Why it's harder than ever to run a restaurant in Los Angeles (2023)

Chef Shirley Chung hasn't given herself a paycheck in more than a year. After spending more than $200,000 out of pocket to open Ms. Chi in Culver City in September, she and her husband Jimmy found they had to divert the money the restaurant was bringing in to help with payroll , equipment and rent to keep up.

It's not that Ms. Chi isn't busy: The fast-casual spot is usually packed with people digging into bowls of hand-pulled noodles and handmade dumplings. But the costs of running a Los Angeles-area restaurant have gotten so high that Shirley Chung says she has to rely on other sources of income to make ends meet.

"Right now we're making a living from my side hustle," said the Top Chef graduate, which includes catering gigs, speaking engagements and a two-week cooking break at the Coachella Valley Music and Arts Festival in Indio in April. “We live minimally because that is our dream. I want longevity and make sure it doesn't just stay like this for two or three years.”

The financial challenges Chung faces are common in the restaurant world, which has long struggled with notoriously tight margins, fickle diners, and fluctuating ingredient costs. It's a grueling business that's bringing down even the most promising and prestigious restaurants -- this year alone, Fiona on Fairfax, Santa Monica, Spring and B.S. Taqueria Downtown and Simone in the Arts District are all closed. But now, with the minimum wage raising for many areas in and around Los Angeles and rising rents in many desirable neighborhoods, restaurant owners say an already difficult business feels prohibitive.

Chef and owner of Ms. Chi, Shirley Chung, in the kitchen of her Culver City restaurant.

(Mariah Tauger / Los Angeles Times)

"Given the red tape, the accelerating minimum wage laws and the increase in taxes, it's really harder to do business here today than it was five years ago," said Kevin Burke, founder of Trinity Capital, a Los-based company Angeles investment banking firm specializing in restaurants. "Everything is becoming more expensive, which means a much higher risk for the owner."

Local chefs say they fear big chains and heavily funded independent restaurants will soon be the only places viable and able to stay in business here, crowding out small, market and cookery-centric restaurants.

Part of the problem: The two biggest expenses for restaurant owners -- rent and labor costs -- have risen sharply in recent years.

On July 1, the Los Angeles minimum wage rose from $12 to $13.25 for companies with 25 employees or fewer; Three years ago it was $10. Next year it will rise to $14.25. California's minimum wage is set to rise to $15 by 2023, but some communities, including Los Angeles and Pasadena, will reach that wage by 2021.

"All of my kitchen workers are already making more than $15 an hour," Chung said. “But my check average is much lower than most restaurants; It's about $37 for dinner and $16 for lunch.”

Shirley Chung folds dumplings at her Ms. Chi restaurant in Culver City.

(Mariah Tauger / Los Angeles Times)

Christy Vega, who owns Mexican restaurant Casa Vega in L.A.'s Sherman Oaks neighborhood, along with chef Ludo Lefebvre of Petit Trois, is part of a small, independent San Fernando Valley restaurant group dedicated to L.A. City Council member Gov Gavin Newsom and the California Restaurant Assn. to realize a tip credit. In this model, if a tipped employee does not make $15 an hour after their hourly wage and tips are combined, the restaurants would be responsible for making up the difference.

"It's absolutely not because I don't want to pay my employees fairly or feel like they don't deserve a certain wage," said Brooke Williamson, executive chef and owner of several LA-area restaurants, including Playa Provisions, Tripel and Hudson Haus . The Top Chef graduate is another proponent of a tipping system.

"The dishwasher is one of our most valuable employees and someone we can't pay what they make because we have other employees who make $500 a day," she said, "not to mention the taxes we levy on." have to pay their tips.”

Some chefs fear the CRA will focus more on lobbying chain restaurants, leaving the smaller players to their own devices.

"They're much more inclined to listen to Chipotle and big chains paying them huge amounts of money -- places that would be happy if all the fine dining went away," Vega said.

Christy Vega, owner of Casa Vega in Sherman Oaks.

