Representatives from the Mills College Lokey School presented data from its recent ‘business conditions’ survey to our City Council on Tuesday. The study confirmed what restaurant owners warned when the ordinance was hastily passed in 2015. They are struggling, rapidly raising menu prices and increasingly looking to leave.
Unlike the 2016 Mills study that might have been premature and diluted the data by lumping ‘white-collar’ businesses with service jobs, this study was more comprehensive and provided a break out of data from the food service sector.
It’s getting harder to find small food service businesses that were around in 2015 when the MWO was passed. Emeryville institution Bucci’s, Commonwealth, Farley’s, Scarlet City … all gone. In fact, nearly all the brick & mortar businesses that comprised the short-lived Little City Emeryville small business advocacy group have moved, folded or sold. Only The Broken Rack and Paula Skene Designs (a greeting card and stationary company) remain in Emeryville.
These small businesses actively lobbied for a local study factoring in our city’s unique geography, business models and circumstances prior to the ordinance’s passing, but were denied.
“The findings indicate that while the retail industry has been quite resilient while implementing the new labor ordinances and has suffered no major adverse effects, the restaurant industry is clearly struggling.”
Formula Retail ‘Resilient’
The 67-page report included data on Fair Work Week, Paid Sick Leave and our historic Minimum Wage increase.
The formula retail sector was described in the summary as ‘resilient’ and “suffered no major adverse effects,” The data also noted that more people were applying for these jobs in our city, but did not indicate if they were driving from farther distances to pursue them. Not surprisingly, the survey showed that employees were generally pleased with getting raises.
Damning Data for Food Service Industry
The survey also identified that “the restaurant industry is clearly struggling.” Specifically, small, independent, non-franchise establishments are having the most difficulty. Comments from those surveyed (pages 62-67), might reflect the sentiment of local business climate most accurately.
Data detailing these struggles noted:
- 23% of food service businesses plan to leave Emeryville ‘in the near future’
- 48% combined had a ‘negative’ opinion of the ordinance and many within the 27% ‘other’ category expressed negativity
- 67% of independent, non-franchise restaurant owners strongly oppose the measure
- 52% noted a decrease in worker hours
- 33% have decreased employees
The empirical evidence of business conditions that Mills omitted might be even more telling:
- None of the eating establishments that have left Bay Street since 2015 have been replaced
- Parc on Powell & Adeline Place spaces designated for food/retail have remained vacant since completion
- The Public Market Food Hall remains about one-quarter vacant and two stalls have folded since its renovation
- The New Seasons grocery space remains glaringly vacant
- Navi Kitchen, despite a ‘rock star’ chef, folded after barely a year (since replaced by Pizza Amigo’s).
- Local businesses continue to get hammered with negative reviews for higher prices passed along to consumers
The E’ville Eye has captured the restaurant closures since 2015 in this interactive map:
“Fight for $15” Achieved in 2018
The ‘Fight for $15’ campaign blazed through Emeryville in 2015. While even activists expressed contentment with the adoption of a regional minimum wage model that established a ‘path’ to $15, the then city council pursued its highest-in-the-nation ‘living wage’ model.
They argued that this would reduce poverty levels by eliminating reliance on government programs, low-wage earners would be able to live closer to their jobs and an economic ‘multiplier effect’ where these earners would offset any loss in business by contributing back to the local economy.
Supporters dismissed threats of job loss, impact on youth employment, reduced shifts and increased automation as ‘bluff’ by business owners. It’s worth noting that none of these talking points were addressed in the Mills Survey.
Full-Service Restaurants hit hardest as shift to ‘Fast Casual’ & Counter Service Model
The MWO hasn’t completely stopped the opening of small food establishments. Best Coast Burritos is one notable business that opened after its passing and appears to be thriving. Yuzu Ramen replaced Bacano Bakery, Patatas Kitchen replaced Commonwealth and Hometown Heroes replaced Propaganda.
It’s notable that nearly all the new businesses that have opened have embraced the counter service model that requires fewer employees. Paradita Eatery, whose original plan was for a full service sit-down restaurant, cited Emeryville’s wage ordinance specifically for ‘pivoting’ to a counter service model. Counter service models require fewer employees to offset higher labor costs.
“If we don’t have a profit margin that makes it viable for us, we’ll leave,”
— Townhouse Bar & Grill General Manager
The only full service restaurant that has opened since the Minimum Wage was passed was 612One Asian Fusion which folded after just two years in business. The former Elephant Bar space at Bay Street has sat vacant since 2016 amid rumors that Cheesecake Factory was considering leasing the space only to withdrawal after Emeryville passed its “Fair Work Week” ordinance.
