHYSICAL SITUATION The most common physical situation for survey respondents is as a restaurant in a hotel (23%), followed by a location in an apartment building or as the sole occupant of a building (17%, each), followed by a location in an office building (15%). Another 10% each are located on a Pier or in a Shopping Center. These and other physical situations are summarized in Table 5.17. Table 5.17 Establishment’s Physical Situation Number of Respondents 9 12 8 1 5 5 1 9 2 52 Percent of Respondents 17% 23% 15% 2% 10% 10% 2% 17% 4% 100% Apartment Building Hotel, Transient Office Building Multi-Purpose Building Pier Shopping Center or Mall Transit Center (BART or MUNI Station) Sole Occupant of Building Not Reported Total Q.15 – NUMBER AND CONFIGURATION OF SEATS OR STOOLS The configuration of seats in this survey clearly reflects two attributes of survey respondents: that 52% are large restaurants, and that 23% are located in hotels. The median number of dining room seats is relatively high, and the average is 30% higher, suggesting there are some very large restaurants in these numbers. The medium and average numbers of banquet seats are twice the comparable dining room numbers, pointing to a major demand for banquet service at respondent’s restaurants. CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 11 With the exception of most bars, nearly everyone (96%) has a dining “room,” even if it’s a couple of tables next to the take-out counter. More than two-thirds (69%) have a bar, and one-third (33%) have banquet rooms. In “sunny San Francisco” 40% have outside, open-air seating. The presence of such a large number of large restaurants among Survey respondents, makes the median, rather than the average, the more accurate reflection of a “typical” San Francisco restaurant. For total seats the average is 214 and the median is 125; for dining room seats the average 104 and the median is 80. The number and configuration of seats at respondents’ businesses is summarized in Table 5.18. Table 5-18 Number & Configuration of Seats & Stools Respondents Number of Seats Number Percent Total Average Median 46 96% 4,782 104 80 33 69% 1210 37 22 16 33% 3496 219 163 19 40% 609 32 24 1 2% 176 176 176 48 100% 10,273 214 125 Dining Room Bar or Lounge Banquet Rooms Outside – Open Air Other Areas Total NOTE: The total, average and median number of seat are computed for the number of respondents reporting seats in the category. Q.16 – SIZE OF ESTABLISHMENT The average size of respondents’ establishments at 6,065 sq ft is 63% larger than the median of 3,875sq ft. indicating some very large restaurants in the sample. The difference between the average and the median for individual parts of the restaurant (dining room, kitchen, banquet rooms, and other areas) is less pronounced than the difference in total area because the largest restaurants also tend to be the ones with additional seating in banquet rooms and other areas. The median size dining room at 1,650 sq ft, is virtually the same as the average of 1,685 sq ft. The difference is greater for kitchens where the median size is 1,000 sq ft and the average is 1,398 sq ft. These data are summarized in Table 5.19. Table 5.19 Size of Establishment (square feet) Respondents Square Feet Number Percent Total Average Median 40 95% 93,317 2,458 1,650 40 95% 55,930 1,398 1,000 16 38% 60,816 3,801 2,000 30 71% 30,672 1,322 950 42 100% 154,444 6,065 3,875 Dining Room Kitchen Banquet Rooms Other Areas Total NOTE: The total, average and median number of square feet are computed for the number of respondents reporting seats in the category. CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 12 Q.17 – MAXIMUM LEGAL OCCUPANCY The median maximum legal occupancy of respondents is 152 people and the average legal occupancy is 179 people. These data are presented in Table 5.20 with similar data on the median, average, and total number of seats taken from the Survey. The fact the total number of seats is 29% higher than total maximum legal occupancy suggests there may be some inconsistency between responses to Survey Questions 15 and 17, but this isn’t necessarily true. Although the average number of respondents’ indoor seats is 10% higher than average maximum legal occupancy, the median number of seats is 30% lower than maximum legal occupancy. It would not be unusual for large complex restaurant operations to have more seats than their maximum legal occupancy because not all are in use at the same time. Table 5.20 Maximum Legal Occupancy & Number of Seats (numbers of people & seats) Maximum Legal Number Median Average Total Number of Respondents Occupancy 152 179 7,327 41 Indoor Seats 107 198 9,488 48 NOTE: Data for Legal Occupancy and Seats reflects only those reporting data for these items. Q.18 – NUMBER OF CUSTOMERS PER YEAR Survey participants were asked to give their “best estimate” of the number of customers they serve in a year. The quality of these estimates varied considerably, suggesting that number of customers served per year is not a statistic many restaurants readily have at hand. Edit checks were built in to many questions in the Survey to permit the research associate to monitor the internal consistency of answers, and make adjustments where it’s reasonably clear what is out of line and by how much. The edit check for this item was to multiply the number of customers per year reported in Question 18 by the average check per customer report in Question 19 to get an estimate of gross sales. The gross sales estimate then was compared to the range for annual gross sales reported in Question 24 and to the amount of gross sales reported in the Income and Expense Statement in Part II of the survey questionnaire. Inconsistencies generally were resolved by adjusting the estimate of customers served per year to bring the product of this estimate and average guest check per person within the limits of the annual gross sales range reported in Question 23. Experience with this question in previous surveys suggests restaurateurs have a firmer grip on the average check per person than on the total number of customers they serve in a year. CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 13 The 43 survey participants that reported estimates of their annual number of customers collectively serve nearly 5.1 million people a year. The median number served is 80,000 and the average is 119,127. These data are presented in Table 5.21. Table 5.21 Customers Served Per Year (numbers of people) People Median Average Total Number of Respondents 80,000 119,127 5,122,463 43 NOTE: Data for only those reporting Q.19 – AVERAGE CHECK PER PERSON SERVED The median average check per person for the 46 respondents to this question is $22.18 and the average, average check per person is $26.95, as shown in Table 5.22. These results are consistent with answers to Question 8 where 21% of respondents characterized themselves as a full service restaurant with average check of $15–$25, and 38% of respondents characterized themselves as restaurants where the average check is more than $25. Table 5-22 Average Check Per Person Served Amount Median Average Number of Respondents $22.18 $26.95 46 As noted in comments on Question 18, the product of a respondent’s answers to Questions 18 and 19 provides an estimate of that respondent’s total sales. Data shown in Table 5.23 were computed from these products for the 46 respondents, and yield median total sales of $1.8 million and average total sales of $3.4 million. CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 14 Table 5.23 Total Sales Implicit in Tables 5-22 & 5-23 (dollars) Total Sales Median Average Total Number of Respondents 1,756,000 3,393,438 145,917,817 46 These estimates are not comparable to the lower median ($521,752) and average ($1,040463) estimates of total sales reported from the Income and Expense Statement data in Part II of the survey questionnaire. Income and Expense Statement data were provided by 31 respondents with aggregate total sales of $36 million, vs. the 46 respondents that provided estimates of aggregate total sales for Question 18 and 19 of $145 million. As one would expect, the difference between the two sets of estimates is much more pronounced for average total sales than for the median. Q.20 – CURRENT “TYPICAL WEEK” NUMBER OF PAID EMPLOYEES In a “typical week” last year the median number of employees working for respondents was 32, with a median of 15 working in the kitchen and a median of 23 in the front of the house. (Note that 15 + 23 ≠ 32. These are medians and averages analyzed separately for each value. The detail will not sum to the total.) The average was 56 employees, with an average of 24 in the kitchen and an average of 38 in the front of the house. Table 5.25 presents these and other data on “typical week” paid employees. Table 5.24 defines the terms used in Table 5.25. Of the median of 32 employees, a median of 8 were full time working more than 35 hours per week, 10 were part time working 20 to 35 hours a week, and 2 were part part time working less than 20 hours per week. A much higher percentage of kitchen staff worked full time (81%) than front of house staff (49%), and a much lower percentage (15%) work part time in the kitchen that in the front of house (49%). The difference also was large for part part time staff, 5% in the kitchen, and 15% in the front of house. The story for the averages is a little different. Of the 56 employee average, 35 were full time, 16 were part time, and 6 were part part time. As with the median, average full time kitchen staff is a larger share of the total (83%) than average full time front of house staff (55%). Average part time kitchen staff (15%) and average part time front of house staff (37%) also are far apart, and the gap widens for average part part time staff in the kitchen (4%) and front of house (18%). CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 15 Table 5.24 Employment Classification Defined Acronym FT PT PPT Classification Full Time Part Time Part Part Time Definition more than 35 hours per week 20 to 35 hours per week less than 20 hours per week Restaurant operations are characterized by peaks in demand for service associated with peak meal times over a 15-hour period. These fluctuations in demand for service generate fluctuations in the need for staff over the course of the day. Most restaurants deal with their highly variable staffing requirements by bolstering a core full time staff who often work a split shift, with part time, and part part time workers. Table 5.25 Current “typical week” Number of Paid Employees Respondents Number Percent Kitchen Full Time Part Time Part Part Time Total Employees Front of House Full Time Part Time Part Part Time Total Employees Total Establishment Full Time Part Time Part Part Time Total Employees 42 46 42 43 40 43 37 44 48 48 48 48 81% 88% 81% 83% 77% 83% 71% 85% 92% 92% 92% 92% Number of Employees Total Average Median 824 150 46 1,020 833 602 248 1,683 1,657 752 249 2,703 20 4 1 24 21 14 7 38 35 16 6 56 11 1 0 15 10 10 3 23 16 10 2 32 NOTE: The total, average and median number of employees are computed for the number of respondents reporting employees in the category. Q.21 – Current “typical week” Number of Paid Hourly Employees The current “typical week” number of paid hourly employees is summarized in Table 5.26, and a comparison of the averages and medians for all paid employees and paid hourly employees is presented in Table 5.27. The main messages in this comparison are that 1) salaried positions are, with very few exceptions, full time, and 2) the overwhelming majority of positions at restaurants are hourly. As with many other CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 16 comparisons in this report, there is more variance among the average than among the medians in these tables. Table 5.26 Current “typical week” Number of Paid Hourly Employees Respondents Number Percent Kitchen Full Time Part Time Part Part Time Total Employees Front of House Full Time Part Time Part Part Time Total Employees Total Establishment Full Time Part Time Part Part Time Total Employees 43 43 42 45 44 44 43 45 46 46 46 46 83% 83% 81% 87% 86% 85% 83% 87% 88% 88% 88% 88% Number of Employees Total Average Median 739 146 44 902 713 591 241 1,545 1,461 738 285 2,434 17 3 1 20 16 13 6 34 32 16 6 54 6 1 0 12 8 10 1 21 16 10 2 32 NOTE: The total, average and median numbers of employees are computed for the number of respondents reporting employees in the category. Table 5.27 All Paid Employees & All Hourly Employees Comparison of Averages & Medians Average Hourly Difference All Paid 17 3 1 20 16 13 6 34 3 1 0 4 5 1 1 4 11 1 0 15 10 10 3 23 Median Hourly Difference 6 1 0 12 8 10 1 21 5 0 0 3 2 0 2 2 All Paid KITCHEN Full Time Part Time Part Part Time All 20 4 1 24 21 14 7 38 FRONT OF HOUSE Full Time Part Time Part Part Time All TOTAL ESTABLISHMENT Full Time Part Time Part Part Time All 35 16 6 56 32 16 6 54 3 0 0 2 16 10 2 32 16 10 2 32 0 0 0 0 CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 17 In a “typical week” last year the median number of hourly employees working for respondents was 32, with a median of 12 working in the kitchen and a median of 21 in the front of the house. The average was 54 employees, with an average of 20 in the kitchen and an average of 34 in the front of the house. Of the median of 32 hourly employees, a median of 16 were full time working more than 35 hours per week, 10 were part time working 20 to 35 hours a week, and 2 were part part time working less than 20 hours per week. Among full time hourly employees, about the same median number work in the kitchen (6) as in the front of the house (8). The median for part time front of hours employees (10) was much higher than the median for part time kitchen staff (1). In the case of hourly employees, the averages parallel the medians. Of the 54 employee average, an average of 32 were full time, 16 were part time, and 6 were part part time. Among full time hourly employees, about the same average number worked in the kitchen (17) as in the front of the house (16), but among part time hourly employees, many more work in the front of the house (13) than in the kitchen (3). Q.22 – NUMBER OF W-2 FORMS SENT LAST YEAR In this Survey the number of IRS Form W-2s generated annually by 46 respondents is about 1.4 times the total number of employees in a “typical week” reported by 48 respondents in Question 20. This reflects both staff turnover and the high percentage of part time jobs in the restaurant industry work force. The median number of 4 salaried employees is about 17% of total employees, and the average of 9 salaried employees (those large restaurants again) is about 21% of total employees. These data are summarized in Table 5.28. Table 5.28 Number of W-2 Forms Sent Last Year Respondents Number Percent 46 72% 51 80% 58 91% Number of Forms Total Average Median 415 9 4 1,949 38 22 2,448 42 24 Salaried Employees Hourly Employees Total Employees NOTE: The total, average and median number of W-2 forms are computed for the number of respondents reporting W-2 forms in the category. Q.23A – AVERAGE WEEKLY NUMBER OF “TIPPED” EMPLOYEES The number of “Tipped” employees generally is synonymous with the number of front of house employees, however there is a significant difference (44%) between the median number of tipped employees (16) in Table 5.29 and the median number of “typical week” front of house employees (23) shown in Table 5.56. The averages for these two measures exhibit similar variance (52%) between respondent’s answers to Questions 23a and Question 20 (25 “tipped” vs. 38 “typical week” front of house employees). CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 18 Table 5.29 Average Weekly Number of “Tipped” Employees Employees 16 25 1074 43 Median Average Total Number of Respondents A literal interpretation of the variance might suggest a significant number of respondents’ front of house employees are not tipped, but that does not square with what we know about restaurant operations. A more likely explanation is that respondents have significantly understated their number of tipped service personnel. Respondents (43) to Question 23a report a total of 1,074 typical week tipped employees, whereas respondents (44) to Question 20 report a total of 1,683 typical week front of house employees. The 609 employee difference between the total number of tipped and front of house employees is roughly the same percent variance (56%) as the percent variance between the median an average numbers of tipped and front of house employees reported by respondents. Q.23B – TENURE OF CURRENT WAIT/COUNTER STAFF Restaurants have a reputation for high staff turnover attributed by many commentators to relatively low wages and the use of large numbers of part time and part part time workers. Data in Table 5.30 on the tenure of current wait/counter staff do not support this reputation because respondents to this survey are not relatively low wage employers and they do not have high turnover rates in their staff. The median percent of current wait/counter staff in their current job more than 1 year is 62%, and the median percent that have been with their current employer more than 4 years is 26%. At the other end of the scale 20% of current wait/counter staff have been in their current job less than 6 months. Table 5.30 Tenure of Current Wait/Counter Staff Respondents Number Percent 44 85% 44 85% 44 85% 44 85% % of Employees Median Average 10% 20% 20% 17% 32% 37% 18% 26% less than 6 months 6 months to 1 year 1 year to 4 years 4 or more years Q.24 – ANNUAL GROSS SALES RANGE (FOOD & ALCOHOLIC BEVERAGES) Some 17% of respondents report annual gross sales of less than $0.5 million; a third (33%) have sales less than $1 million, and a little over half (54%) have sales less than $2 CHAPTER 5 QUESTIONNAIRE PART I TABULATION 5 - 19 million. None of the respondents report gross sales in the $2 million to $2.5 million segment of this question. Some 38% of respondents (20) report gross sales of more than $2.5 million underscoring again the importance of large restaurants in the data analyzed for this report. Some 8%. These data are presented in Table 5.31. Table 5.31 Annual Gross Sales Range Food & Alcoholic Beverages Number of Respondents 9 4 4 7 4 0 20 4 52 Percent of Respondents 17% 8% 8% 13% 8% 0% 38% 8% 100% less than $ 500,000 $ 500,000 to $ 750,000 $ 750,000 to $1,000,000 $1,000,000 to $1,500,000 $1,500,000 to $2,000,000 $2,000,000 to $2,500,000 more than $2,500,000 Not reported Total CHAPTER 6 QUESTIONNAIRE PART II STATEMENT OF INCOME & EXPENSES 6–1 6.1 INTRODUCTION This chapter describes the business results achieved by San Francisco table service restaurants in 2003 and 2004, and compares these results to results achieved by table service restaurants located in metropolitan areas nationwide. Data for San Francisco table service restaurants were provided by respondents to Golden Gate Restaurant Association’s Restaurant Industry Survey 2005. A detailed description of the San Francisco survey is given in Chapter 4 of this report and copies of the survey questionnaire and its covering letter are presented in Appendix Exhibits 4, 5 and 7 of this report. National data are taken from the National Restaurant Association’s Restaurant Industry Operations Report 2004 that is based on data for 2003 provided by 594 table service restaurants located in metropolitan areas nationwide. 6.2 SUMMARY OF FINDINGS The year 2004 was a transition year for most San Francisco restaurateurs – from deep recession to a tentative recovery tempered by skyrocketing government-regulated costs of doing business, and a protracted, and as yet unresolved labor dispute in the hotel industry. Tax records show 518 table service restaurants surrendered their licenses during 2004, and 521 new licenses were issued for an essentially status quo gain of just 3 restaurants in this long-awaited period of recovery. Another 176 restaurants closed during the first three months of 2005, vs. 79 new licenses issued for a net loss of 97 restaurants. The Statements of Income and Expenses provided by respondents to Restaurant Industry Survey 2005 help explain these cross currents. • Median income before income taxes at San Francisco table service restaurants rose 17% in 20041 from the recession-depressed levels of 2003. Nevertheless, 35% of respondents report their income decreased in 2004, and 25% of respondents report the increase in their income for 2004 (included in the 17% rise just mentioned) was from a larger to a smaller loss position. • Median income as a percent of total sales rose to 4.5% in 2004 from 3.7 in 2003,2 and 2.5% at the trough of the San Francisco restaurant recession in 2002.3 However, income as a percent of total sales in 2004 still was below the 4.9% achieved in 2000, 1 This increase, shown in the last line of Table 6.1, is calculated by first taking the percent change for each respondent, then taking the median of those percent values. The calculated 15% increase occurs despite the fact the calculated median income for 2003 ($77 million) is higher than the calculated median income for 2004 ($55 million). 2 These data appear in Table 6.2 and are calculated as the median incomes before income taxes of 2003 respondents and 2004 respondents, respectively. Table 6.4 presents data on changes in income and expenses in 2003 and 2004, but these data are calculated as changes for each respondent, then as the median of the series. All are independent medians and may not be used in arithmetic calculations. 3 Economics of the San Francisco Restaurant Industry 2003, Kent Sims for the Golden Gate Restaurant Association. CHAPTER 6 QUESTIONNAIRE PART II 6-2 the last year before the recession began and city government imposed a series of major cost increases on restaurants. The median increase as a percent of sales at San Francisco restaurants was in the middle of the 3% to 7% range for various types of restaurants nationally.4 • Median gross margin on sales was a healthy 71% of sales in 2004, down from 72% in 2003. Unfortunately, median operating expenses in San Francisco were high as well -- 67% of sales in 2004, up from 66% in 2003, which was well above the 2003 national range of 58% to 62% of respondents • The principal drivers of high operating costs were the cost of employees (38% and 39% of sales in San Francisco vs. 30% to 34% in metropolitan areas nationwide), and occupancy costs (8% and 9% of sales in San Francisco vs. 5% to 7% nationwide). • Income and expenses data per seat indicate San Francisco table service restaurants use their physical plants much more intensively than their average counterpart nationwide, a necessary consequence of doing business in a market with unusually high labor and occupancy costs. 6.3 INCOME & EXPENSES – THE BIG PICTURE Major Income and Expenses for 2003 and 2004, and dollar and percent changes between these years, are summarized in Table 6.1. The significant difference between median and average dollar values for most line items indicates the presence of some very large restaurants in the sample. For most items the average is more than twice the median value. The reader generally should view the median as more representative of the majority of San Francisco restaurants. Medians and averages for the Cost of Employees and Income before Income Taxes move in opposite directions, with the averages moving up and the medians moving down from 2003 to 2004. For all other items in Table 6.1 the median and average values move in the same direction, namely down from 2003 to 2004. The bottom line in this sample of restaurants is that median income before income taxes rose 17% in 2004 and average income before income taxes rose 92%. The 17% median increase in income is counter intuitive because the median percent increase in 2004 Total Operation Expenses (8.8%) was greater than the median increase in 2004 Gross Margin on Sales (8.0%). The 92% average increase in income could be attributed to the average increase in Gross Margin (7.2%) being well above the average increase in Total Operating Expenses (6.7%). 4 The National Restaurant Association publishes data on four types of restaurants in is Annual Restaurant Industry Operations Report. These are three categories of table services restaurants (those with average checks per person of less than $15, $15 to $25, and more than $25) and limited service restaurants. CHAPTER 6 QUESTIONNAIRE PART II 6-3 Table 6.1 San Francisco Table Service Restaurants INCOME & OPERATING EXPENSES SUMMARY Number of Respondents & Average & Median Values for Items 2003, 2004, 2004-2003, (2004-2003)/2003 Sales of Food & Alcoholic Beverages Gross Margin on Sales Income before Income Taxes 35 147 53 31 123 77 31 42 29 Cost of Goods Sold Total Cost of Operating Employees Expenses 2004 Respondents 35 35 35 35 36 Average (000) 3,706 1,037 2,668 1,426 2,409 Median (000) 1,879 522 1,436 911 1,456 2003 Respondents 31 31 31 32 32 Average (000) 3,758 1,070 2,688 1,399 2,438 Median (000) 2,780 777 2,002 965 1,845 2004-2003 Respondents 31 31 31 32 32 Average (000) 347 76 271 144 225 Median (000) 214 47 199 102 151 (20042003)/2003 Respondents 25 25 25 25 25 Average 6.5% 5.2% 7.2% 8.2% 6.7% Median 8.5% 7.8% 8.0% 9.2% 8.8% Source: San Francisco Restaurant Survey 2005, Golden Gate Restaurant Association 25 92% 17% 6.4 INCOME & EXPENSES – MEDIAN RATIOS TO SALES A statement of median values for most Income and Operating Expenses expressed as a percent of median total sales is presented in Table 6.2. Exceptions in the table are that food costs and alcoholic beverage costs are medians expressed as a percent of their respective median sales, rather than as a percent of median total sales, i.e. food costs as percent of food sales, and alcohol costs are a percent of alcohol sales. San Francisco table service restaurant data for 2003 and 2004 are compared to data for three different sizes of table service restaurants located in metropolitan areas nationwide. Data for San Francisco table service restaurants include only respondents that provided data for both 2003 and 2004. Therefore, the number of San Francisco respondents in Table 6.2 and 6.3 is slightly smaller than the number of respondents in Table 6.1. 6.4.1 FOOD AND BEVERAGE SALES The median value of food sales as a percent of total sales in 2003 (70%), and the comparable value for 2004 (72%) are similar to this ratio for high-check table service restaurants in the national survey (71%), but well below the ratio for small-check table service restaurants and quickservice restaurants. CHAPTER 6 QUESTIONNAIRE PART II 6-4 The San Francisco median values of alcohol sales as a percent of total sales in 2003 (31%) and 2004 (30%) are similar to the national ratios for large-check table service restaurants (29%), but well above the ratios for small-check (16%) and quickservice restaurants nationwide (2.5%). 6.4.2 FOOD & BEVERAGE COSTS Unlike other items in Table 6.2, median food and alcohol costs are a percent of their respective median sales, rather than a percent of median total sales. Median food costs for San Francisco table service restaurants are a noticeably lower percentage of their median sales (29%) than the ratios for table service restaurants nationwide (32% to 35%). Similarly, alcohol costs in San Francisco (27%) are a lower percentage of alcohol sales than nationwide (28% to 30%). 6.4.3 GROSS MARGIN ON SALES & TOTAL OPERATING COSTS Since the margins on both food and alcohol sales are higher in San Francisco than nationwide, San Francisco’s gross margin on total sales will be higher. The San Francisco median gross margins on sales for 2003 and 2004 were 72% and 71%, respectively, of median total sales vs. the national median of 66% to 68%, The gross margin on sales needs to be higher in San Francisco to cover median total operating expenses (66% and 67% of gross sales) that also are above the national median (60% to. 66%). 6.4.4 COST OF EMPLOYEES The cost of employees is a larger percentage of total sales at San Francisco table service restaurants (38% and 39%) than nationwide (30% to 33%). This reflects the fact that labor costs in general are higher in San Francisco, and that City government has imposed measures in recent years that sharply increased the cost of restaurant employees in San Francisco. This, in turn, has contributed to trends discussed elsewhere in this report toward less table service at San Francisco restaurants, and restaurants asking their employees to assume more of the costs of health insurance where provided. Salaries and wages are 30% of total sales at San Francisco restaurants and employee benefits are 9% in 2003 and 8% in 2004, making the total cost of employee 38% and 39%. The National Restaurant Association no longer publishes the wage and benefits components of the cost of employees as separate items. 6.4.5 OCCUPANCY COSTS Median occupancy costs for San Francisco table service restaurants are 8% and 9%, respectively, of median total sales for 2003 and 2004, vs. the national median of 7% to 8%. Relatively high San Francisco restaurant occupancy costs are driven by high demand for restaurant locations, but more importantly by local public policy that adds about 20% to the cost of everything built in San Francisco, including repairing, maintaining, or building out a restaurant shell. CHAPTER 6 QUESTIONNAIRE PART II 6-5 Table 6.2 San Francisco & US Metropolitan Area Table Service Restaurants MEDIAN VALUE OF INCOME & EXPENSES as a PERCENT OF TOTAL SALES 1 San Francisco 2003, 2004 & US Metropolitan Areas 2003 San Francisco Mainly Full Service 2004 Food Sales Alcoholic Sales TOTAL Sales Food Costs % of Food Sales Alcoholic Costs % of Alcohol Sales TOTAL Cost of Sales GROSS MARGIN ON SALES Cost of Employees (Wages + Benefits) Salaries & Wages Employee Benefits Occupancy Expenses Depreciation Other Operating Expenses Administrative Expenses Corporate Overhead TOTAL OPERATING EXPENSES Interest Expense All Other Expenses 71.6% 30.3 100 28.1 26.9 28.7 71.3 38.7 29.8 7.7 8.6 2.3 8.6 5.4 5.1 67.1 2.7 1.1 2003 69.6% 31.2 100 29.0 27.2 27.9 72.1 38.2 30.4 8.8 8.4 2.5 9.4 4.9 5.1 65.8 2.8 1.4 US Metropolitan Area Full Service Restaurants 2003 Check per Person < $15 84.0% 16.0 100 32.5 29.8 31.8 67.3 33.9 $15 - $25 78.0% 22.0 100 35.4 28.2 33.5 65.8 29.8 > $25 70.6% 29.4 100 33.6 30.0 32.7 67.3 33.1 5.1 1.9 14.2 2.9 3.7 61.3 0.5 0.2 5.6 2.1 13.4 2.5 1.6 60.1 0.7 0.3 6.6 1.4 12.3 2.7 1.3 61.8 0.2 0.4 INCOME before Income Taxes 4.5% 3.7% 5.7% 4.3% 3.1% Source: Restaurant Industry Operations Report 2004, National Restaurant Association, Deloitte & Touche; San Francisco Restaurant Survey 2005, Golden Gate Restaurant Association. 1. Food & alcohol costs are a percent of their respective sales. All other costs, & food & beverage sales, are a percent of total sales. 2. Salaries & wages do not include tips paid directly to employees by customers. 3. * National survey data for this line item are not comparable to San Francisco Survey data. 6.4.6 INCOME BEFORE INCOME TAXES Median income before income taxes for San Francisco restaurants was 3.7% of median sales in 2003, toward the lower end of the national range of 3.1% to 5.7%, and at an improved 4.5% in 2004. Median income of quickservice restaurants as a percent of sales nationwide was 7.2% in 2003. The result here is counter intuitive. The median gross margin as a percent of sales at San Francisco slipped from 72.1% in 2003 to 71.3% in 2004, while median total operating costs as percentage of total sales inched up from 65.8% to 67.1%. However, San Francisco restaurateurs who converted a median 3.7% of total sales to income before income taxes in 2003 were able to convert 4.5% of median sales to income before income taxes in 2004. CHAPTER 6 QUESTIONNAIRE PART II 6-6 Table 6.3 San Francisco & US Metropolitan Area Table Service & Quickservice Restaurants MEDIAN VALUE OF INCOME & EXPENSES as a PERCENT OF TOTAL SALES 1 2003 San Francisco Mainly Full Service US Metro Quick Service 97.6% 2.5 100 31.5 30.0 30.8 68.0 30.6 US Metropolitan Area Full Service Restaurants 2003 Check per Person < $15 84.0% 16.0 100 32.5 29.8 31.8 67.3 33.9 $15 - $25 78.0% 22.0 100 35.4 28.2 33.5 65.8 29.8 > $25 70.6% 29.4 100 33.6 30.0 32.7 67.3 33.1 Food Sales Alcoholic Sales TOTAL Sales Food Costs % of Food Sales Alcoholic Costs % of Alcohol Sales TOTAL Cost of Sales GROSS MARGIN ON SALES Cost of Employees (Wages + Benefits) Salaries & Wages Employee Benefits Occupancy Expenses Depreciation Other Operating Expenses Administrative Expenses Corporate Overhead TOTAL OPERATING EXPENSES Interest Expense All Other Expenses 69.6% 31.2 100 29.0 27.2 27.9 72.1 38.2 30.4 8.8 8.4 2.5 9.4 4.9 5.1 65.8 2.8 1.4 7.0 1.5 9.9 1.3 4.0 57.9 0.6 0.6 5.1 1.9 14.2 2.9 3.7 61.3 0.5 0.2 5.6 2.1 13.4 2.5 1.6 60.1 0.7 0.3 6.6 1.4 12.3 2.7 1.3 61.8 0.2 0.4 INCOME before Income Taxes 3.7% 7.2% 5.7% 4.3% 3.1% Source: Restaurant Industry Operations Report 2004, National Restaurant Association, Deloitte & Touche; San Francisco Restaurant Survey 2005, Golden Gate Restaurant Association. 1. Food & alcohol costs are a percent of their respective sales. All other costs, & food & beverage sales, are a percent of total sales. 6.5 INCOME & EXPENSES -- DOLLARS PER SEAT Median values of income and operating expenses expressed as values per restaurant seat are presented in Table 6.4. Like the data expressed as a percent of sales, per seat data include only respondents that provided data for both 2003 and 2004. The main conclusion to be drawn from these data is that San Francisco table service restaurants use their physical plants much more intensively than their average counterparts nationwide, a necessary consequence of doing business in a market with unusually high labor and occupancy costs. 6.5.1 SALES, COST OF SALES & GROSS MARGIN PER SEAT Median total sales per seat at San Francisco table service restaurants runs about $14,800 in 2004, up from about $13,800 in 2003. Comparing sales per seat at San Francisco table service restaurants in 2003 with their counterparts nationwide, the San Francisco ratio was 72% higher than small-check restaurants, 64% higher than mid-size check restaurants, and 33% higher than large-check restaurants. The median cost of sales per CHAPTER 6 QUESTIONNAIRE PART II 6-7 seat at San Francisco table service restaurants ($3,859 in 2003) also is significantly higher than at establishments elsewhere in the country – 51% higher than low-check restaurants, 39% higher than mid-sized check restaurants, and 9% higher than highcheck restaurants. The median gross margin these numbers produced at San Francisco restaurants is more than 60% higher than at small- and medium-check restaurants nationwide, and more than 20% higher than the median gross margin at high-check establishments elsewhere in the nation. 6.5.2 OPERATING COSTS PER SEAT San Francisco table service restaurants’ median operating costs per seat ($10,274) are 41% to 71% above their counterparts nationwide. Higher operating costs per seat in San Francisco largely reflect higher cost of employees per seat, and higher occupancy costs per seat ($1,096) which is 59% to 164% of the national median. Table 6.4 San Francisco & US Metropolitan Area Table Service Restaurants MEDIAN VALUE of INCOME & EXPENSES per SEAT San Francisco 2003, 2004 & US Metropolitan Areas 2003 San Francisco Survey Food Sales Alcoholic Sales TOTAL Sales Food Costs Alcoholic Costs TOTAL Cost of Sales GROSS MARGIN ON SALES Cost of Employees (Wage + Benefis) Salaries & Wages Employee Benefits Occupancy Expenses Depreciation Other Operating Expenses Administrative Expenses Corporate Overhead TOTAL OPERATING EXPENSES Interest Expense All Other Expenses 2004 10,624 4,191 14,812 3,266 969 4,228 10,869 4,892 4,848 1,138 1,259 288 1,293 881 612 9,309 6 0 2003 8,373 3,836 13,828 2,859 991 3,859 10,274 4,674 4,225 1,036 1,096 260 1,405 742 636 8,670 266 401 US Metropolitan Area Survey 2001 Check per Person < $15 6,797 1,138 8,059 2,085 326 2,559 5,491 3,062 $15 - $25 6,162 1,800 8,448 2,140 563 2,769 5,301 2,918 > $25 7,143 3,228 10,364 2,498 983 3,541 6,879 7,698 436 150 1,148 254 364 5,064 39 25 415 120 1,133 214 110 5,458 53 25 688 162 1274 329 146 6,154 28 44 INCOME before Income Taxes 818 676 421 310 355 Source: Restaurant Industry Operations Report 2004, National Restaurant Association, Deloitte & Touche; San Francisco Restaurant Survey 2005, Golden Gate Restaurant Association. 1. Food & alcohol costs are a percent of their respective sales. All other costs, & food & beverage sales, are a percent of total sales. 2. Salaries & wages do not include tips paid directly to employees by customers. CHAPTER 6 6.5.3 QUESTIONNAIRE PART II 6-8 INCOME BEFORE INCOME TAXES PER SEAT Higher median operating costs mitigate some of the advantage of higher median sales and gross margins. Median 2001 and 2002 income before income taxes at San Francisco table service restaurants averaged about $500 per seat and is similar to the $480 median per seat achieved by small check table service restaurants nationwide. However, the average of medium income per seat in 2001 and 2002 in San Francisco was more than two-thirds higher (67%) than the roughly $300 per seat median income achieved by medium and large check restaurants in the nation as a whole. 