Spring — the time when New York City usually begins to welcome millions of tourists — has finally arrived. Unfortunately, when I look at my crystal apple, it shows a lackluster short-term future for the restaurant industry. That’s largely the result of events well beyond the pale of the New York real estate recovery.
For one, the cost of travel has risen by as much as 30 percent since the beginning of the year due to the rise in gas prices. With turmoil in Libya and Egypt, many fear that the price of oil might exceed the record $140 a barrel, which could mean a major slowdown in travel. Combine this with the significant reduction in travelers from Japan, which is reeling in the aftermath of last month’s earthquake and tsunami, and things do not look good for the industry.
In addition, the New York restaurant industry is facing labor and cost pressures. Last month, for example, the U.S. Labor Department reported that wholesale food prices jumped 3.9 percent in February from January, the highest monthly increase in 37 years. The retail price of food increased 0.6 percent, the most since September 2008, with costs rising for almost all major grocery-store groups, including meat and eggs, dairy, and fruits and vegetables.
Ephraim Leibtag, an economist at the U.S. Department of Agriculture, was widely quoted last month saying, “Food prices have been rising a lot faster because underlying costs have really shot up. You’re seeing some ingredients up 40 percent, 50 percent and 60 percent over last year. When you see wheat prices close to 80 percent up, that’s going to ripple out to the public.”
Those higher prices are already impacting expenses at New York City restaurants.
“Clients who visit our restaurant would be surprised that the actual cost of plating a steak dinner is nearly $25,” said Michael Lomonaco, executive chef and partner at Porter House New York in the Time Warner Center. “When you add your cost of labor, overhead and operations, our cost is close to $35.”
Even though the recession is officially over, fewer patrons are visiting the finer, white-tablecloth restaurants in Manhattan. World-renowned restaurant owner Tony May, of San Domenico and SD26, told me that sales at his restaurant and other comparable eateries continue to be down by at least 20 percent since 2008.
Drew Nieporent, founder of Myriad Restaurant Group, the owner-operator of Tribeca Grill, Nobu New York and Corton, said: “Clients may have returned, but they are continuing to spend less on expensive bottles of wines.”
In addition to rising costs, labor campaigns spearheaded by advocacy group Restaurant Opportunities Center of New York (ROC-NY) and others have hurt the economics of the restaurant business, sources say.
Over the last five years, ROC-NY has won nine workplace cases and financial settlements against high-profile restaurant companies, obtaining $4.58 million of improvements in workplace policies for restaurant workers.
ROC-NY reports that its greatest victory, a $3.9 million settlement, came in June 2008, after two and a half years of organizing 250 workers in seven restaurants in the Fireman Hospitality Group.
In another case not affiliated with ROC-NY, the co-owner of Brooklyn’s Rice Fort Greene told the website the Local (a collaboration between CUNY Graduate School of Journalism and the New York Times) that the 166 Dekalb Avenue restaurant closed to pay for a lawsuit settlement.
Meanwhile, late last year, the U.S. Department of Labor issued a news release announcing that Back Stage Eatery at 3 East 47th Street paid $436,000 in minimum wages, overtime pay, liquidated damages and interests for 27 employees of the restaurant, resolving a lawsuit against the company for allegedly violating the federal Fair Labor Standards Act.
In addition, Crain’s reported that in January, Café Centro, located in the MetLife Building, and Bobby Van’s Steakhouse on East 54th Street are being sued separately by former employees for allegedly failing to pay proper wages. A spokesperson for Bobby Van’s declined to comment. Officials from Centro could not be reached.
The blog Eater NY reported that a lawsuit has been filed against Daniel Boulud, which claims that he and his managers failed to pay minimum wage, denied overtime wages, and pooled tips with non-tipped employees, among other violations. In their response to the complaint, Boulud’s attorneys denied the allegations and called the suit “baseless,” according to court documents.
Other high-profile restaurants have also been impacted. Both Alto at 11 East 53rd Street, which had two stars, and Convivio, at 45 Tudor City Place, which had one star, suddenly closed last month. One prominent restaurant owner, who asked not to be named, said pressure from possible lawsuits may have prompted the closures.
Adding to the burden of owners and operators is that restaurants in the city — much to the consumer’s pleasure — are now being more aggressively monitored for food safety compliance than ever.
Since July 2010, the city Department of Health and Mental Hygiene has required restaurants to post letter grades, showing the result of their inspections. If a restaurant operator wants to contest the results, the restaurant can post a “Grade Pending” card until it is heard at the agency’s administrative tribunal.
For the restaurants that have “C” grades or “Grade Pending” cards, consumer groups and restaurant leaders report that patrons are falling off. In one instance in Midtown, an Italian restaurant near Bloomingdales that was given a C has seen volume drop by at least 50 percent, which this reporter discovered on a recent visit.
While that may be a good sign for quality control and for the attractiveness of the city when it comes to local and foreign visitors, the combination of the economy, rising costs, health department grading and pressure from labor groups may have a major effect on the New York City restaurant business in the coming months.