(Mariah Tauger / Los Angeles Times)

Sharokina Shams, vice president of public affairs at the CRA, said that 80% of its members are independently owned restaurants and that all members receive the same benefits. In lieu of a tip credit, Shams said the association favors a model where the guaranteed hourly wage for a tipped employee is not capped at minimum wage and can instead be set at $18 or $20 an hour.

At the same time, restaurant rents are also increasing. In Santa Monica, commercial property rents for $7.50 per square foot, up from $4.50 in 2010, according to real estate firm CBRE. In Koreatown, prices doubled to $6 per square foot over the same period; in downtown Los Angeles they went from $2.19 per square foot to $2.95.

"It varies by region, but we're definitely seeing a lot more revenue these days," said Johnny Choi, senior associate at CBRE. "We're finding that for many of these smaller, independent restaurants, it becomes very difficult to stay afloat when fixed costs are too high."

Rising rents were a major factor in Evan Kleiman's decision to close Angeli Caffé in 2012 after 27 years. She's still paying off debts from the Melrose Avenue restaurant.

"Margins are really tight, and I think real estate is crazy," she said. "If someone wants to open a restaurant, they should pay me $5,000 and I'll put them in a room and talk to them until they decide it's not for them."

Küchenchef Nyesha Arringtonclosed their famous Native restaurantMarch after only a year and a half. She paid more than $20,000 a month, along with another $6,000 a month for additional storage space in the building.

"You have to fight for every dollar, every guest, everything you do in this business," Arrington said.

Another challenge for restaurants: the rising cost of ingredients. The price of fresh vegetables in April was 28% higher than in the same month a year agoNational Restaurant Assn.

Casa Vega's Oven Burrito in Sherman Oaks.

(Mariah Tauger / Los Angeles Times)

"A crate of avocados is $100 now, down from about $60," said Vega, whose family uses income from residential real estate, restaurant movies and catering to supplement the money they make from Casa Vega. "Limes were $20 a box, and now they're $60. Should we stop giving free guacamole with all dishes? No, we drive it for customer consistency.”

Chefs are considering how to adapt their businesses to rising costs.

"You're going to see more of a model where the line between chefs and waiters is blurred," Kleiman said. This is already happening in San Francisco, where there are a few restaurantshave started to usea grab-your-own-plates-and-cutlery modelTo save money.

Chad Colby, chef and owner of the new Italian restaurant Antico in L.A.'s Larchmont neighborhood, decided to hire just one crew member and work limited hours: dinner only, weekday only. He said it probably wouldn't be worth adding lunch as his labor costs would skyrocket.

Raising prices seems to be the easy solution. But that can be a risky move.

"You raise your prices [too much] and people will go to the restaurant next door," Arrington said.

Or they just stay home, a choice many people are already making.

Nyesha Arrington at her now-closed Native restaurant.

(Wally Skalij / Los Angeles Times)

"It's becoming more affordable to eat at home and more expensive to eat out," said David Portalatin, vice president and consultant for the food industry at market research firm NPD Group. "Restaurants bear the brunt."

Colby, who includes a 20% service charge on all checks, believes the solution is to have a fixed fee on the bill that can be used to cover healthcare and kitchen staff wages that aren't legally in a tip pool can be accommodated with waiters.

"When you raise prices, that doesn't necessarily distribute like it should," Colby said. "People can get upset about the fixed fee because they don't understand that the intent is to distribute that money evenly among employees."

Kleiman believes all-in pricing, a model where everything is included in the cost of your meal and tipping isn't allowed, is the solution more restaurants will turn to.

Opened in 1956, Casa Vega tries to keep up. While there's a nostalgia factor that attracts a solid base of repeat guests, imposing a service fee or drastically increasing prices to keep up with rising costs isn't a viable option, Vega said.

"Are we selling our properties to take the restaurant public?" She wondered. “Are we cutting healthcare that goes against our moral values? Are we reducing waiters and labor costs?”

Vega asks these questions every day.

"We're a very busy restaurant and we run on dimes," she said. “I hope that the costs will stabilize somewhat and not increase any more. I'm hoping that as we approach $15 an hour we can grow into it. And that we can keep our doors open.”