6.6 INCOME & EXPENSES – MEASURES OF CHANGE 2001 TO 2002 Six measures of change in income and expenses from 2003 to 2004 are presented in Table 6.5. These measures include the median and average percent changes in the dollar amounts of income and expense items, median and average percent changes per seat, and changes in the percent of total sales for each item. As in Tables 6.2 and 6.3, the percent of sales and per seat calculations include only respondents that provided data for both 2003 and 2004. Data presented in Table 6.5 are merely another quantitative way of looking at the same data presented in Tables 6-1, 6-2 and 6-3 and provide essentially the same information. The percents shown in the first two columns (percent change in items) and the middle two columns (percent change per seat) are the same because the changes in per seat data are just the line items divided by a constant number of seats in 2001 and 2002. CHAPTER 6 QUESTIONNAIRE PART II 6-9 Table 6.5 San Francisco Table Service Restaurant Survey 2003 MEDIAN & AVERAGE CHANGE IN INCOME & EXPENSE ITEMS Percent Change, Percent Change Per Seat, Change in Percent of Sales 2001 to 2002 Percent Change in Items Median Average 6.9 5.7 10.8 8.5 7.7 4.7 7.8 8.0 8.6 10.6 9.2 7.8 0.7 4.6 12.4 9.0 8.5 0.4 9.2 11.8 9.0 6.5 6.8 5.3 5.2 7.2 7.8 9.1 8.2 5.7 -6.1 7.2 14.9 4.8 6.7 18.1 -7.6 47.4 Percent Change Per Seat Median Average 6.9 5.7 10.8 8.5 7.7 4.7 7.8 8.0 8.6 10.6 9.2 7.8 0.7 4.6 12.4 9.0 8.5 0.4 9.2 11.8 9.0 6.5 6.8 5.3 5.2 7.2 7.8 9.1 8.2 5.7 -6.1 7.2 14.9 4.8 6.7 18.1 -7.6 47.4 Change in Percent of Total Sales Median Average 0 0.1 0 0 0 -1.0 -0.3 0.3 0 0.1 0.3 -0.1 -0.3 -0.2 0.3 0 -0.4 -0.1 -0.1 1.1 0 0 0.3 -0.8 -0.6 0.6 0 0.2 0.2 -0.2 -0.3 -0.1 0.5 -0.2 0 -0.2 -0.1 0. Food Sales Alcohol Sales TOTAL SALES Food Costs Alcohol Costs COST OF GOODS SOLD GROSS MARGIN ON SALES Wages Benefits COST OF EMPLOYEES Occupancy Depreciation Other Operating Costs Administration Expense Corporate Overhead OPERATING EXPENSES Interest Expense All Other Expenses INCOME (LOSS) before Taxes 1. 2. In the Change in Percent of Total Sales columns, food and alcohol costs are a percent of their respective sales. All other costs, and food and beverage sales, are a percent of total sales. The first four columns of the table are percent changes in dollar amounts of income and expense or percent changes in the dollar amounts of these items per restaurant seat. The last two columns are different from the first four columns in that they refer to changes in items expressed, not as dollar amounts, but as percents of total sales. The percentages shown in the last two columns are the difference between the percent of sales in 2003 and the percent of sales in 2004 for each income and expense item. The numbers in the last two columns are simple differences; they are not second derivatives as a percent of percent would be. CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–1 7.1 INTRODUCTION This chapter describes a part of the Restaurant Industry Survey that is new in 2005. Part III – Trends probes a variety of recent and current developments in San Francisco’s restaurant industry. A copy of Part III of the Survey Questionnaire may be found in Appendix Exhibit 8. Generally Part III requests ordinal responses – more, less, about the same – rather than specific numbers, and frequently asks for the respondent’s opinion. The topics include: • • • • • 7.2 business measures, such as the number of customers, employees, hours of operation, wages, benefits, sales, and profits effects of San Francisco’s indexed minimum wage service trends and the strength of the City’s reputation as a culinary center effects of rising costs on restaurants’ ability to provide employee health insurance, issues respondents deem most important SUMMARY OF FINDINGS Many questions in this part of the survey are retrospective of the last five years when San Francisco endured the deepest and most protracted recession in half a century. Turning a blind eye to the plight of small businesses like restaurants in this period, City government imposed double digit increases on most City-regulated business costs1 to sustain the City’s bureaucracy through the recession (Appendix Table 10). Meanwhile, the State of California permitted double digit increases in gas and electric rates. This part of the survey contributes to our understanding of how the faltering economy and sharp rise in the cost of doing business in San Francisco affected the City’s restaurant industry. • Since the trough of the restaurant industry recession in 2002-2003, virtually all business measures have risen, except profits. The customers are back, sales are up, but the sharp run up in costs, especially labor costs, have kept profits on the ropes. The 26% increase in the minimum wage the City imposed in February 2004 and ripple effects of the minimum wage increase throughout the restaurant industry compensation structure by themselves added 10% to the total cost of San Francisco restaurant employees in the last year. Other effects of the City-imposed minimum wage include fewer restaurant employees, fewer employee benefits, higher menu prices, lower profits, and lower market value for restaurants as going concerns. • • These costs include City-regulated wages, garbage fees, water rates, sewer rates, license fees, and inspection fees. 1 CHAPTER 7 • QUESTIONNAIRE PART III – TRENDS 7–2 Only 22% of restaurateurs planning to expand, intend to do so in San Francisco. The other 78% intend to expand outside San Francisco, generally in the Bay Area or elsewhere in California. The leading reason is the high cost of doing business in San Francisco, especially the City’s minimum wage. The trend in San Francisco restaurants is toward less table service to economize on labor costs. The best prospects for growth are seen in limited service and casual dining formats, and the worst growth prospects are for white table cloth and elegant dinning formats. Many respondents note the trend toward quickservice chains displacing independent, locally owned table service restaurants due to rising labor costs. A large majority of restaurateurs rate San Francisco’s reputation as a culinary center strong or very strong, but a large majority also say the City’s stature as a culinary center is either marking time or diminishing. Forty percent of survey respondents have decreased the number of their employees to whom they offer health insurance. The most frequently mentioned reason is the rising cost of health insurance, and the second most frequently mentioned reason is increased labor costs due to San Francisco’s minimum wage. The number one issue for San Francisco restaurateurs is San Francisco’s indexed minimum wage, followed by State tip credit, and other labor costs, including workers comp costs. BUSINESS MEASURES • • • • 7.3 In this question respondents were asked to indicate whether each of eight business measures has increased, decreased or stayed about the same in each year from 2000 to 2005. Their answers, reported in Table 7.1, are stated as a percent of respondents. Several measures, such as the number of customers, number of employees, costs other than for employees and food and beverages, and gross sales show a clear response to the recession either through a rise in the number of respondents reporting decreases in the recession years, or a dip in the number reporting an increase in those years. Others appear not to have responded to the recession or were more strongly influenced by factors other than the recession. Food and beverage costs increased throughout the period; profits decreased throughout the period; and hours of operation were largely unchanged. Customers: Some 84% of respondents enjoyed an increase in their number of customers in 2000, the last boom year before the recession. A major shift occurred in 2001 and 2002 when 49% and 63%, respectively reported a decrease in customers. By 2003 and 2004 51% and 57%, respectively again were seeing an increase in customers. Employees: Employees followed a slightly different pattern. The year 2000 saw threefourths of respondents increase their number of employees. In 2001 and 2002 46% and 41%, respectively decreased their number of employees. However, at this point the CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–3 picture began to change. In 2002 and 2003 44% and 50%, respectively reported no change in the level of employment. By 2004 respondents were relatively evenly divided among those that increased employment (36%), decreased employment (33%), and saw no change in employment (31%). In 2005 some 57% are seeing no change in employment. Table 7.1 Business Measures Percent of Respondents Selecting Item 2000 to 2005 2000 Customers % that increased % that decreased % that Stayed about the same Employees % that increased % that decreased % that Stayed about the same Hours of Operation % that increased % that decreased % that Stayed about the same Wages & Benefits Cost % that increased % that decreased % that Stayed about the same Food & Beverage Cost % that increased % that decreased % that Stayed about the same All Other Costs % that increased % that decreased % that Stayed about the same Gross Sales % that increased % that decreased % that Stayed about the same Profits (before income taxes) % that increased % that decreased % that Stayed about the same 84 6 10 74 3 23 17 3 80 90 7 3 71 3 26 90 7 3 89 7 4 81 11 8 2001 33 49 18 24 46 30 3 21 76 85 12 3 53 24 23 82 9 9 44 50 6 23 70 7 2002 26 63 11 15 41 44 9 12 79 74 9 17 63 14 23 73 15 12 35 53 12 36 61 3 2003 51 30 19 22 28 50 8 22 70 76 5 19 62 5 33 72 11 17 44 36 20 29 57 14 2004 57 18 25 36 33 31 13 21 67 97 3 0 56 28 15 79 16 5 71 18 11 41 51 8 2005 38 24 38 25 18 57 14 17 69 94 3 3 73 17 10 90 7 3 50 32 18 39 46 15 Hours of Operation: The most stable measure during the six-year period was hours of operation, which 67% to 80% of respondents consistently reported was unchanged. CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–4 Wages & Benefits Cost: Each year throughout the six-year period 74% to 97% of respondents experienced an increase in the cost of their employees through wage increases and/or benefits cost increases. The two years with the largest percent of respondents (97% and 94%) reporting increases in the cost of employees were 2004 and 2005, years that were affected by the February 2004 26% increase in San Francisco’s minimum wage and its ripple effects throughout the restaurant industry salary structure. Food & Beverage Costs: For most respondents, food & beverage costs, like wage & benefit costs, rose throughout the six-year period. The largest number of respondents (71% and 73%) reported increases in 2000 and 2005, respectively, which suggests the recession may have had some dampening effect on the rise of food & beverage costs. All Other Costs: All other costs followed a pattern similar to food & beverage costs, expect the number of respondents reporting increases in each year was higher, ranging from 72% in 2003 to 90%, each, in 2000 and 2005. Reflected here are the double digit rise in City-regulated costs for water, sewer, and garbage collection, as well as Stateregulated costs for gas and electric power. Gross Sales: The peak year for sales growth was 2000 when 89% of respondents experienced increased sales. With the onset of the recession, more than half of respondents reported decreased sales in 2002 (50%) and 2002 (53%). The year 2003 was a transition year with 44% reporting increased sales, 36% reporting decreased sales, and 20% reporting no change in sales. By 2004 71% of respondents reported increased sales. Profits before Income Taxes: The most interesting story to emerge from answers to this question is the story of what happened to profits in the cross currents of recession and the spate of major increases in government-regulated costs of doing business in San Francisco. In 2000, the last boom year before the recession, 81% of respondents reported increased profits. Then the recession hit and in 2001, 2002, and 2003 70%, 61% and 57% of respondents, respectively, reported a decrease in profits. But as customers returned, employment increased, and sales rose, profits continued to decline for 51% of respondents in 2004 and for 46% in the first quarter of 2005. Although it still is a little early to tell for sure, it appears restaurants may be approaching a “tipping point” with the continual layering of government-regulated costs. The inventory of restaurants is not growing apace with recovery in the rest of the local economy, and remains near the level of the dark days of December 2001 after the dotcom bust and the 9/11 terrorist attacks. The trend in local restaurant service is toward less to economize on labor costs, and toward quickservice chains replacing independent, locally owned table service restaurants. Finally, the expansion plans of most successful, independently owned San Francisco restaurants appear to be focused outside the City. 7.4 MINIMUM WAGE Proposition L, an indexed minimum wage ordinance, was approved by San Francisco voters November 4, 2003 and took effect February 23, 2004. The ordinance imposed an CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–5 initial 26% increase in the minimum wage in San Francisco, and the index feature of the law made that a 28% increase on January 1, 2005. The disingenuous framers of the ballot initiative, members of the Board of Supervisors, rejected calls for the ordinance to recognize the role of tips in compensation of workers in the hospitality industry. The supervisors also refused to hold public hearings to explore the economic impact of the ordinance on San Francisco businesses. The initial result of the ordinance was to give a substantial raises to front of house service staff, most of whom with tips already earned $24 to $34 an hour. Because of their high earnings potential through tips, these typically are the only employees in a restaurant paid minimum wage. Raises for already well-paid front of house service staff generally came at the expense of normal raises for back of house employees who typically earn about what the new minimum wage specified. Another initial casualty of this ill-conceived minimum wage law was elimination of employer-paid health insurance for many restaurant employees. The trouble did not end with raises for employees that did not need them preventing raises for employees that did need them. Restaurants, like most businesses, have a salary structure. In restaurants this structure involves hourly minimum wage employees, hourly non-minimum wage employees, and salaried employees. A 26% increase in the wages of the bottom rung of this structure set off a series of demands from other employees to restore their positions in what previously had been a market-determined structure. In the first 12 months of the new minimum wage, the initial 26% increase for minimum wage employees and ripple effects throughout the salary structure added 10% to the total cost of employees for the average restaurant as shown in Table 7.1. That’s tough for businesses that typically convert less that 5% of their margin on gross sales to before tax profits. Table 7.2 Cost of Restaurant Employees in San Francisco Effect of the San Francisco Minimum Wage Values in the three vertically tabbed columns are a percent of respondents. % Increased % Decreased Values in the two right hand columns are a percent of the categories shown in the first left hand column. % Stayed the Same Percent of Category Respondents Attribute to February 2004 San Francisco Minimum Wage Increase Average 21.7 8.7 5.8 11.3 9.8 10.2 9.5 33.5 Median 21.7 5.5 5.0 10.0 10.0 10.0 10.0 42.0 Wages of Minimum Wage Employees Wages of Non-minimum Wage Employees Salaries of Managerial Staff TOTAL Wages & Salaries Payroll Taxes based on Wages & Salaries Benefits (FICA/SDI & Worker Comp) based on Wages TOTAL Cost of Employees Cost of Employees as % of Total Operating Cost 100 80 61 100 100 100 100 100 0 3 0 0 0 0 0 0 0 17 39 0 0 0 0 0 CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–6 Table 7.2 details how the initial 26% increase in the minimum wage worked its way through the restaurant salary structure. Please note that the numbers in the two left-hand columns are the percent of current costs in each category respondents attribute to San Francisco’s minimum wage. They are not the percents by which each category increased after passage of the minimum wage. For example, considering both the initial (February 2004) 26% increase and the subsequent (January 2005) 1.4% cost of living increase, the cost of minimum wage employees has increased by 27.7%, but wages attributed to this increase in the minimum wage represents only 21.7% of the current total wages of minimum wage employees.2 As shown in Table 7.2, San Francisco’s minimum wage caused salary increases for the minimum wage employees of 100% of respondents, the non-minimum wage employees of 80% of respondents, and the salaried managerial staff of 61% of respondents. In addition, the ordinance increased payroll taxes based on wages and salaries, and benefits (FICA/SDI and worker’s comp) based on wages for 100% of respondents. As noted earlier, 10% of the total cost of employees at San Francisco restaurants and bars today can be attributed to the City-imposed minimum wage. In addition to its effects on employee compensation, San Francisco’s minimum wage has had other effects on restaurant operations and results as shown in Table 7.3. This question was formed from anecdotal evidence about such effects during the first year of San Francisco’s minimum wage. Respondents were asked to consider direct and indirect effects of the minimum wage to determine whether it had increased, decreased, or not effected six aspects of their businesses, and whether the effect had been minor, significant or major. Table 7.3 Ripple Effect of the San Francisco Minimum Wage February 2004 to February 2005 Values in the vertically tabbed columns are a percent of respondents. The first three indicate the direction of change & the second three indicate the scale of change. Number of Employees Provision of Employee Benefits Schedules & Hours of Operation Menu Prices Profits Market Value of Business significant 20 39 15 67 41 32 decreased increased no effect minor 2 26 2 98 2 0 54 35 33 0 91 76 43 39 65 2 7 24 69 48 78 11 26 46 11 13 7 22 33 22 The calculation is ((San Francisco initial minimum wage + cost of living adjustment) – State minimum wage) = increase in applicable minimum wage; (increase in applicable minimum wage ÷ current minimum wage) = 21.7% or in numbers (($8.50 + $012) - $6.75) = $1.87 ($1.87 ÷ $8.62) = 21.7% 2 major CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–7 Number of Employees: Some 54% of respondents reported the minimum wage decreased the number of employees at their establishments, while 43% said it had no effect. The effect, if any, was characterized by about two-thirds of respondents (64%) as minor. Employee Benefits: The minimum wage was thought by 35% of respondents to have decreased the provision of employee benefits, by 26% of respondents to have increased benefits, and by 39% to have had no effect. Views on the scale of the effect, if any, were divided between 48% minor and 39% significant. Hours of Operation for 65% of respondents were not affected by the minimum wage, but were decreased for 33% of respondents. Most (78%) thought the effect, if any, was minor. Menu Prices: Virtually all respondents (98%) reported the minimum wage had forced them to raise menu prices. For two-thirds (67%) the increase was significant, and for 22% it was major. Profits: Nearly all respondents (91%) reported decreased profits as a result of the minimum wage. The decrease was major for a third of respondents (33%), and significant for 41%. Market Value of Business: Respondents had trouble with this question, and many did not answer it. Of those that did, three-fourths (76%) report the minimum wage has lowered the market value of their businesses as ongoing concerns. The effect as yet is minor for 46% of respondents, but significant or major for more than half (54)%. 7.5 EXPANSION PLANS Respondents were asked if, when, and where they planned to expand, and the main considerations that motivated their decisions about expansion. More than half (56%) have plans to expand. About half of those (52%) plan to expand this year and another 40% plan to expand next year or the year after that. San Francisco is the expansion choice for only 22% of respondents, with 78% selecting other locations as shown in Table 7.4. The issues that motivate more than three-fourths of respondents to look outside San Francisco for expansion are listed in Table 7.5. Lower operating costs outside San Francisco and the high cost of doing business in San Francisco were mentioned by 100% of respondents. San Francisco’s minimum wage was mentioned by 92% of respondents, and market opportunities outside San Francisco was mentioned by 81% of respondent. All but one of the 18 respondents that selected “other” mentioned San Francisco’s hostility to small business as a reason for their decision to expand outside the City. CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–8 Table 7.4 Target Areas for Expansion Percent of Respondents with Expansion Plans % 9 13 25 44 6 Where present San Francisco location elsewhere in San Francisco Bay Area outside San Francisco elsewhere in California other Table 7.5 Reasons for Expansion Outside San Francisco Percent of Responds with Expansion Plans % of Respondents Reason 81 market opportunities outside San Francisco 100 lower operating costs outside San Francisco 58 lower cost of capital outside San Francisco 19 labor pool outside San Francisco 92 San Francisco’s minimum wage 100 high cost of doing business in San Francisco 23 San Francisco restaurant & bar regulations 38 San Francisco local taxes & fees 38 environmental factors, e.g. homeless, cleanliness, etc. 18 other Note: All but one of the 18% “other” responses mentioned San Francisco’s hostility to small business a reason for expanding outside the City. 7.6 SERVICE TRENDS Respondents were asked a number of questions about the nature of their current service format, what types of service formats they believe offer the best business opportunities in San Francisco, and about any plans they have to alter their current service format. The basic division in service formats is between full service and limited service. Full service restaurants (sometimes called table service restaurants) are establishments where seated customers order prepared food and beverages from wait staff who serve the meal and collect payment after the meal is consumed. Fast food and take-out restaurants (sometimes called limited service or quickservice restaurants) are establishments where customers order and pay for food and beverages before picking up their orders at a counter or drive-thru window. Both concepts can exist in the same restaurant, as in a table service restaurant that also sells food for take-out. CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7–9 Service Format Expansion Plans: Full service restaurants represent 78% of respondents. 16% are quickservice restaurants, and 6% are both. Of the full service respondents, more than a quarter 27%) are considering adding a quickservice component, but none of the quickservice respondents are considering adding a full service component. At establishments that offer full service its median share of business is 99%, and its average share is 89%. At establishments that offer quickservice its median share of business is 13% and its average share is 37%. Service Format Potentials: Among respondents that offer both full service and limited service, the fastest growing component is full service for 63% of respondents and limited service for 37%. Some 59% of respondents believe full service offers the greatest potential for increasing sales, and 41% believe limited service hold the greatest potential. Views are similar with regard to the greatest potential for increasing profits, with 59% believing full service has the greatest potential and 44% believing limited service has the greatest potential. Target Level of Service: Respondents were asked whether the level of service they target in their business plans had changed in recent years. Some 69% said their target level of service had not changed, while 20% had increased the level of service they strive to achieve, and 11% had decreased their level of service. With regard to future levels of service respondents will target in their business plans, 66% plan no change, 23% plan to increase their level of service, and 11% plan to decrease their level of service. Finer Format Distinctions: In this part of the survey, table service restaurants were classified by their service formats, rather than by the size of check as in the rest of this report. Table 7.6 presents the percent distribution of respondents by service format, and definitions of each service format. Table 7.7 summarizes respondents’ ratings of the City-wide growth prospects for each service format. Table 7.6 Distribution of Respondents by Service Format Definitions of Service Formats 11 48 35 6 Fast Food/Take-Out Casual Dining White Table Cloth Elegant Dining no table service 1 person serves a table in a casual, often thematic setting 1 or more people serve a table in a formal setting specialized staff serve a table in an extravagant setting Nearly half of respondents (48%) identify their establishment with casual dinning where one person serves the table in a casual, often thematic setting. Neighborhood Mexican or vegetarian restaurant, or the local brew pub come to mind. More than a third (35%) are White Table Cloth restaurants where one or more people serve the table in a more formal setting. The City’s many small French restaurants, Italian jewels in North Beach, and the “in” places to lunch in the financial district come to mind. Six percent identify themselves as elegant dining where a specialized staff serve the table in an extravagant CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7 – 10 setting. Eleven percent are take-out or fast food restaurants that offer no table service. Table 7.7 indicates the major growth prospects are in limited service and casual dining. Table 7.7 City-wide Growth Prospects by Service Format Percent of Respondents Percent of respondents rating growth prospects for restaurant type Major Moderate Minor None Shrinking No opinion # of respondents white table cloth 0 20 40 11 23 6 35 fast -food take-out 21 24 36 3 3 12 33 casual dining 14 60 8 3 9 6 35 elegant dining 3 9 17 9 56 6 34 7.7 HEALTH INSURANCE In recent years the cost of health care and health care insurance have risen much faster than any other employee-related cost, except the minimum wage. The survey probed these trends and how restaurants and bars are responding. Respondents were asked for three types of information: • • • To whom have you offered health insurance in the last 5 years? What changes have you made to your health insurance plan in the last 5 years? If you have decreased health insurance coverage for your employees, why? Respondents’ answers to these questions are summarized in three tables. Table 7.8 addresses the first question, to whom have you offered health insurance. Table 7.9 addresses changes in health insurance coverage, and Table 7.10 addresses why health insurance coverage was changed. Table 7.8 Employees Offered Health Insurance Percent of Respondents percent of respondents Hourly Full Time (36 hrs or more/wk) Hourly Part Time (20 to 35 hrs/wk) Hourly Part, Part Time (less than 20 hrs/wk) Salaried Full Time (36 hrs or more/wk) Salaried Part time (20 to 35 hrs/wk) Salaried Part, Part Time (less than 20 hrs/wk) All of your Employees None of your Employees 2000 54 34 0 55 23 2 9 9 2001 57 34 0 55 23 2 9 11 2002 59 34 2 55 23 2 9 11 2003 57 34 2 61 25 2 9 11 2004 57 32 2 64 25 2 11 11 2005 57 30 2 59 25 2 9 14 CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7 – 11 Health insurance is offered to full time employees, both hourly and salaried, by 55% to 60% of respondents. Roughly a third of respondents offer health insurance to hourly part time staff, and a quarter offer health insurance to part time salaried staff. Nine percent of respondents offer health insurance to all of their employees, and 9% to 11% offer health insurance to none of their employees. Almost no one offers health insurance to part part time staff working less than 20 hours per week. Table 7.9 Changes in Health Insurance Coverage Percent of Respondents no change 40 45 22 78 63 decreased 40 8 5 7 17 increased 20 47 73 15 20 Percent of respondents who took the actions shown for each of the health insurance-related items in the left hand column of the Table. employees covered by health insurance % of health insurance cost paid by employee deductible or co-payment hours work per week to qualify employee family member coverage Only 20% of respondents increased the number of employees they cover with health insurance, while 40% decreased coverage and 40% made no change. Some 40% increased the percent of health insurance cost paid by the employees, and 45% made no change. Deductibles and copayments were increased by 73% of respondents, but the number of hours worked per week to qualify for insurance remained unchanged at 78% of respondents. Coverage of family members also was relatively stable in the 5-year period under consideration. Table 7.10 Reasons for Decreasing Heath Insurance Coverage Percent of Responds Who Decreased Coverage 93 53 73 33 47 53 53 13 increased cost of health insurance increased cost of other employee benefits, such as worker’s comp increased labor costs due to San Francisco’s minimum wage increased occupancy costs increased cost of San Francisco license & inspection fees increased cost of regulated utilities (water, power & garbage collection) decreased revenue (gross sales) due to recession &/or increased competition other (please explain below) The chief reasons respondents reduced health insurance coverage were the increasing cost of health insurance (93%), and increasing labor costs due to San Francisco’s minimum wage (73%). The increasing cost of employee benefits, such workers’ comp, CHAPTER 7 QUESTIONNAIRE PART III – TRENDS 7 – 12 increasing government-regulated costs, such as water, sewer, and garbage collection, and decreased revenue due to the recession and increased competition each drew 53% of respondents. 7.8 MOST IMPORTANT ISSUES FOR SAN FRANCISCO RESTAURATEURS Respondents were asked to rate the importance of a dozen current issues in the restaurant industry. Table 7.11 summarizes the rankings by percent of respondents. The top five issues in descending order are: San Francisco’s indexed minimum wage, State tip credit, other labor costs, worker’s comp costs, and health insurance costs. Table 7.11 Restaurant Industry Issues Rated Percent of Respondents not important 0 0 4 3 9 5 12 2 0 2 1 5 somewhat important 17 11 19 20 19 25 19 21 2 7 5 23 very important 26 32 20 20 15 13 12 20 41 34 37 15 Health insurance costs Worker’s comp costs Property insurance costs Liability insurance costs Meal break requirements Menu labeling requirements San Francisco license & inspection fees Regulated utility costs (water, power, garbage) San Francisco’s indexed Minimum Wage Other labor costs State Tip Credit State & Federal food Regulations APPENDIX 8–1 Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Exhibit 5 Exhibit 6 Exhibit 7 Exhibit 8 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Medians Restaurant & Visitor Industry Terms & Definitions San Francisco Requirements for Restaurants Located on Port, Airport or Other City-Owned Property Survey Covering Letter – Dear San Francisco Restaurateur Survey Covering Letter – Dear GGRA Member Survey Questionnaire Part I — Non-financial Information Survey Questionnaire Part II — Statement of Income & Expenses Survey Questionnaire Part III — Trends Survey Part I Tabulation Survey Part II Tabulation Survey Part III Tabulation SF DPH Schedule of License & other Fees SF DPW Garbage Collection Rate Order ZIP Code Distribution of Survey Sample & All SF Restaurants & Bars SF Survey Panel & Returns, Distribution by Geographic Area Open SF Restaurants & Bars in DPH Records, Selected dates SF Restaurant & Bar Licenses Issued & Surrendered, Tax Records City of San Francisco FY 2005 Employees: Number & Compensation Appendix Exhibit 1 MEDIANS The median is the middle value of a series of numbers arranged ordinally. For example, if the series 1, 5, 2, 4, 3 were arranged ordinally as 1, 2, 3, 4, 5 it’s easy to see the median or middle value is 3. In a series with an even number of values there is no single middle value and the median is calculated as the average of the two middle values. The median is the analytical companion to the mean or average. If numbers in a series don’t vary much in value, the value of the median and the average will be close to one another, but extreme values in the series, whether high or low, will pull the average toward the extreme. The median generally is not affected by extreme values. In calculating the median, each field of information is analyzed separately, so a respondent’s data can be used even if he/she doesn’t answer every question in a questionnaire. However, since each field of information is analyzed separately, line items in a Statement of Income and Expenses, for instance, are unlikely to sum to totals that are themselves medians. APPENDIX EXHIBIT 2 RESTAURANT & VISITOR INDUSTRY TERMS AND DEFINITIONS Restaurant Industry: The National Restaurant Association defines the restaurant industry as encompassing “all meals and snacks prepared outside the home”. In addition to the Commercial Restaurant Services that are the subject of the current report, this definition includes Institutional Restaurant Services, Military Restaurant Services, Educational Restaurant Services, Employee Restaurant Services, Health Care Restaurant Service, Recreational Restaurant Services, Retail Host Restaurant Services, and Transportation Restaurant Services. Commercial Restaurant Services consist of establishments that are open to the public, are operated for profit, and may operate facilities and/or supply meal services regularly for others. These services represent nearly 90% of restaurant industry sales and include eating and drinking places, contractors providing restaurant services, hotel and motel restaurants, and restaurants in department and other stores. Eating and Drinking Places refers to full service restaurants; limited service (fast food) restaurants; commercial cafeterias; ice cream, frozen custard and yogurt stands; social caterers; and bars and taverns. The term does not include contractors providing restaurant services, although such contractors are included in Bureau of the Census data. The table below matches Eating and Drinking Places classified in the 1987 U.S. Standard Industrial Codes (SIC) with Eating and Drinking Places in the 1997 North American Industrial Classification System (NAICS) that has replaced the SIC system. The State of California shifted to NAICS in March 2003. SIC 5812 NAICS Eating & Drinking Places Full Service Restaurants Limited Service Restaurants Cafeterias Snack & Nonalcoholic Beverage Bars Food Service Contractors Caterers Dinner Theaters Drinking Places (Alcoholic Beverages) 72211 722211 722212 722213 72231 72232 71111 72241 Full-Service Restaurants Limited-Service Restaurants Cafeterias Snack & Nonalcoholic Beverage Bars Food Service Contractors Caterers Theater Companies & Dinner Theaters (part of…) Drinking Places (Alcoholic Beverages) 5813 Full Service Restaurants (also called Table Service Restaurants): Establishments where seated customers order prepared food and beverages from wait staff who serve the meal and collect payment after the meal is consumed. These establishments often serve alcoholic beverages, but if alcohol sales exceed food sales the establishment is classified as a Drinking Place (Bars and Taverns) rather than as a restaurant. APPENDIX EXHIBIT 2 – RESTAURANT & VISITOR INDUSTRY TERMS AND DEFINITIONS Quickservice Restaurants (also called Limited Service Restaurants): Establishments where customers order and pay for their food and beverages before picking up their orders at a counter or drive-thru window for consumption either on or off the premises. Cafeterias: Establishments where customers make selections from a line displaying prepared food and beverages, and generally pay before the meal is consumed. Tables and seating for consuming the meal often are provided, and limited wait service may be provided. Social Caterers: “Establishments” primarily serving prepared food and beverages for weddings, banquets, etc. at a hall or similar facility rather than at a fixed business location. Ice Cream, Frozen Custard & Yogurt Stands: Establishments primarily selling ice cream, frozen custard, yogurt or other frozen ices for consumption on or near the premises. Drinking Places (Bars & Taverns): Establishments primarily engaged in retail sales of alcoholic beverages such as beer, ale, wine, and liquor for consumption on the premises. Food sales often account for a substantial portion of the receipts of these establishments. Contractors Providing Restaurant Service: Contractors that operate for-profit restaurant services for others in facilities such as office buildings, manufacturing plants, hospitals, nursing homes, educational facilities, airlines, and sports and recreation centers. The client may provide facilities and personnel for the operation, but the contractor always provides the management. Front of House Staff: Restaurant employees who work in areas of a restaurant set aside for customers, and who often receive gratuities (tips) from customers. Tipped Staff: Restaurant employees who receive gratuities (tips) from restaurant customers. Direct Tip: A gratuity given to a restaurant employee by a customer. Indirect Tip: A gratuity a restaurant employee receives as a share of a gratuity given to another restaurant employee by a customer. Fly-to Visitors: Visitors who arrive by airplane from outside the metropolitan area. Drive-to Visitors: Visitors who arrive by surface transportation from within the metropolitan area or other nearby location. Appendix Exhibit 3 SAN FRANCISCO REQUIREMENTS FOR RESTAURANTS LOCATED ON PORT, AIRPORT OR OTHER CITY-OWNED PROPERTY Requirements 1 through 9 below apply to any restaurant leasing property owned or controlled by the City and County of San Francisco. These requirements apply to restaurants leasing property from the Port of San Francisco, other buildings or land owned by the City and, with the exception of requirement No. 7 (Card Check for union organizing), to restaurants leasing property at San Francisco International Airport. 