One of the most outspoken full-service restaurants has been Townhouse General Manager Jeffrey Kroeber. Kroeber has warned the council for years that the wage scale was unsustainable for his business and that every $1 increase led to a $200,000 increase in their payroll. A payroll increase that would have to be offset by a $650-$700K increase in sales to maintain margins. “If we don’t have a profit margin that makes it viable for us, we’ll leave,” he explained at a recent small business forum. “Unless there’s a tipped employee credit, it ain’t gonna happen!”
Scheduled Increase to $16.30/hr. on July 1st
While the survey confirmed what Emeryville businesses have been screaming about, there will be no relief for them as they look to absorb their largest hike since the ordinance was passed. For the last three years, their minimum wage has increased between $.75 and $1 per hour. This year, it is scheduled to increase by $1.30.
The wage was forecast to be near $16/hr. but the Consumer Price Index increased more than expected and the final calculation was an unexpected $16.30 (currently at $15.69/hr. for “Large’ businesses over 55 employees and $15/hr. for ‘Small’ businesses under 56 employees). The wage will continue with an annual CPI increase that commonly varies between 2-4%.
2019 is the year where small business and large business wage schedules will ‘merge’ and there will be no distinction moving forward. Emeryville’s ‘small business’ threshold of 55 employees was selected somewhat arbitrarily by Councilmember Dianne Martinez instead of the staff recommended 50 employees so that a popular local restaurant at this threshold ‘could grow.’ It’s worth noting that this restaurant has in fact retracted from 50 to 37 employees since this ordinance was passed.
Neighboring Oakland’s minimum wage increased on January 1st to $13.80/hr. and Berkeley’s is expected to reach $15.59/hr. in July. Berkeley’s ordinance contains a slower ramp up for youth workers in government and non-profit sectors.
Small Businesses Make ‘Last Stand’
Data from the survey was presented to Council at Tuesday’s council meeting [1:28:14]. While the handful of council meeting mainstays provided their standard support, a few small business owners and supporters expressed their concern and frustration.
“I feel aggrieved about this process,’ noted city Economic Development Advisory Committee (EDAC) member and Broken Rack co-owner Marilyn Boucher. Boucher expressed frustration with the ability to present the data and impacts prior to the scheduled $16.30 increase. “This is killing us.” Boucher went on to explain the ‘mutiny’ businesses have to stave of because of the flattening of wages between new hires and longtime employees.
“You’re going to be left with all the large corporations and everybody else you can get in any city. It’s part of the character of the city.”
“Small, independent businesses are going to disappear,” pleaded Rudy’s Can’t Fail Cafe General Manager Doug Smith. “You’re going to be left with all the large corporations and everybody else you can get in any city. [Small Businesses] are part of the character of the city.” Smith went on to question why Emeryville’s wages were higher than New York, Los Angeles and San Francisco’s.
One commenter, who identified herself as a resident, questioned why the survey did not include consumer data noting her dining frequency was altered by the drastic price increases she’s observed. “I still go to The Gap because they did not raise their prices.” She noted that she used to frequent her local Doyle Street Cafe 2-3 times per month but last year went only twice. “We don’t work in tech, we don’t have high incomes,” adding that she now goes to the Public Market where prices are more reasonable.
Once franchise owner noted that the price increases they’ve been forced to pass along have ironically had the biggest impact on vulnerable communities that are more price-sensitive. “Our largest decrease in guests are folks over 50. Obviously our elderly, disabled, and folks on fixed incomes are unable increase their income to compensate for the price increases.”
Council Considers Minimum Wage ‘Pause’ for Indie Restaurants
Council deliberated on the data and, surprisingly, Mayor Ally Medina expressed concern with some of the data and the planned $1.30 increase. “That’s a significant increase,” she noted.
Councilmember Bauters stepped up by addressing the elephant in the room. “Solving economic hardships of people in our community is not going to be done by picking one way,” he noted pointed to our housing affordability as a primary driver of poverty levels. “One of the important things that policymakers have to do is they have to review their policies.” Bauters pointed out a multiplier effect on our hotels if our ‘culturally significant’ restaurants were to close making staying in our city less desirable. “If Trader Vic’s and the Townhouse close, the BCDC is not going to re-permit something else at the site of Trader Vic’s nor is anyone going to take a 30,000 square foot sit down restaurant.”
“One of the important things that policymakers have to do is they have to review their policies.”
— Councilmember John Bauters
Councilmember Martinez expressed support for the idea if the focus could be narrowed to just local, independent food service businesses. Councilmember Patz, the lone dissenting vote, largely dismissed the data and small business concerns. Patz also noted he looked forward to the next recession to codify the data. “I’m really excited to see what it looks like in a few more years particularly when we go through an economic downturn.”
The motion passed 4-1 to add the agenda item to the May 21st council meeting and schedule a special meeting for May 29th. Any amendment to the ordinance would have to be passed 30 days prior the scheduled July 1st increase in order to meet legal requirements.
Review the full report below: