Workforce

D.C. restaurants reel from a triple dose of woes

Eating places are closing at the rate of one per week because of the one-two-three combination.
About a third of locals are eating more often in Virginia and Maryland, where costs aren't as steep. | Photo: Shutterstock

A triple whammy of inflation, vacated offices and crime is devastating the restaurant industry of Washington, D.C., with establishments closing at a rate of roughly one per week, according to new research from the Restaurant Association of Metropolitan Washington.

In a recent survey of members, the trade group found that 40% of the dining places in town had suffered a sales decline during September, with the falloff averaging 28%. Nearly half the restaurants (46%) reported a drop in customer counts for the month, with a mean decline of 27%.

Meanwhile, costs continued to soar, according to RAMW. Nine of 10 respondents said they’re paying more for labor, in part because the minimum wage for servers and other tipped employees has jumped 50% since the city began phasing out the tip credit in May. Payroll costs increased by an average of 25%, the survey participants reported.

To preserve margins, nearly every eating place in town (96%) has raised menu prices, with the hikes averaging 16%, according to RAMW. “Everything is above that,” says Che Ruddell-Tabisola, the association’s VP of government affairs. “Food and labor together? Well over 21%. Occupancy costs are up 18%.”

Yet operators are loath to raise prices more dramatically because sticker shock is a prime source of their woes, Ruddell-Tabisola says. He cites research from the Washington, D.C.-based National Restaurant Association that shows 52% of Washington consumers are eating at home more often specifically because of menu inflation.

The canvass by the national group also found that about a third (32%) of restaurant customers are trekking across D.C.’s borders more frequently to dine in Virginia and Maryland, where employers can still count a portion of servers’ tips as the wages those workers are due. With that break on pay, restaurants there have not raised menu prices as steeply as their counterparts in the nation’s capital, according to local observers.

Instead of raising menu prices to protect margins, an estimated 70% of District restaurants have resorted to service fees, or surcharges levied as a portion of a guest’s total bill.  A spot-check at the start of the summer found those fees ranging from 3% to 18%.

The near-universal adoption of the extra charges hasn’t sat well with all customers. A consumer advocacy group called Travelers United has filed a lawsuit that accuses local multiconcept operator Clyde’s Restaurant Group of violating local disclosure rules by levying a 3.75% service fee. A representative of Travelers told Restaurant Business that it may sue other fee-charging establishments in the District as well.

Inflation isn’t the only problem for local restaurants, indicates Ruddell-Tabisola. He acknowledges that many local employees of government agencies and D.C. businesses are still not trekking into their downtown offices every day, a carryover from the pandemic.

Others note that the loss of that clientele has all but killed the local lunch trade. Operators report that they’ve also direly felt a drop-off in post-work traffic, with co-workers no longer heading out to local places for drinks and nibbles.

Many of the vacated offices are being converted into residential spaces, but the conversions are expected to take years.

“I’ll add another factor into the mix: gun violence,” says Ruddell-Tabisola. “D.C. is having an historic year in crime.”

With violent crime on the rise in some of the city’s most active nighttime centers, many consumers are afraid to dine out, he explains.

“It’s a very challenging time,” says Ruddell-Tabisola.

RAMW is asking District lawmakers to ease local restaurants’ plight by tempering other costs, particularly what the operators pay in liquor-liability insurance. Washington has the second highest dram-shop liability fees in the nation, according to Ruddell-Tabisola.

He notes that a 30,000-square-foot nightclub in the District pays $400,000 a year for its liability insurance. A sister club in Chicago pays only $80,000 a year, even though it’s twice as large and can accommodate nearly twice as many customers.

The association is also urging lawmakers to address some of the fallout from rolling back the tip credit.

Last November, local voters overwhelmingly passed a ballot proposal to phase out the break for employers over a five-year period. As of May 1, 2023, employers were mandated to pay servers, bartenders and other tipped employees a direct cash wage of $6 per hour, an increase from the prior minimum of $5.35. The server wage rose to $8 an hour on July 1. It will now increase by $2 per year until it reaches parity with the general minimum wage of $17 on July 1, 2027.

Local operators say they’d rather rip off the Band-Aid by jumping immediately to $17 an hour instead of lurching from one $2 increase to another. They view the rate hikes as significant disruptions that further complicate their responsibilities.

According to RAMW, its members would rather adjust to “a new normal” more quickly by absorbing the impact all at once.

A bill accelerating adoption also calls on the city to educate consumers about service fees. Operators say their customers are still confused about why they’re paying a surcharge, and why the fee is 3% at one restaurant and 18% at another.

The measure would also halt the collection of sales taxes on revenues from service fees. Right now, operators often absorb those charges.

Ruddell-Tabisola says he’s confident both a dram-shop reform bill and the measure addressing aftereffects of the tip-credit referendum will be passed.

“100%—Washington loves its restaurants,” he says. “We look forward to both of these getting across the finish line.”

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