1. Non-Discrimination in Contracts and Property Contracts, including spousal benefits for unmarried domestic partners. SF Admin Code Sections 12B & C. Forbids discrimination “on the basis of the fact or perception of a person’s race, color, creed, religion, national origin, ancestry, age, sex, sexual orientation, gender identity, domestic partner status, marital status, disability or Acquired Immune Deficiency Syndrome or HIV status.” Forbids discrimination “in the provision of bereavement leave, family medical leave, health benefits, membership or membership discounts, moving expenses, pension and retirement benefits or travel benefits” as well as other benefits “between employees with domestic partners and employees with spouses, and/or between domestic partners and spouses of such employees, where domestic partnership has been registered with a governmental entity…” 2. Tropical Hardwood and Virgin Redwood Ban. SF Admin Code Section 12I. Forbids the City from entering or renewing a contract “which calls for the use of any tropical hardwood, tropical hardwood wood product, virgin redwood or virgin redwood wood product. The ordinance lists 26 “preferred woods” and 44 forbidden woods. 3. City Business with Burma (Myanmar) Prohibited. SF Admin Code Section 12J. Prohibits the City or its contractors from doing business with “any private person or entity designated by the Investor Responsibility Research Center (IRRC) as having investments or employees in Burma (Myanmar), or any private person or entity that licenses any person or entity organized under the laws of Burma (Myanmar) to produce and market its products.” The City’s purchasing agent maintains a list of prohibited persons and entities. 4. MacBride Principles – affirmative action to benefit Roman Catholics in Northern Ireland. SF Admin Code Section 12F. Requires City contracts to “contain a statement urging companies doing business in Northern Ireland . . . to abide by the MacBride Principles. These principles, authored by Dr. Sean MacBride, an Irish statesman and Amnesty International founder, call for Appendix Exhibit 3, continued affirmative action to improve the position of religious minorities (Roman Catholics) in Northern Ireland. 5. Tobacco Products Advertising Ban. SF Admin Code Section 4.20. Forbids “advertising of cigarettes or tobacco products … on any property owned by or under the control of the City and County of San Francisco.” Requires that “all leases, permits or agreements awarded by the City and County of San Francisco allowing any person to use City property” require “that there shall be no advertising of cigarettes or tobacco products.” 6. San Francisco Integrated Pest Management Program – discourages use of pesticides SF Admin Code Section 39.1. City tenants and contractors are required to take a number of steps (Integrated Pest Management Program or IPM) “to eliminate or reduce pesticide applications on City property to the maximum extent feasible.” The IPM requires the participant to assess and document its pest problem and plans to address the problem. Participants also must keep records on implementation of their IPM, not use State Toxicity Category I and Category II pesticides, and post public notices about the pesticides to be used on the premises before they are used. 7. Employee Signature Authorization Ordinance -- facilitates union organizing. SF Admin Code Section 23.31-23.35. The City facilitates union organization of restaurants and hotels by requiring that when the City or the Port of San Francisco is “landlord, lender or guarantor” of these businesses, these businesses “enter a card check agreement with a labor organization which requests such an agreement.” The card check, which forces the employee to disclose his/her vote to the union organizer, replaces a secret ballot to approve or reject union representation. This requirement applies only to restaurants and hotels with 50 or more employees. However, the employees of restaurants located in hotels are combined with the hotels’ employees to determine whether the 50-employee threshold is reached. 8. Prevailing (union) wages required for construction projects located on Cityowned or Port-owned property. SF Admin Code Section 6.37. Requires payment of union scale construction wages for renovation or build-out of restaurant projects located on City-owned or Port-own property in accordance with prevailing wage and labor standards approved by the Board of Supervisors. Appendix Exhibit 3, continued 9. Minority-Owned/Woman-Owned Business Enterprise (MBE/WBE) contracting goals. Requires restaurants to establish specific goals for MBE/WBE participation in contracts for the design and construction of projects located of City-owned or Port property. Restaurants that lease space at San Francisco International Airport are subject to the City’s minimum wage and minimum health benefit requirements (10 & 11, below). Restaurants that lease City-owned or Port property within San Francisco County are not subject to these two requirements. 10. Minimum Wage and Minimum Leave. SF Admin Code Sections P.1-P.16 and Rules and Regulations Implementing the San Francisco Minimum Compensation Ordinance (MCO), November 2001. Requires covered employers to pay at least the minimum hourly wage specified by the Minimum Compensation Ordinance. San Francisco’s minimum wage rose to $10.25 per hour on January 1, 2003, and will increase 2.5% per year until it reaches $10.77 per hour on January 1, 2005. Requires covered employers to grant 12 days paid leave, including paid holidays, to full time (40 hours per week) employees each year, and to prorate paid leave for less than full time employees. Grant 10 days of unpaid leave to full time employees, and to prorate unpaid leave for less than full time employees. 11. Minimum Health Care Benefits. SF Admin Code Sections 12Q.1-12Q.11. The San Francisco Health Care Accountability Ordinance became law on July 1, 2001. Requires employers of covered employees to provide these employees with health plan benefits that meet minimum standards established by the San Francisco Health Commission, OR pay the City $1.50 per hour for each hour worked by each covered employee up to a maximum of $60 per week, OR participate (fund) a health benefits program to be developed by the San Francisco Department of Public Health based on the Department’s health facilities and medical personnel. Appendix Exhibit 4 Covering Letter – Dear San Francisco Restaurateur Appendix Exhibit 5 Covering Letter – Dear GGRA Member PART I -- NONFINANCIAL INFORMATION Appendix Exhibit 6 p. 1 of 12 Information will be held in strict confidence. No individual response will be disclosed Data and other information provided in this Part I. Nonfinancial Information are needed to analyze operating statements reported in Part II. Statement of Income & Expense. Please answer all questions and give your best estimate, if you do not know the precise answer. Information reported in this questionnaire should pertain to a single establishment. Restaurants or bars that are part of a multi-unit operation (two or more establishments) should report data for only one establishment on this form. Definitions printed on the form are standardized to permit comparison to restaurants nation-wide Please use these definitions when responding to a question, even if they are slightly different from your usual definition of the item. 1. San Francisco License Type: H-24 (restaurant less than 1,000 sq ft) 2. Zip Code of restaurant or bar: 94 _______ 3. General Location: (check one) ! Downtown/South of Market ! Embarcadero ! Fisherman’s Wharf ! Mid-Market/Civic Center ! Van Ness Corridor ! Lombard Corridor ! 19th Avenue Corridor ! Public Park ! Institution (e.g. museum, school, hospital) ! Other ____________________________ ! Neighborhood Commercial (specify) _______________________________________ 4. Type of ownership: (If you check “family owned”, also check one of the other boxes.) ! Sole Proprietorship ! Partnership 5. Type of organization: ! Independent (operates one unit) ! Multi-unit (operates two or more units) If multi-unit, number of units _______ ! Public Corporation ! Private Corporation ! Family Owned 6. Are you a franchisee or a franchiser? ! Franchisee ! Franchiser ! Both ! Neither 7. Number of years this establishment has been in business: ! Less than 2 years ! 2 years to 5 years ! 6 years to 10 years ! 11 years to 20 years ! More than 20 years PART I -- NONFINANCIAL INFORMATION 8. Primary type of business: (check only one) ! Full Service Restaurant -- average check per person under $15 ! Full Service Restaurant -- average check per person $15 to $24.99 ! Full Service Restaurant -- average check per person $25 or more ! Limited Service Restaurant (includes all quick service & fast food concepts) ! Cafeteria ! Caterer ! Bar/Tavern/Lounge ! Other (specify) _________________________________________________ 9. Liquor service: (check only one) ! Beer and/or Wine, only ! Full Liquor Service p. 2 of 12 Information will be held in strict confidence. No individual response will be disclosed ! No Alcoholic Beverages 10. Primary menu theme: (check one) ! American ! African ! Asian ! Bakery ! Bar/Club ! Barbecue ! Brazilian ! Brewery ! Cafe ! Cajun/Creole ! Californian ! Caribbean ! Caterer ! Chicken ! Chinese ! Continental ! Dim Sum ! Delicatessen ! Dessert Only ! European ! Filipino ! French ! German ! Greek ! Hamburger ! Hofbrau ! Indian ! International ! Irish ! Italian ! Japanese ! Jewish ! Malaysian ! Mediterranean ! Mexican ! Middle Eastern ! Pizza ! Prime Rib ! Russian ! Sandwiches ! Seafood ! Spanish ! Steakhouse ! Thai ! Vegetarian ! Vietnamese ! Other ____________________ 11. Establishment site: Land ! Owned ! Leased Building ! Owned ! Leased 12. Does this establishment offer: (please give your best estimate) Take-out/Drive-thru Outside Catering Banquet Service ! No ! No ! No ! Yes, represents ________% of business ! Yes, represents ________% of business ! Yes, represents ________% of business 13. Check the meals and days this establishment is open for business. ! Breakfast ! Lunch ! Dinner ! 24 Hours ! Daily ! Daily ! Daily ! Daily ! Mon. ! Mon. ! Mon. ! Mon. ! Tues. ! Tues. ! Tues. ! Tues. ! Wed. ! Wed. ! Wed. ! Wed. ! Thurs. ! Thurs. ! Thurs. ! Thurs. ! Friday ! Friday ! Friday ! Friday ! Sat. ! Sat. ! Sat. ! Sat. ! Sun. ! Sun. ! Sun. ! Sun. PART I -- NONFINANCIAL INFORMATION p. 3 of 12 Information will be held in strict confidence. No individual response will be disclosed 14. Establishment is located in or attached to a: (check only one) ! Hotel ! Club (social, athletic, country, etc.) ! Shopping Center or Mall ! Boat or Barge ! Office Building ! Pier ! Transportation Center (e.g. BART or Muni Station, Airport, Bus Station) ! Other (specify) ____________________________________________________ ! Nothing – sole occupant of a building 15. Number of seats or stools: (please complete all that are applicable) Dinning Room . . . . . . . . . . . . . . . . . . . . . . . Bar or Lounge . . . . . . . . . . . . . . . . . . . . . . . Banquet Rooms . . . . . . . . . . . . . . . . . . . . . . Outside/Open Air . . . . . . . . . . . . . . . . . . . . . Other (specify) _________________________________ TOTAL SEATS or STOOLS 16. Size of establishment: (best estimate) Dining Rooms Kitchen Banquet Rooms Other Areas TOTAL AREA _________ square feet _________ square feet _________ square feet _________ square feet _________ square feet __________ seats __________ seats __________ seats __________ seats __________ seats __________ seats 17. Maximum legal occupancy: _____________ people. 18. Number of customers served in a year: (best estimate) _________________ 19. Average guest check per person: (include food & alcoholic beverages) $______________ 20. Average number of paid employees currently working at your establishment during a typical week: Kitchen Full Time (36 hours or more) Part Time (20 to 34 hours) Part Part Time (less than 20 hours) TOTAL Number of Employees ________ ________ ________ ________ Front of House ________ ________ ________ ________ Total ________ ________ ________ ________ PART I -- NONFINANCIAL INFORMATION p. 4 of 12 Information will be held in strict confidence. No individual response will be disclosed 21. Average number of paid hourly employees currently working at your establishment during a typical week: Kitchen Full Time (36 hours or more) Part Time (20 to 34 hours) Part Part Time (less than 20 hours) TOTAL Number of Employees ________ ________ ________ ________ Front of House ________ ________ ________ ________ Total ________ ________ ________ ________ 22. Number of W-2s your establishment sent last year: (best estimate) Salaried Employees Hourly Employees TOTAL EMPLOYEES 23. Service (“tipped”) Personnel: a) Average number of service employees that currently work at your establishment during a typical week: (include only waitstaff, bus personnel, bartenders & counter servers) __________________ __________ __________ __________ b) Percent of current wait/counter staff employed at your restaurant: Less than 6 months 6 months to 1 year 1 year to 4 years 4 or more years __________ % __________ % __________ % __________ % 24. Your establishment’s Annual Gross Sales of Food and Alcoholic Beverages: ! less than $ 500,000 ! $ 500,000 to $ 750,000 ! $ 750,000 to $1,000,000 ! $1,000,000 to $1,500,000 ! $1,500,000 to $2,000,000 ! $2,000,000 to $2,500,000 ! more than $2,500,000 Appendix Exhibit 7 PART II - STATEMENT OF INCOME & EXPENSE - Question 25 INFORMATION WILL BE HELD IN STRICT CONFIDENCE. p. 5 of 12 NO INDIVIDUAL RESPONSE WILL BE DISCLOSED. Enter the ending month of your restaurant or bar’s fiscal year in the column heading line and complete all numbered lines for fiscal years ended in 2003 & 2004. Income & expense information should pertain to a single restaurant or bar even if the establishment is part of a chain of similar businesses. Month in which your Fiscal Year ends? ___________________ SALES 1 Food & Nonalcoholic Beverages 2 Alcoholic Beverages 3 TOTAL Sales (line 1 + line 2) COST OF GOODS SOLD 4 Food & Nonalcoholic Beverages 5 Alcoholic Beverages 6 TOTAL Cost of Goods Sold (line 4 + line 5) 7 GROSS MARGIN ON SALES (line 3 – line 6) FY 2003 FY 2004 OPERATING EXPENSES 8 Salaries & Wages 9 Employee Benefits Include cost of pension plans, insurance premiums (except property insurance), Social Security Tax (FICA), Federal & State Unemployment Tax, State Health Insurance Tax, & all other monetary & “in kind” benefits you provide to your employees. 10 Occupancy Expenses Include rent, property insurance, property taxes & cost of maintenance & repairs. 11 Depreciation 12 Other Establishment Operating Expenses & (Income) Include licenses, fees, utilities, linen, laundry, dishes, flatware, paper products, cleaning supplies, contract cleaning, kitchen utensils, parking, auto & truck expenses, menus, music, entertainment, flowers, decorations, marketing expense (advertising, promotions, agency commissions, gratis meals, royalties). Subtract gross margin on sales of items that are not food or beverages. 13 General & Administrative Expense Include printing, postage (except that related to advertising & promotions), telephone bill, telephone equipment rental, accounting, data processing, dues, subscriptions, liability insurance, commissions on credit card collection fees, cash shortages, professional dues, protective services. 14 Corporate Overhead (for chain operations) Include costs & fees charged by a central office or management organization of a chain operation for executive supervision & management. 15 TOTAL OPERATING EXPENSES (sum of lines 8 thru 14) INCOME 16 Interest Expenses 17 All Other Expenses 18 INCOME Before Income Taxes (ln 7 – (lns 15 + 16 + 17)) Appendix Exhibit 8 PART III – TRENDS p. 6 of 12 Information will be held in strict confidence. No individual response will be disclosed Answers provided in this section are needed to analyze the effects of the recent recession on restaurants, and to help assess where we are in the recovery process. Please share your best judgment (informed by whatever hard data you have) in answering the questions. Most questions ask you to make a relative comparison (e.g. higher or lower this year than last), rather than provide a specific number. 26. BUSINESS MEASURES: In the boxes provided, indicate whether each of the following business measures increased (+), decreased (–) or stayed about the same (=) in each year shown compared to the year before. The example at the bottom of the table illustrates the approach. 2000 Customers Employees Hours of Operation Wages & Benefits Cost Food & Beverage Cost All Other Costs Gross Sales Profits (before tax) example + – – – + = 2001 2002 2003 2004 2005 27. MINIMUM WAGE: On February 23, 2004 San Francisco imposed a 26% increase in the minimum wage in San Francisco County (from the $6.75/hr California minimum to an $8.50/hr City minimum). The City minimum is indexed to the Consumer Price Index and rose another 1.4% to $8.62 on January 1, 2005. The initial 26% increase in the minimum wage compressed the wage and salary structure in the typical San Francisco restaurant, frequently generating demands from nonminimum wage and managerial staff for raises to restore their relative position in the wage and salary structure. This question explores the extent of such ripple effects. Please provide best estimate for your restaurant or bar of the percent of each cost item in the table below that is directly or indirectly attributable to the minimum wage increase. Indicate whether the total amount of each item has increased (+), decreased (–) or stayed about the same (=) in the last 12 months by putting the appropriate sign in the first column of the table, then put your estimate of the percent of each item attributable to San Francisco’s minimum wage in the third column. The effect on the wages of minimum wage employees is the same for all restaurants affected by the full minimum wage and has been printed in the table. PART III – TRENDS p. 7 of 12 Information will be held in strict confidence. No individual response will be disclosed + – = + 27a Percent of items attributable to San Francisco minimum wage Wages of Minimum Wage Employees 8.62 - 6.75 = 1.87, 1.87 ÷ 8.62 = 21.7% 21.7 % Wages of Non-Minimum Wage Employees % Salaries of Managerial Staff % TOTAL Wages & Salaries % Payroll Taxes based on Wages & Salaries % Benefits (FICA/SDI & Worker’s Comp) based on Wages & Salaries % TOTAL Cost of Employees % Cost of Employees as a percent of Total Operating Cost % Consider both direct and “ripple” effects in answering the following questions about other possible effects of the new minimum wage. 27.b NUMBER OF EMPLOYEES: SF minimum wage has increased decreased minor did not effect significant employment. major. The effect on employment, if any, was 27.c PROVISION OF EMPLOYEE BENEFITS: SF minimum wage has increased decreased minor did not effect significant benefits. major. The effect on employee benefits, if any, was 27.d SCHEDULES & HOURS OF OPERATION: SF minimum wage has increased decreased minor did not effect significant hours. major. The effect on hours of operation, if any, was 27.e MENU PRICES (including transparent menu price changes): SF minimum wage has increased decreased minor did not effect significant menu prices. major. The effect on menu prices, if any, was 27.f PROFITS: SF minimum wage has increased decreased minor did not effect profits. major. The effect on profits, if any, was significant 27.g MARKET VALUE OF BUSINESS: SF minimum wage has increased decreased minor did not effect significant market value. major. The effect on market value , if any, was PART III – TRENDS p. 8 of 12 Information will be held in strict confidence. No individual response will be disclosed 28. CULINARY CAPITAL: San Francisco’s status as one of the world’s favorite destinations owes much to the City’s status as a world class culinary center. San Francisco is a culinary powerhouse with the nation’s freshest and most varied locally grown ingredients, leading restaurants and culinary schools, and more restaurants per capita that any US city, except New York. This question probes restaurant trends that can affect the nature, quality and direction of San Francisco as a culinary center. EXPANSION 28.a Are you planning to expand your existing restaurant, or add another location? yes no 28.b If you plan expansion, when do you expect to expand? this year? next year? in 2 to 3 years? in 4 to 5 years? longer? 