Labor Costs Still a Major Challenge
Labor costs remain a significant obstacle for restaurants in Southern California, with a larger percentage of the bottom line spent on labor compared to other states. This includes not only paying staff but also other associated costs like payroll tax and workers’ compensation insurance. At some establishments, labor costs can account for 50% to 60% of the bottom line, putting a strain on small independent restaurants. Ross Pangilinan, chef-owner of Terrace by Mix Mix restaurant, highlighted the struggle, noting that labor is the number one challenge for 2025. Larger restaurants poaching staff by offering higher wages further exacerbates the issue, forcing smaller restaurants to raise wages to stay competitive.
Rising Food Prices Impacting Menus
Food prices have surged by 28% since 2019, driven by higher production, labor, and fuel costs. Severe weather, disease, and global events like the war in Ukraine have disrupted supply chains and led to increased costs. Executive chef Luis Perez of Chapter One restaurant shared his experience of paying more for essential ingredients like organic eggs, with prices escalating rapidly. To mitigate the impact, Perez has had to make strategic menu changes, opting for more cost-effective options to maintain profitability without passing on excessive costs to customers.
Health Insurance Costs on the Rise
The escalating cost of health insurance poses a significant challenge for restaurant operators, with average premiums increasing year over year. While federal law mandates coverage for larger establishments, smaller outfits like Alder & Sage in Long Beach face difficult decisions due to rising rates. Owner Kerstin Kansteiner’s commitment to providing health benefits to her staff comes at a price, with impending premium hikes adding financial strain. Navigating these cost increases while maintaining employee benefits remains a balancing act for many restaurant owners who prioritize their team’s well-being.
Delivery App Fees Straining Profits
The surge in meal delivery app usage has revolutionized the restaurant industry but comes with a hefty price tag. Independent restaurants like Alta Baja Market in Santa Ana bear the brunt of high commission rates, with fees cutting into their bottom line. Restaurateur Caroline Styne emphasized the challenging dynamic with delivery apps, where operators feel compelled to participate despite the financial strain. Encouraging direct orders through restaurant websites helps alleviate some costs but underscores the ongoing struggle to balance convenience with profitability in a competitive market.