28.c If you plan expansion, where do expect to expand? at your present San Francisco location? elsewhere in San Francisco? in the Bay Area outside San Francisco? elsewhere in California? outside California? other (please specify below) 28.d If you plan expansion outside San Francisco, what motivates your decision? (check all that apply) market opportunities outside San Francisco lower operating costs outside San Francisco lower cost of capital outside San Francisco labor pool outside San Francisco San Francisco’s minimum wage high cost of doing business in San Francisco San Francisco restaurant & bar regulations San Francisco local taxes & fees environmental factors, e.g. management of the homeless problem other (please explain below) PART III – TRENDS p. 9 of 12 Information will be held in strict confidence. No individual response will be disclosed 29. SERVICE TRENDS Full service restaurants (sometimes called table service restaurants) are establishments where seated customers order prepared food and beverages from wait staff who serve the meal and collect payment after the meal is consumed. Full service restaurants are distinguished from fast food and take-out restaurants (some times called limited service restaurants) where customers order and pay for their food and beverages before picking up their orders at a counter or drive-thru window. Full service and limited service concepts can exist in the same restaurant, e.g. table service restaurants that offer take-out. 29.a Your present restaurant concept can best be characterized as: full service limited service both neither (explain below) 29.b If currently you are primarily a table service restaurant, are you considering adding some type of limited service concept to your format? yes No 29.c If currently you are primarily a fast food or take-out concept, are you considering adding (or adding more) table service to your format? yes No If your current restaurant format includes both full service and limited service concepts: 29.d What are their respective shares of gross sales? _____% full service _____% limited service 29.e Which is the fastest growing part of your business? full service limited service 29.f Which offers the greatest potential for increasing sales? full service limited service 29.g Which offers the greatest potential for increasing profits? full service limited service PART III – TRENDS p. 10 of 12 Information will be held in strict confidence. No individual response will be disclosed The paragraph at the beginning of this section broadly defined full, or table service restaurant. However, among table service restaurants there are major differences in the quality, quantity and type of service the owner chooses to provide. 29.h Which of the following best describes the type of service your restaurant offers? Fast Food/Take-out Casual Dinning White Table Cloth Elegant Dinning no table service 1 person serves the table in a casual, often thematic setting 1 or more people serve the table in a formal setting a specialized staff serve the table in an extravagant setting 29.i Has the level of service you target in your business plan increased decreased or stayed about the same in recent years? 29.j Do you expect the level of service you target in your business plan to increase or stay about the same in the next few years? decrease 29.k Please rate city-wide growth prospects for the four types of restaurant service shown in the table below by checking the appropriate box. (See Question 28.l to review definitions.) white table cloth growth prospects Major Moderate Minor None Shrinking No opinion fast food take-out casual dinning elegant dinning 29.l San Francisco’s current reputation as a culinary center is: very strong moderately strong weak 29.m San Francisco’s stature as a culinary center is: increasing marking time diminishing 30. HEALTH INSURANCE: The cost of health care and health care insurance have risen much faster that any other employee-related cost in recent years. The following questions probe these trends and how restaurants are responding to them. PART III – TRENDS p. 11 of 12 Information will be held in strict confidence. No individual response will be disclosed 30.a Indicate which of the following classes of employees you have offered health insurance in any of the last 6 years (2000 to 2005) by checking the appropriate boxes in the table. 2000 Hourly Full Time (36 hrs or more/wk) Hourly Part Time (20 to 34 hrs/wk) Hourly Part, Part Time (less than 20 hrs/wk) Salaried Full Time (36 hrs or more/wk) Salaried Part Time (20 to 35 hrs/wk) Salaried Part Part Time (less than 20 hrs/wk) All of your Employees None of your Employees example 2001 2002 2003 2004 2005 X X X X 30.b Have the items in the table below increased (+), decreased (–) or stayed about the same (=) at your restaurant or bar during the last 5 years (2000 to 2005). + – = Employees covered by health insurance Percent of health insurance cost paid by employee Insurance deductable or co-payment applicable to health care costs Hours worked per week to qualify for health insurance Coverage for family members of employee example – 30.c If you have decreased the amount of health insurance offered to your employees, or eliminated health insurance altogether in the last 5 years (2000 to 2005), what motivated your decision? (check all that apply) Increased cost of health insurance. Increased cost of other employee benefits, such as worker’s comp Increased labor costs due to San Francisco’s minimum wage Increased occupancy costs Increased cost of San Francisco license & inspection fees Increased cost of regulated utilities (water, power & garbage collection) Decreased revenue (gross sales) due to the recession & increased competition. Other (please explain below) PART III – TRENDS p. 12 of 12 Information will be held in strict confidence. No individual response will be disclosed 31. CHALLENGES FACING YOUR BUSINESS: Pleased rate your concern about the following issues facing restaurants and bars by checking the appropriate box in the table. Not Important Health insurance costs Worker’s comp costs Property insurance costs Liability insurance costs Meal break requirements Menu labeling requirements San Francisco license & inspection fees Regulated utility costs (water, power, garbage) San Francisco’s indexed Minimum Wage Other labor costs State tip credit State & Federal Food Regulations example Somewhat Important Very Important X Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents Exhibit: Golden Gate Restaurant Association Members Respondents not members of GGRA Total Note: Percent of respondents generally refers to the total number of respondents to a specific question. However, if the percentage number for total respondents to a specific question is less than 100%, it refers to the percent of all respondents to the survey. Q.1 License Full Service Restaurant < 1,000 sq ft Full Service Restaurant 1,000 to 2000 sq ft Full Service Restaurant > 2,000 sq ft Limited Services Bar/Lounge/Tavern Total Zip Code 94102 94103 94104 94105 94107 94109 94110 94111 94114 94115 94117 94121 94122 94123 94131 94133 No Zip Code Given Total 35 17 52 p. 1 of 11 Percent of Respondents 67% 33% 100% 8 12 28 1 3 52 15% 23% 54% 2% 6% 100% Q.2 10 2 3 1 1 4 3 5 1 3 1 2 3 2 1 8 2 52 19% 4% 6% 2% 2% 8% 6% 10% 2% 6% 2% 4% 6% 4% 2% 15% 4% 100% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents Q.3 General Location DownTown/South of Market Union Square Embarcadero Fisherman's Wharf Mid-Market/Civic Center Van Ness Corridor Neighborhood Commercial No Answer Total Neighborhood Commercial Castro Japan Town Marina Mission Noe Valley North Beach Ocean Beach Pacific Heights Portero Richmond District Sunset District Western Addition Total Q.4 Type of Ownership Sole Proprietorship Partnership Private Corporation Public Corporation No answer Total Family Owned Type of Organization Independent Multi-Unit No Answer Total 9 7 5 7 2 2 18 2 52 p. 2 of 11 Percent of Respondents 17% 13% 10% 13% 4% 4% 35% 4% 100% 2 1 2 2 1 2 1 1 1 1 3 1 18 11% 6% 11% 11% 6% 11% 6% 6% 6% 6% 17% 6% 100% 8 20 20 2 2 52 4 15% 38% 38% 4% 4% 100% 8% Q.5 37 11 4 52 71% 21% 8% 100% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents Q.6 Franchise Franchisee Franchiser Both Neither No answer Total Number of Years in Business Less than 2 years 2 years to 5 years 6 years to 10 years 11 years to 20 years More than 20 years No answer Total Primary Type of Business Full Service Restaurant, Av Check per Person < $15 Full Service Restaurant, Av Check per Person $15 to $24.99 Full Service Restaurant, Av Check per Person $25 or more Limited Service Restaurant (take-out & fast food concepts) Coffee/Pastry Shop Bar/Tavern/Lounge No answer Total Liquor Service Beer and/or Wine, only Full Liquor service No Alcoholic Beverages No answer Total 0 0 1 48 3 52 p. 3 of 11 Percent of Respondents 0% 0% 2% 92% 6% 100% Q.7 4 9 12 10 15 2 52 8% 17% 23% 19% 29% 4% 100% Q.8 8 11 20 7 1 3 2 52 15% 21% 38% 13% 2% 6% 4% 100% Q.9 17 29 4 2 52 33% 56% 8% 4% 100% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents Q.10 Primary Menu Theme American Asian Café Californian French Indian International Italian Japanese Latin Mediterranean Mexican Pizza Sandwiches Seafood Soup No answer Total Establishment Site Land Owned Land Leased Not Reported Total Building Owned Building Leased Not Reported Total 15 1 2 1 3 1 1 9 2 1 1 2 1 1 7 1 3 52 p. 4 of 11 Percent of Respondents 29% 2% 4% 2% 6% 2% 2% 17% 4% 2% 2% 4% 2% 2% 13% 2% 6% 100% Q.11 8 42 2 52 10 40 2 52 15% 81% 4% 100% 19% 77% 4% 100% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents Q.12 Food Services other than Dinning Room Take Out Service Offered Not Offered Total Av % of Busines, if Service Offered Median % of Business, if Service Offered Outside Catering Offered Not Offered Total Av % of Busines, if Service Offered Median % of Business, if Service Offered Banquet Service Offered Not Offered Total Av % of Busines, if Service Offered Median % of Business, if Service Offered Days & Meals Open for Business Breakfast Daily Monday Tuesday Wednesday Thursday Friday Saturday Sunday Lunch Daily Monday Tuesday Wednesday Thursday Friday Saturday Sunday p. 5 of 11 Percent of Respondents 23 26 49 47% 53% 100% 23% 8% 24% 76% 100% 4.4% 3.5% 53% 47% 100% 12% 10% 12 37 49 26 23 49 Q.13 19 13 15 16 16 16 17 17 17 42 29 35 39 40 40 41 34 31 36% 25% 29% 31% 31% 31% 33% 33% 33% 81% 56% 67% 75% 77% 77% 79% 65% 60% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents 46 32 39 42 44 45 45 44 38 0 p. 6 of 11 Dinner Daily Monday Tuesday Wednesday Thursday Friday Saturday Sunday 24 Hours, & Days a Week Q.14 Establishment is Located in or Attached to: Apartment Building Hotel, Transient Office Building Pier Mlti-purpose building Shopping Center or Mall Transportation Center (BART or MUNI Station, Airport, etc.) Nothing -- Sole Occupant of Building Not Reported Total Number of Seats or Stools Dinning Room -- respondents Total number of seats for those reporting Average number of seats for those reporting Median number of seats for those reporting Bar or Lounge -- respondents Total number of seats for those reporting Average number of seats for those reporting Median number of seats for those reporting Banquet Rooms -- respondents Total number of seats for those reporting Average number of seats for those reporting Median number of seats for those reporting Outside/Open Air Areas -- respondents Total number of seats for those reporting Average number of seats for those reporting Median number of seats for those reporting Percent of Respondents 88% 62% 75% 81% 85% 87% 87% 85% 73% 0% 9 12 8 5 1 5 1 9 2 52 17% 23% 15% 10% 2% 10% 2% 17% 4% 100% Q.15 46 4,782 104 80 33 1,210 37 22 16 3,496 219 163 19 609 32 24 96% 69% 33% 40% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents 1 176 176 176 48 10,273 214 125 p. 7 of 11 Other Areas -- respondents Total number of seats for those reporting Average number of seats for those reporting Median number of seats for those reporting Total for Establishment -- respondents Total number of seats for those reporting Average number of seats for those reporting Median number of seats for those reporting Q.16 Size of Establishement Dinning Room -- respondents Total number of square feet for those reporting Average number of square feet for those reporting Median number of square for those reporting Kitchen -- respondents Total number of square feet for those reporting Average number of square feet for those reporting Median number of square for those reporting Banquet Rooms -- respondents Total number of square feet for those reporting Average number of square feet for those reporting Median number of square for those reporting Other Areas -- respondents Total number of square feet for those reporting Average number of square feet for those reporting Median number of square for those reporting Total for Establishment -- respondents Total number of square feet for those reporting (see note) Average number of square feet for those reporting Median number of square for those reporting Maximum Legal Occupancy -- respondents Total for those reporting Average for those reporting Median for those reporting Number of Customers Served per Year -- respondents Total for those reporting Average for those reporting Median for those reporting Percent of Respondents 2% 100% 40 93,317 2,458 1,650 40 55,930 1,398 1,000 16 60,816 3,801 2,000 30 39,672 1,322 950 42 254,735 6,065 3,875 41 7,327 179 152 43 5,122,463 119,127 80,000 95% 95% 38% 71% 100% Q.17 79% Q.18 83% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents 46 26.95 22.18 46 145,917,817 3,393,438 1,756,000 p. 8 of 11 Q.19 Average Guest Check per Person -- respondents Average for those reporting Median for those reporting Total Sales Implicit in Answers to Qs 17 & 18 -- respondents Total for those reporting Average for those reporting Median for those reporting Percent of Respondents 88% 88% Q.20 Current "typical week" paid employees Kitchen Full Time (36 + hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Kitchen Part Time (20 to 35 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Kitchen Part Part Time (< 20 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL KITCHEN -- resondents Total for those reporting Average for those reporting Median for those reporting Front of House Full Time (36 + hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Front of House Part Time (20 to 35 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Front of House Part Part Time (< 20 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting 42 824 20 11 46 150 4 1 42 46 1 0 43 1,020 24 15 40 833 21 10 43 602 14 10 37 248 7 3 81% 88% 81% 83% 77% 83% 71% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents 44 1,683 38 23 48 1,657 35 16 48 752 16 10 48 294 6 2 48 2,703 56 32 p. 9 of 11 TOTAL FRONT OF HOUSE -- respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Full Time (36 + hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Part Time (20 to 35 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Part Part Time (< 20 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL EMPLOYMENT -- respondents Total for those reporting Average for those reporting Median for those reporting Q.21 Current "typical week" paid hourly employees Kitchen Full Time (36 + hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Kitchen Part Time (20 to 35 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Kitchen Part Part Time (< 20 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL KITCHEN -- resondents Total for those reporting Average for those reporting Median for those reporting Front of House Full Time (36 + hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Percent of Respondents 85% 92% 92% 92% 92% 43 739 17 6 43 146 3 1 42 44 1 0 45 902 20 12 44 713 16 8 83% 83% 81% 87% 85% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents 44 591 13 10 43 241 6 1 45 1,545 34 21 46 1,461 32 16 46 738 16 10 46 285 6 2 46 2,484 54 32 p. 10 of 11 Front of House Part Time (20 to 35 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting Front of House Part Part Time (< 20 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL FRONT OF HOUSE -- respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Full Time (36 + hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Part Time (20 to 35 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Part Part Time (< 20 hrs per wk) - respondents Total for those reporting Average for those reporting Median for those reporting TOTAL EMPLOYMENT -- respondents Total for those reporting Average for those reporting Median for those reporting Q.22 Number of IRS W-2 Forms Sent Last Year Salaried Employees -- respondents Total for those reporting Average for those reporting Median for those reporting Hourly Employees -- respondents Total for those reporting Average for those reporting Median for those reporting TOTAL Employees -- respondents Total for those reporting Average for those reporting Median for those reporting Percent of Respondents 85% 83% 87% 88% 88% 88% 88% 46 350 8 4 46 3,442 75 51 46 3,792 82 53 88% 88% 88% Appendix Table 1 San Francisco Restaurant Survey 2005 Part I Tabulation (Nonfinancial Information) Number of Repondents Q.23a Average Number Wkly "Tipped" Employees - respondents Total for those reporting Average for those reporting Median for those reporting Q.23b Percent of Current Wait/Counter Staff Employed for: Less than 6 Months -- respondents Average Percentage for those reporting Median Percentage for those reporting 6 Months to 1 year -- respondents Average Percentage for those reporting Median Percentage for those reporting 1 Year to 4 Years -- respondents Average Percentage for those reporting Median Percentage for those reporting 4 or More Years -- respondents Average Percentage for those reporting Median Percentage for those reporting Q.24 Range of Annual Gross Sales of Food & Alcholic Beverages Less than $ 500,000 $ 500,000 to $ 750,000 $ 750,000 to $1,000,000 $1,000,000 to $1,500,000 $1,500,000 to $2,000,000 $2,000,000 to $2,500,000 More than $2,500,000 Not reported Total 43 1,074 25 16 p. 11 of 11 Percent of Respondents 83% 44 20% 10% 44 17% 20% 44 37% 32% 44 26% 18% 85% 85% 85% 85% 9 4 4 7 4 0 20 4 52 17% 8% 8% 13% 8% 0% 38% 8% 100% Appendix Table 2 San Francisco Restaurant Surevey 2005 Part II Tabulation (Statement of Income and Expense) # of Respondents % of Respondents Average Value 2004 2004 less less 2003 2004 2003 2003 2004 2003 2003 2004 27 30 27 52% 58% 52% 2,903,792 2,931,595 28 31 28 54% 60% 54% 1,218,202 1,207,483 31 35 31 60% 67% 60% 3,757,779 3,705,632 28 31 28 54% 60% 54% 821,859 824,834 29 32 29 56% 62% 56% 323,130 308,273 31 35 31 60% 67% 60% 1,072,729 1,040,463 31 35 31 60% 67% 60% 2,685,050 2,665,169 32 36 32 62% 69% 62% 1,077,346 1,964,966 31 35 31 60% 67% 60% 332,223 337,209 32 36 31 62% 69% 60% 308,078 294,822 29 32 27 56% 62% 52% 94,205 87,466 32 35 32 62% 67% 62% 336,561 334,565 27 31 26 52% 60% 50% 239,726 244,179 15 17 17 29% 33% 33% 228,185 228,296 32 36 32 62% 69% 62% 2,438,430 2,408,722 18 18 19 35% 35% 37% 1,214,622 116,964 6 8 7 12% 15% 13% 62,787 48,663 31 35 31 60% 67% 60% 120,222 144,351 Median Value 2004 less 2003 273,166 110,476 347,277 67,250 13,275 76,265 271,012 101,307 44,810 15,203 -542 25,640 34,454 22,580 224,618 2,218 -12,488 41,255 2004 less 2003 189,000 70,250 214,000 52,936 9,874 47,000 198,971 81,500 9,972 13,000 0 6,860 20,500 13,000 151,295 0 0 29,346 Total Value ($000,000) 2004 less 2003 2003 2004 78.4 87.9 7.375 34.1 37.4 3.093 116.5 129.7 10.766 23.0 25.6 1.883 9.4 9.9 0.385 33.3 36.4 2.364 83.2 93.3 8.401 34.5 38.3 3.242 10.3 11.8 1.389 9.9 10.6 0.471 2.7 2.8 0.015 10.8 11.7 0.820 6.5 7.6 0.896 3.4 3.9 0.384 78.0 86.7 7.188 2.1 2.1 0.042 0.4 0.4 -0.874 3.7 5.1 1.279 Food Sales Alcohol Sales TOTAL Sales Food Costs Alcohol Costs TOTAL Cost of Gds Sold GROSS MARGIN on Sales Wages Benefits Occupancy Costs Depreciation Other Operating Costs Administrative Costs Corporate Overhead TOTAL Operating Expense Interest Expense All Other Expenses INCOME Before Income Tax 2003 2,713,000 630,574 2,780,000 717,911 161,000 777,275 2,002,241 785,083 193,000 186,500 52,000 271,786 130,441 187,000 1,844,950 44,000 34,621 77,000 2,004 2,500,000 613,628 1,879,000 606,000 154,901 521,752 1,436,000 682,652 150,178 151,446 48,500 257,000 128,884 174,000 1,455,873 63,000 30,800 53,000 Appendix Table 3 San Francisco Restaurant Survey 2005 Part III Tabulation (Trends) Q.26 Business Measures – This table exhibits the percent of respondents for whom the business measures shown increased, decreased or stayed about the same in the years shown. Items total to 100% unless over or under by 1 due to rounding. 2000 Customers Number of Respondents % that increased % that decreased % that Stayed about the same 31 33 35 37 40 29 2001 2002 2003 2004 2005 84 6 10 30 33 49 18 33 26 63 11 34 51 30 19 36 57 18 25 39 38 24 38 28 Employees Number of Respondents % that increased % that decreased % that Stayed about the same 74 3 23 30 24 46 30 33 15 41 44 34 22 28 50 37 36 33 31 39 25 18 57 29 Hours of Operation Number of Respondents % that increased % that decreased % that Stayed about the same 17 3 80 31 3 21 76 34 9 12 79 35 8 22 70 37 13 21 67 39 14 17 69 30 Wages & Benefits Cost Number of Respondents % that increased % that decreased % that Stayed about the same 90 7 3 31 85 12 3 34 74 9 17 35 76 5 19 37 97 3 0 39 94 3 3 29 Food & Beverage Cost Number of Respondents % that increased % that decreased % that Stayed about the same 71 3 26 30 53 24 23 33 63 14 23 34 62 5 33 36 56 28 15 38 73 17 10 30 All Other Costs Number of Respondents % that increased % that decreased % that Stayed about the same 90 7 3 28 82 9 9 32 73 15 12 34 72 11 17 36 79 16 5 38 90 7 3 28 Gross Sales Number of Respondents % that increased % that decreased % that Stayed about the same 89 7 4 27 44 50 6 30 35 53 12 33 44 36 20 35 71 18 11 37 50 32 18 26 Profits (before tax) Number of Respondents % that increased % that decreased % that Stayed about the same 81 11 8 23 70 7 36 61 3 29 57 14 41 51 8 39 46 15 Appendix Table 3 – Part II Tabulation (Trends) p. 2 of 8 Q- 27a Minimum Wage – Effects of the 26% increase in the minimum wage imposed on restaurants by San Francisco city government February 23, 2004. The table below exhibits two pieces of information about several categories of employee compensation: • The percent of respondents for whom the category increased, decreased or stayed about the same during the last year. The current percent of each category that Respondents attribute to the increase in San Francisco’s minimum wage. • Responses % Stayed the Same % Increased % Decreased Percent of Category Respondents Attribute to February 2004 San Francisco Minimum Wage Increase Wages of Minimum Wage Employees Wages of Non-minimum Wage Employees Salaries of Managerial Staff TOTAL Wages & Salaries Payroll Taxes based on Wages & Salaries Benefits (FICA/SDI & Worker Comp) based on Wages TOTAL Cost of Employees Cost of Employees as % of Total Operating Cost 100 80 61 100 100 100 100 100 0 3 0 0 0 0 0 0 0 17 39 0 0 0 0 0 Average Median 21.7 21.7 8.7 5.5 5.8 5.0 11.3 10.0 9.8 10.0 10.2 10.0 9.5 10.0 33.5 42.0 Direction Number of Respondents Wages of Minimum Wage Employees Wages of Non-minimum Wage Employees Salaries of Managerial Staff TOTAL Wages & Salaries Payroll Taxes based on Wages & Salaries Benefits (FICA/SDI & Worker Comp) based on Wages TOTAL Cost of Employees Cost of Employees as % of Total Operating Cost % of + – = Category 38 37 30 24 31 23 32 20 31 20 31 20 31 22 32 21 Appendix Table 3 – Part II Tabulation (Trends) p. 3 of 8 Questions 27.b through 27.g explore “ripple effects” of San Francisco’s minimum wage observed by many restaurateurs. These questions asked respondents whether the San Francisco minimum wage increased, decreased, or had no effect on six key aspects of their businesses. Respondents also were asked to rate the extent of the effect as minor, significant or major. The percent of respondents selecting each option are summarized in Q.27.b through Q.27.g, below. Items for each of the two parts of the question will total 100% unless over or under by one due to rounding. Q.27.b Number of Employees increased 2 decreased 54 no effect 43 number of respondents 46 minor 69 significant 20 major 11 Q.27.c Provision of Employee Benefits increased 26 decreased 35 no effect 39 number of respondents 46 minor 48 significant 39 major 13 Q.27.d Schedules & Hours of Operation increased 2 decreased 33 no effect 65 number of respondents 46 minor 78 significant 15 major 7 Q.27.e Menu Prices increased 98 decreased 0 no effect 2 number of respondents 46 minor 11 significant 67 major 22 Q.27.f Profits increased 2 decreased 91 no effect 7 number of respondents 46 minor 26 significant 41 major 33 Q.27.g Market Value of Business increased 0 decreased 76 no effect 24 number of respondents 41 minor 46 significant 32 major 22 Q-28 Culinary Center – This question probes restaurant trends that can affect San Francisco’s reputation and development as a culinary center and international culinary destination. Answers are reported as a percent of respondents. number of respondents number of respondents 2-3 years 24 4-5 years 8 > 5 years 0 Q.28.a Do you plan to expand? Q.28.b When do you plan to expand? Yes 56 No 44 this year 52 next year 16 45 25 Appendix Table 3 – Part II Tabulation (Trends) p. 4 of 8 Q.28.c Where will you expand? 9 at present San Francisco location 13 elsewhere in San Francisco 25 Bay Area outside San Francisco number of respondents 44 elsewhere in California 6 outside California 3 Other (specify below) 32 Chicago anywhere but San Francisco Q.28.d Reasons for planned expansion outside San Francisco. % of respondents 81 100 58 19 92 100 23 38 38 18 number of respondents 26 Reason market opportunities outside San Francisco lower operating costs outside San Francisco lower cost of capital outside San Francisco labor pool outside San Francisco San Francisco’s minimum wage high cost of doing business in San Francisco San Francisco restaurant & bar regulations San Francisco local taxes & fees environmental factors, e.g. homeless, cleanliness, etc. other (explain below) San Francisco is hostile to small business City is unfriendly to small business City is hostile to small business No reason given Q-29 Service Trends – This question probes trends in the nature and level of restaurant service. Full service restaurants (sometimes called table service restaurants) are establishments where seated customers order prepared food and beverages from wait staff who serve the meal and collect payment after the meal is consumed. Fast food and take-out restaurants (sometimes called limited service restaurants) are establishments where customers order and pay for food and beverages before picking up their orders at a counter or drive-thru window. Both concepts can coexist in the same restaurant, as in a table service that also sells food for take-out. Answers are reported as a percent of respondents, except where noted. Your current restaurant concept is? full service limited service 78 16 both 6 number of respondents neither 0 49 Q.29.a Appendix Table 3 – Part II Tabulation (Trends) p. 5 of 8 Q.29.b If you are full service, are you considering adding limited service? 27 yes 73 no number of respondents 37 Q.29.c If you are limited service, are you considering adding full service? 0 yes 100 no number of respondents 11 If your current restaurant format includes both full service and limited service: Q.29.d Full service & limited services SHARES of sales at establishments that offer these types of service? type service Full service Limited Service number of respondents 47 average median # of respondents 89 % 99 % 41 37 % 13 % 28 Q.29.e Which is the FASTEST GROWING? 63 full service number of respondents 16 37 limited service Q.29.f Which has the greatest potential for increasing SALES? 59 full service number of respondents 17 41 limited service Q.29.g Which has the greatest potential for increasing PROFITS? 56 full service number of respondents 18 44 limited service Q.29.h Which of the following best describes the type of service you provide? 11 48 35 6 Fast Food/Take-Out Casual Dinning White Table Cloth Elegant Dinning number of respondents 46 no table service 1 person serves table in a casual, often thematic setting 1 or more people serve the table in a formal setting specialized staff serve table in an extravagant setting Appendix Table 3 – Part II Tabulation (Trends) p. 6 of 8 Q.29.i In recent years, has the level of service you target in your business plan: 20 increased 11 decreased number of respondents 69 46 stayed about the same Q.29.j Do you expect the level of service you target in your business plan to: 23 increase 11 decrease number of respondents 66 44 stay about the same Q.29.k Rate city-wide growth prospects for four types of restaurants. Percent of Respondents rating growth prospects fast food for restaurant type. take-out Major Moderate Minor None Shrinking No opinion # of respondents 33 21 24 36 3 3 12 casual dinning 14 60 8 3 9 6 35 white table cloth 0 20 40 11 23 6 35 elegant dinning 3 9 17 9 56 6 34 Q.29.l San Francisco’s current reputation as a culinary center is: 39 very strong 54 number of respondents 7 weak 42 moderately strong Q.29.m San Francisco’s stature as a culinary center is: 14 increasing 50 marking time number of respondents 36 42 diminishing Q-30 Health Insurance – The cost of health care and health care insurance have risen much faster than any other employee-related cost (excepting the minimum wage) in recent years. The following questions probe these trends and how restaurateurs have responded. Answers are reported as a percent of respondents, except where noted. Appendix Table 3 – Part II Tabulation (Trends) p. 7 of 8 Q.30.a Employees you have offered health insurance in the last 6 years. number of respondents 44 percent of respondents 2000 2001 2002 2003 2004 2005 54 57 59 57 57 57 Hourly Full Time (36 hrs or more/wk) 34 34 34 34 32 30 Hourly Part Time (20 to 35 hrs/wk) 0 0 2 2 2 2 Hourly Part, Part Time (less than 20 hrs/wk) 55 55 55 61 64 59 Salaried Full Time (36 hrs or more/wk) 23 23 23 25 25 25 Salaried Part time (20 to 35 hrs/wk) 2 2 2 2 2 2 Salaried Part, Part Time (less than 20 hrs/wk) All of your Employees 9 9 9 9 11 9 None of your Employees 9 11 11 11 11 14 Q.30.b Have the health insurance items in the table increased, decreased, or stayed the same in the last 5 years. number of respondents no change decreased increased 40 Percent of respondents who took the actions shown for each of the health insurance-related items in the left hand column of the Table. employees covered by health insurance % of health insurance cost paid by employee deductible or co-payment hours work per week to qualify employee family member coverage 20 47 73 15 20 40 8 5 7 17 40 45 22 78 63 Q.30.c If you have decreased health insurance you offer your employees in the last five years, what motivated your decision? number of respondents 15 93 53 73 33 47 53 53 13 increased cost of health insurance increased cost of other employee benefits, such as worker’s comp increased labor costs due to San Francisco’s minimum wage increased occupancy costs increased cost of San Francisco license & inspection fees increased cost of regulated utilities (water, power & garbage collection) decreased revenue (gross sales) due to recession &/or increased competition other (please explain below) Cannot afford to pay health insurance. Administrative problems with insurance carrier. Appendix Table 3 – Part II Tabulation (Trends) p. 8 of 8 Q.31 Percent of respondents rating the importance of the issues in the left column of the table as shown in the three columns to the right in the table. number of respondents not important somewhat important 43 very important Health insurance costs Worker’s comp costs Property insurance costs Liability insurance costs Meal break requirements Menu labeling requirements San Francisco license & inspection fees Regulated utility costs (water, power, garbage) San Francisco’s indexed Minimum Wage Other labor costs State Tip Credit State & Federal food Regulations 0 0 4 3 9 5 12 2 0 2 1 5 17 11 19 20 19 25 19 21 2 7 5 23 26 32 20 20 15 13 12 20 41 34 37 15 Appendix Table 4 San Francisco Department of Public Health Schedule of License and Other Fees for Food Preparation, Service, Products and Marketing Establishments fiscal years ended June 30, 2000 - 2006 DPH Code FY 2000 Fees 510 555 563 535 535 580 535 85 535 408 406 391 66 129 535 175 580 50 358 348 355 362 369 355 375 375 382 354 361 358 358 358 358 174 89 110 FY 2001 Fees 510 555 563 535 535 580 535 85 535 408 406 391 66 129 535 175 580 50 358 348 355 362 369 355 375 375 382 354 361 358 358 358 358 174 89 110 FY2002 Fees 510 674 773 605 611 693 595 95 580 408 483 410 116 158 655 193 616 69 491 373 490 612 744 400 520 635 757 410 423 412 416 400 412 195 110 123 27% 17% FY 2003 Fees 510 674 773 605 611 693 595 95 580 408 483 410 116 158 655 193 616 69 491 373 490 612 744 400 520 635 757 410 423 412 416 400 412 195 110 123 FY 2004 FY 2005 Fees before 2/8 510 674 773 605 611 693 595 95 580 408 483 410 116 158 655 193 616 69 491 373 490 612 744 400 520 635 757 410 423 412 416 400 412 195 110 123 510 674 773 605 611 693 595 95 580 408 483 410 116 158 655 193 616 69 491 373 490 612 744 400 520 635 757 410 423 412 416 400 412 195 110 123 FY 2005 after 2/8 627 829 951 744 752 852 732 117 713 408 594 504 143 194 806 237 758 85 604 459 603 753 915 492 640 781 931 504 520 507 512 492 507 240 135 155 75 22% 23% FY 2006 Fees 627 829 951 744 752 852 732 117 713 408 594 504 143 194 806 237 758 85 604 459 603 753 915 492 640 781 931 504 520 507 512 492 507 240 135 155 75 Type of Establishment SEC. 249.1. FOOD PREPARATION & SERVICE 1001 Restaurant <1000 (tax code H24) 1003 Restaurant 1000-2000 (tax code H25) 1004 Restaurant >2000 (tax code H26) 1005 Bar/Tavern/Lounge (tax code H27) 1006 Take-Out Restaurants (tax code H28) 1007 Fast Food Restaurant (tax code H29) 1020 Catering Facility 1021 Temporary food Facility - 45 days 1024 Commissary 1025 Retail Food Vehicle 1028 Pushcart-Private Property 1029 Stadium Concession--Permanent 1031 Vending Machine 1040 Boarding House 1041 Bed & Breakfast 1044 School Cafeteria-Private 1045 Hospital Kitchen-patient food service SEC. 248. FOOD PRODUCTS & MARKETING 1055 Candy Counter-<$1000 Inventory 1056 Candy Counter->$1000 Inventory 1060 Retail Food Mkts w/o Food Prep < 5,000 sq ft 1061 Retail Food Mkts w/o Food Prep < 10,000 sq ft 1062 Retail Food Mkts w/o Food Prep < 20000 sq ft 1063 Retail Food Mkts w/o Food Prep > 20000 sq ft 1064 Retail Food Mkts with Food Prep < 5,000 sw ft 1065 Retail Food Mkts with Food Prep < 10,000 sq ft 1066 Retail Food Mkts with Food Prep < 20,000 sq ft 1067 Retail Food Mkts with Food Prep > 20,000 sq ft 1068 Retail Bakery < 2,000 sq ft 1069 Retail Bakery > 2,000 sq ft 1070 Produce Stand 1071 Certified Farmer's Market 1080 Wholesale Food Market - Produce 1090 Food Product Manufacture/Processing Application Filing Fee Inspection Fee (hourly, standard) Inspection Fee (hourly, nonregular working hours) Reinspection Fee (per half hour) Average Change Median Change NOTES: Fees for FY2000 & FY2001 were set by Ordinance 131-97 , approved April 18, 1997. Fees for fiscal years 2002 through February 8, 2005 were set by Ordinance 117-01 , file no. 010515, approved June 1, 2001. Fees after February 8, 2005 & until a new ordinance is passed were set by Ordinance 5-05, file no. 041588, approved January 8, 2005. Hourly fees are subject to annual "cost of living (COLA) adjustments". Fees for new licenses issues after September 1 are prorated on a monthly basis. Technically Sec. 249.1 Food Preparation & Service Facilities' license year runs from April to March; Sec. 248 Food Product and Marketing Facilities' license year runs from July to June. In this table both are attributed to the City fiscal year in which the revenue accrues. Appendix Table 5 City and County of San Francisco Department of Public Works DPW Amended Order No. 172,930 The Base Refuse Rates below are effective July 1st of each year indicated through June 30th of the following (year). The Effective Refuse Rates for 2002 through 2005 will be the sum of the adopted Base Refuse Rates plus a COLA rate adjustment and any environmental surcharge. Recycling and composting collection service is included in refuse rates at no additional charge.1 Description of Monthly Charge For weekly collection of one 32-gallon refuse container and each additional 32-gallon refuse container or excess volume not exceeding 32 gallons in capacity and 60 pounds in weight from street level, not more than 25 feed from the curb.i For weekly collection of one refuse container not exceeding 20 gallons in capacity and 40 pounds in weight from street level, not more than 25 feet from the curb.i For weekly collection of one 32-gallon refuse container and 60 pounds in weight from street level, not more than 25 feet from the curb, for households with income less than or equal to 150% of the poverty level.i, • For weekly collection of one refuse container not exceeding 20 gallons in capacity and 40 pounds in weight from street level, not more than 25 feet from the curb, for households with income less than or equal to 150% of the poverty level. i, • For monthly collection from customers who can demonstrate that they produce no more than 32 gallons and 60 pounds of non-putrescible refuse per month at street level, not more than 25 feet from the curb. Customer must apply to the collection companies for this reduced service with any final review, approval, disapproval or appeal process to be performed by the Department of Public Health. i For collection made from a refuse container between four and eight feet above or below street level. For each additional eight feet. Street level is where service truck must park for access to customer’s property. Location of a container above or below street level shall be determined by adding all distances above and below street level which must be traversed by the collector to gain access to the container without regard to the actual relationship of container location level and street level. 2001 $14.83 2002 $16.28 2003 $17.73 2004 $17.42 2005 $16.79 (a) (b) $11.42 $12.54 $13.65 $13.41 $12.93 © $11.12 $12.21 $13/30 $13.07 $12.59 (d) $8.56 $9.40 $10.24 $10.06 $9.70 (e) $6.17 $6.77 $7.38 $7.25 $6.99 (f) $3.33 $3.65 $3.98 $3.91 $3.77 $4.43 $4.86 $5.30 $5.20 $5.02 1 The Refuse Collection and Disposal Ordinance of 1932 provides that if a producer delivers “waste paper or other refuse having a commercial value to a refuse collector, the collector shall receive the same and no additional charge shall be made for its removal.” Appendix Table 5 (page 2) City and County of San Francisco Department of Public Works DPW Amended Order No. 172,930 (g) For each use of a key (including key pad, combination lock, automatic door opener or other entry mechanism required to enter or leave premises. For multi-unit buildings where each dwelling unit is billed separately, the charge per unit for each use of a key is 150% of the key charge above divided by the number of units. For collection made from a refuse container located between 25 and 50 feet traveling distance from the curb. For entrance through a trap door, an additional monthly charge of 50% of the applicable base rate applied. A trap door is defined as where the collector must access the container by lifting off a cover and pulling the container up to street level for servicing. For collection more often than weekly, the rate shall be that for weekly service multiplied by the number of collections per week. For each check returned unpaid by the maker’s bank, a minimum service charge of $15.00 applies. A separate refuse container shall be provided for each dwelling unit. Where a container is used by more than one unit, each unit may be charged at the rate applicable as though a separate container of either 20 gallons or 32 gallons were in fact provided. Credit will be allowed for suspension of service (e.g., vacations) for more than a 2-week period. Access to containers shall be unobstructed. Containers shall be placed at locations adequate to permit collection in a normal and wafe manner. Volumetric charges are subject to a 1.3% surcharge for the Special Reserve Fund. $5.95 $6.54 $7.12 $6.99 $6.74 (h) $1.99 $2.19 $2.38 $2.34 $2.26 (i) (j) (k) i Surcharge for Special Reserve Fund – There shall be added to each billing rendered for services to residences and flats and apartments a surcharge of 1.3% of the volumetric portion of the bill. The services subject to the surcharge have been identified in this with an (i) after the description of monthly charge. • For application for the Lifeline Rate contact – Sunset Scavenger (415) 330-1300 and Golden Gate Disposal (415) 626-4000. Appendix Table 6 ZIP Code Distribution of Survey Sample and All San Francisco Restaurants and Bars ZIP Code GGRA 94102 40 94103 29 94104 21 94105 28 94107 28 94108 11 94109 29 19110 10 94111 43 94112 2 94114 27 94115 11 94116 1 94117 4 94118 7 94119 2 94121 8 94122 6 94123 30 94124 2 94125 2 94127 5 94128 7 94131 3 94132 4 94133 56 94134 0 94143 1 Total 417 No ZIP Total Random Panel 79 97 22 48 37 47 85 112 46 43 55 40 22 48 42 0 27 42 44 14 0 17 0 10 13 93 19 0 1,102 Total San Panel Francisco GGRA 122 259 9.6% 129 239 7.0% 46 80 5.0% 78 117 6.7% 68 107 6.7% 59 131 2.6% 115 255 7.0% 125 276 2.4% 90 124 10.3% 45 99 0.5% 84 135 6.5% 51 131 2.6% 23 48 0.2% 52 122 1.0% 49 140 1.7% 4 0 0.5% 35 103 1.9% 48 135 1.4% 79 124 7.2% 16 47 0.5% 2 0 0.5% 22 45 1.2% 7 0 1.7% 13 25 0.7% 18 46 1.0% 152 208 13.4% 19 40 0.0% 1 0 0.2% 1,552 3,036 100.0% 1,369 4,405 Random Panel 7.2% 8.8% 2.0% 4.4% 3.4% 4.3% 7.7% 10.2% 4.2% 3.9% 5.0% 3.6% 2.0% 4.4% 3.8% 0.0% 2.5% 3.8% 4.0% 1.3% 0.0% 1.5% 0.0% 0.9% 1.2% 8.4% 1.7% 0.0% 100.0% Total San Panel Francisco 7.9% 8.5% 8.3% 7.9% 3.0% 2.6% 5.0% 3.9% 4.4% 3.5% 3.8% 4.3% 7.4% 8.4% 8.1% 9.1% 5.8% 4.1% 2.9% 3.3% 5.4% 4.4% 3.3% 4.3% 1.5% 1.6% 3.4% 4.0% 3.2% 4.6% 0.3% 0.0% 2.3% 3.4% 3.1% 4.4% 5.1% 4.1% 1.0% 1.5% 0.1% 0.0% 1.4% 1.5% 0.5% 0.0% 0.8% 0.8% 1.2% 1.5% 9.8% 6.9% 1.2% 1.3% 0.1% 0.0% 100.0% 100.0% 45.1% SOURCE: San Francisco Tax Collector & GGRA Membership Department Note: 94125 & 94128 are Airport mail centers. 94119 is the mailing address for Pier 39, a shopping center physically located in 94133 The "No ZIP" item respresents the 31% of records in the the Tax Collector's database for which there is no ZIP code entry. Appendix Table 7 San Francisco Survey Panel and Questionnaires Returned Geographic Distribution by Number and Percent Establishments GGRA Random Panel Return Downtown -- Chinatown -- Central Waterfront 94104, 94105, 94108, 94111 South of Market -- South Waterfront 94103, 94107 N. Waterfront -- Northbeach -- Pacific Heights -- Marina Nob Hill -- Russian Hill 94109, 94115, 94119, 94123, 94133 Civic Center -- Hayes Valley -- Haight Ashbury 94102, 94117 Mission -- Noe Valley -- Castro - Bernal Heights 94110, 94114 Twin Peaks -- Diamond Heights -- Miraloma -- West Portal -- UCSF 94127, 94131, 94143 Presidio -- Richmond -- Sunset 94118, 94121, 94122, 94129 Southwest Neighborhoods 94112, 94116, 94132 Southeast Neighborhoods 94124, 94134 Airport Mail Centers 94125, 94127 TOTALS 110 63 139 47 42 9 21 8 2 9 450 163 134 262 127 167 27 111 78 33 0 1,102 273 197 401 174 209 36 132 86 35 9 1,552 9 3 17 11 4 1 5 0 0 2 52 % Distribution Panel Return 17.6% 12.7% 25.8% 11.2% 13.5% 2.3% 8.5% 5.5% 2.3% 0.6% 100.0% 17.3% 5.8% 32.7% 21.2% 7.7% 1.9% 9.6% 0.0% 0.0% 3.8% 100.0% Percent Return 3.3% 1.5% 4.2% 6.3% 1.9% 2.8% 3.8% 0.0% 0.0% 22.2% 3.4% GGRA % of Panel 40.3% 32.0% 34.7% 27.0% 20.1% 25.0% 15.9% 9.3% 5.7% 100.0% 29.0% SOURCE: San Francisco Tax Collector, www.usps.com NOTES: ZIP code 94119 is the mailing address for Pier 39, a shopping center physically located in ZIP Code 94133. ZIP Codes 94125 & 94128 are mail centers for SFO & ZIP Codes for restaurants located at SFO. Appendix Table 8 San Francisco Restaurants and Bars Open Establishments in the Records of the Department of Public Health Selected Dates June 1, 2001 H24 (<1,000 sq') H25 (1,000-2,000 sq') H26 (>2,000 sq') Full Service Restaurants H28 (Take-out) H29 (Fast Food) Ltd Service Restaurants All Restaurants H27 (Bars) All Bars & Restaurants Full Service Restaurants Ltd Service Restaurants All Restaurants H27 (Bars) All Restaurants & Bars Full Service Restaurants Ltd Service Restaurants All Restaurants H27 (Bars) All Restaurants & Bars 1,313 1,202 1,043 3,558 630 46 676 4,234 397 4,631 Dec. 1, 2001 Feb. 26, April 12, April '05 2005 June '01 2003 Inventory 1,227 1,252 1,230 -83 1,142 1,192 1,180 -22 968 1,011 972 -71 3,337 3,455 3,382 -176 565 567 535 -95 44 44 62 16 609 611 597 -79 3,946 4,066 3,979 -255 387 387 391 -6 4,333 4,453 4,370 -261 Change in Inventory -221 118 -73 -176 -67 2 -14 -79 -288 120 -87 -255 -10 0 4 -6 -298 120 -83 -261 Percent Change in Inventory -6.2% 3.5% -2.1% -5.2% -9.9% 0.3% -2.3% -13.2% -6.8% 3.0% -2.1% -6.4% -2.5% 0.0% 1.0% -1.5% -6.4% 2.8% -1.9% -6.0% Appendix Table 9 San Francisco Restaurant and Bars Licenses Issued and Licenses Surrendered 1998 through March 18, 2005 Net Change in Number of Active Licenses -33 59 -119 -91 33 5 3 -97 -240 -266 -20 Licenses Issued 1998 * 1999 2000 2001 2002 2003 2004 2005 ** Cumulative Since 1998 Since 2000 Av. Since 98 667 597 561 488 588 580 521 79 4,081 2,817 572 Licenses Surrendered 700 538 680 579 555 575 518 176 4,321 3,083 592 Source: San Francisco Tax Collector * 1998 was the first year these data were maintained on a relatively consistent basis by the Tax Collector. ** Data for 2005 are only through March 18, 2005. Appendix Table 10 San Francisco FY 2005 Budget Appropriation Detail by Department 013 Mandatory Fringe Benefits Cost of Number Total Employees as % of of Uses of Funds Total Uses Employees 58% 20% 83% 18% 5% 57% 61% 77% 0% 4% 39% 69% 4% 82% 80% 63% 62% 46% 24% 25% 42% 30% 33% 37% 67% 84% 13% 19% 14% 67% 58% 64% 66% 38% 87% 83% 80% 39% 24% 50% 39% 49% 72% 29% 52% 43% 70% 32% 100% 68% 61 386 111 1,203 19 120 65 310 10 28 170 134 18 6 145 240 267 5,928 1,059 1,697 194 11 52 10 61 1,752 4 39 172 229 616 3 4,386 51 5 134 2,616 215 1,513 954 35 83 31 6 929 276 197 6 1 96 Average Col C/Col I Cost Average of Each Employee Employee Salary 71,723 75,346 76,162 84,573 19,640 60,970 93,004 123,851 0 71,658 60,539 85,020 99,738 93,058 81,117 82,040 96,200 80,534 25,764 80,799 86,775 77,888 67,876 60,761 69,338 102,282 75,094 20,826 70,593 88,132 55,736 111,190 83,692 73,415 89,894 105,054 94,502 101,300 93,975 55,174 80,288 86,919 98,982 85,201 81,894 104,370 71,184 71,573 69,023 74,446 57,817 60,862 56,822 66,374 15,992 48,967 75,777 102,306 0 58,051 49,092 68,885 66,807 75,721 65,323 68,297 77,651 63,435 20,505 62,770 70,691 63,730 54,202 48,922 55,183 90,029 61,553 16,887 56,705 68,186 55,596 92,185 61,190 58,203 74,248 87,843 82,297 79,444 73,875 43,177 67,553 71,870 81,429 69,158 62,203 86,070 57,259 57,467 54,919 59,512 p. 1 of 2 ID AAM ADM ADP AIR ART ASR BOS CAT CFC CHF CON CPC CRT CSC CSS DAT DBI DPH DPW DSS ECD ECN ENV ETH FAM FIR GEN HRC HRD JUV LIB LLB MTA MYR PBA PDR POL PRT PUC REC REG RET RNY SCI SHF TIS TTX TXC UNA USD WAR Department Name Asian Art Museum Administrative Services Adult Probation Airport Arts Commission Assessor/Recorder Board of Supervisors City Attorney Children & Families Commission Children, Youth & Their Families Controller City Planning Trial Courts Civil Service Child Support Services District Attorney Department of Building Inspection Public Health Department of Public Works Human Services Emergency Communications Dept Economic & Workforce Development Environment Ethics Fine Arts Museum Fire Department General City Responsibility Human Rights Human Resources Juvenile Probation Public Library Law Library Municipal Transportation Agency Mayor Board of Appeals Public Defender Police Port Public Utilities Recreation & Park Elections Retirement System Rent Arbitration Board Academy of Sciences Sheriff Telecommunications & Info Svcs Treasurer/Tax Collector Taxi Commission General Fund Unallocated County Education Office War Memorial 001 Salaries 001+013 = Cost of Employees 4,343,556 29,106,987 8,491,265 101,732,272 373,159 7,295,725 6,014,555 38,449,611 0 2,022,892 10,291,571 11,433,490 1,776,329 557,419 11,801,777 19,651,016 25,724,907 477,406,048 27,279,962 137,147,081 16,813,429 865,331 3,499,696 636,165 4,205,366 179,234,240 46,449,132 803,667 12,160,322 20,150,431 34,316,844 333,571 367,052,558 3,733,157 407,219 14,034,139 247,254,005 21,730,912 142,220,282 52,610,528 2,809,292 7,241,188 3,058,555 490,758 76,114,136 28,785,149 14,017,610 417,271 69,023 7,113,285 Other Uses of Funds Reserved Appropriations 3,501,372 842,184 23,511,450 5,595,537 6,335,104 2,156,161 79,841,030 21,891,242 303,850 69,309 5,859,336 1,436,389 4,900,517 1,114,038 31,761,051 6,688,560 0 0 1,638,788 384,104 8,345,620 1,945,951 9,263,705 2,169,785 1,189,826 586,503 453,566 103,853 9,503,859 2,297,918 16,359,264 3,291,752 20,764,746 4,960,161 376,042,585 101,363,463 21,712,243 5,567,719 106,544,695 30,602,386 13,697,140 3,116,289 708,040 157,291 2,794,635 705,061 512,215 123,950 3,346,851 858,515 157,761,675 21,472,565 215,435 46,233,697 651,685 151,982 9,767,988 2,392,334 15,590,084 4,560,347 34,230,326 86,518 276,555 57,016 268,367,896 98,684,662 2,959,605 773,552 336,344 70,875 11,734,940 2,299,199 215,321,569 31,932,436 17,042,364 4,688,548 111,801,259 30,419,023 41,170,869 11,439,659 2,363,686 445,606 5,987,512 1,253,676 2,516,149 542,406 398,350 92,408 57,812,461 18,301,675 23,738,082 5,047,067 11,275,357 2,742,253 335,030 82,241 54,919 5,686,350 14,104 1,426,935 3,093,654 7,437,210 116,953,336 146,060,323 1,799,332 10,290,597 474,282,973 576,015,245 7,067,332 7,440,491 5,525,971 12,821,696 3,825,632 9,840,187 11,772,590 50,222,201 7,758,364 7,758,364 50,890,036 52,912,928 16,040,604 26,332,175 5,090,412 16,523,902 41,134,195 42,910,524 121,990 679,409 3,007,160 14,808,937 11,344,468 30,995,484 15,853,887 41,578,794 563,373,204 1,040,779,252 84,693,158 111,973,120 405,034,829 542,181,910 22,892,053 39,705,482 1,998,287 2,863,618 7,143,433 10,643,129 1,086,224 1,722,389 2,029,436 6,234,802 34,433,633 213,667,873 322,468,935 368,918,067 3,369,017 4,172,684 72,876,142 85,036,464 9,742,935 29,893,366 24,528,604 58,845,448 184,474 518,045 192,830,962 559,883,520 6,198,087 9,931,244 59,365 466,584 2,834,085 16,868,224 60,850,784 308,104,789 33,696,034 55,426,946 442,804,363 585,024,645 51,854,583 104,465,111 4,359,236 7,168,528 7,585,622 14,826,810 1,174,498 4,233,053 1,182,007 1,672,765 71,078,573 147,192,709 37,511,700 66,296,849 5,981,075 19,998,685 881,933 1,299,204 0 3,416,277 69,023 10,529,562 1,752,000 263,509 500,000 509,250 521,644 600,000 896,000 1,223,367 237,863 1,500,000 1,470,058 167,960 2,381,927 500,695 1,000,000 400,000 600,000 107,674 92,175,000 5,530,000 116,462 100,000 SOURCE: San Francisco Consolidated Budget Annual Appropriation Ordinance (Ordinance 197-04), FY ending June 30, 2005 Appendix Table 10 San Francisco FY 2005 Budget Appropriation Detail by Department 013 Mandatory Fringe Benefits 107,637 Cost of Number Total Employees as % of of Uses of Funds Total Uses Employees 2,421,235 24% 6 41% 26,658 Average Col C/Col I Cost Average of Each Employee Employee Salary 96,904 79,113 83,657 65,525 p. 2 of 2 ID WoM 52 Department Name Department of the Status of Women TOTALS (Gross Regular Exp.) Plus: Citywide Transfer Adjustments Less: Interdepartmental Recoveries Net Regular Expenditures 001 Salaries 478,635 001+013 = Cost of Employees 586,272 Other Uses of Funds 1,834,963 Reserved Appropriations 1,746,766,613 483,346,542 2,230,113,155 3,257,550,447 5,487,663,602 192,335,614 656,695,821 5,023,303,395 112,553,409 * Cost of employees in this line were estimated as 122% of Salaries per Employee. SOURCE: San Francisco Consolidated Budget Annual Appropriation Ordinance (Ordinance 197-04), FY ending June 30, 2005 ABOUT THE AUTHOR Many people are familiar with Kent Sims’ analyses and commentary on the local economy from his speeches and publications. He approaches his subject with rigor and presents the results with candor that has attracted both admirers and critics. Kent began his professional career in 1966 as Program Economist for the US Department of State Mission to Pakistan in the heady years of the green revolution. He returned to the United States in 1969 to begin a 16-year career with the Federal Reserve Bank of San Francisco that included successive assignments as Director of Economic Research; Chief of Banking Supervision, Regulation and Credit; and Executive Vice President and Chief Financial Officer. While at the Fed, he pioneered use of policy audits as the principal basis for bank examinations, methods now used by all three federal bank regulatory agencies; published the first written rules for use of the Discount Window in the Federal Reserve System; and managed design and construction of the Fed’s headquarters buildings in San Francisco and Los Angeles. In 1985 Kent left the Fed to enter private practice as a financial consultant and asset manager, and three years later was recruited as founding president of the San Francisco Economic Development Corporation. Often described as a “boutique think tank”, Kent’s work at the EDC was reflected in numerous publications: Competition in a Changing World identified the City’s roles in the metropolitan economy, its comparative advantages, and strategy for leveraging these advantages to build prosperity; the massive two-volume Bay Area Household Survey analyzed the changing relationship between San Francisco and its metropolitan consumers and labor force, and offered strategies for reversing the decline in metropolitan patronage of San Francisco business, cultural and entertainment venues; Smartland Heartland, a regional image piece, documented major components of the Bay Area’s knowledge-based economy and was among the first to promote the Bay Area as “the nation’s laboratory for new ideas” – themes now common in analyses of San Francisco and the region. Recruited in 1992 to be Director of Economic Planning and Development for the City and County of San Francisco, Kent’s major projects included expediting EIR certification for the $4 billion expansion of San Francisco Airport, retention of the Giants baseball franchise, site selection for UCSF’s second campus development, lab developments at San Francisco General Hospital, recruitment for the digital media industry, and Federated Department Stores retail developments at Union Square (Macy’s expansion) and at the former Emporium Department Store (Bloomingdales). He subsequently was projects manager for the City Manager of Oakland, before returning to private practice as an economic development consultant. His recent work has focused on various aspects of the hospitality industry, effects of local regulation on rents and the price of housing, and on the changing roles of small business in the economy. Kent holds a Ph.D. in economics with undergraduate work in architecture, engineering and fine arts. He may be contacted at kentsims@pacbell.net.