The Shores Restaurant

Restaurants in San Diego County

The next time you wander into Sammy’s Wood-Fired Pizza for a burrata and pesto pie, indulge in a shrimp-filled bucket at Rockin’ Baja Lobster, or decide to splurge on beef tenderloin at George’s at the Cove, don’t be surprised to see an added charge when your check arrives.

Girding for the second minimum wage hike in six months and the fourth in 2-½ years, many of San Diego’s full-service restaurants are introducing for the first time an average surcharge of 3 percent of the meal’s cost to help cover increased labor expenses that some operators say amount to hundreds of thousands of dollars in a single year.

Thanks to voters' approval last June of a measure to boost the pay of the city’s lowest-paid workers, the city of San Diego’s minimum wage will jump from $10.50 an hour to $11.50, starting today. Statewide, the hourly pay will rise from $10 to $10.50 for businesses with more than 25 employees.

Hoping to preserve what restaurateurs insist are already thin profit margins, owners say they’ve tried trimming expenses and cutting hours, as well as raising prices. They ultimately concluded that the dining public would better tolerate a charge at the end of the bill than continued price hikes on the menu.

“I can’t get to sleep at night wondering where in the heck am I going to get the dollars I need to pay all my employees, ” said Rick DiRienzo, owner of Rockin’ Baja, which operates three restaurants in San Diego County, is about to open a fourth in Mira Mesa, and also has one in Newport Beach.

While the kitchen staff already is paid above minimum wage, their monthly income is dwarfed by that of the servers, who, like tipped workers at most restaurants, are paid no more than the minimum wage. That’s because a sizable portion of their earnings comes from tips.

“My servers are making incredible tips — between $20 and $30 an hour - and with this increase, I can’t continue on and expect to make a living, ” DiRienzo said. “Of course, I’m worried about a backlash (from diners), but I can’t think of anything else to do other than raise prices and I’ve already done that for the last two years.”

San Diego's series of wage hikes come amid a parallel move by the state to eventually boost the minimum wage to $15 an hour by 2022.

While they affect all businesses, restaurants tend to feel the pain more acutely than other industries because they have more workers earning closer to the minimum wage and labor costs can account for as much as 35 percent of operating costs compared to about 11 percent for retail, economists say.

DiRienzo estimates his company will take a financial hit approaching $200, 000 this year across his four Southern California restaurants.

The mandated wage hikes also tend to have a ripple effect across all employee tiers as restaurateurs try to narrow the yawning earnings gap between tipped workers and those in the “back of the house, ” like the dishwashers and line and prep cooks.

David Cohn, whose Cohn Restaurant Group operates 11 restaurants in San Diego and five more outside the city, calculates an impact of $2 million in higher minimum wage and related payroll expenses over a 12-month period. Viewed through the lens of the last 2-½ years, the minimum wage has jumped 44 percent, says Cohn, from the $8 hourly rate that hadn’t moved up a cent for six years until it bumped up to $9 an hour in the summer of 2014.

“We’re still giving people raises, and we’re fine paying people $15 an hour, but a restaurant’s bottom line is such that all of a sudden you can’t just absorb that, ” said Cohn, who opted for a 3 percent additional charge for San Diego restaurants and 2.5 percent for those outside the city. “We’re just stating a reality, that costs are going up and this is how we’ve decided to respond to it. If you stay in a hotel, rent a car, there are certain mandated fees.”

He is among a number of San Diego’s mostly higher-end restaurant operators — from Tracy Borkum of the Urban Kitchen Group and Mike Morton Jr. of the Brigantine chain to Susie and Larry Baumann’s Bali Hai and Tom Ham’s Lighthouse restaurants — that have opted to embrace a surcharge they’re telling diners are needed to cover the cost of “government mandates.”

In the months leading to today’s wage hike, they toyed with the idea of a no-tipping model, wrestled with adding a 20 percent service charge, weighed yet another boost in menu prices. But in the end, the restaurateurs concluded that a modest surcharge would be the most digestible option for the diners they worry most about offending.

Stephen Zolezzi, president of the Food & Beverage Association of San Diego County, which has been advising restaurants on how to adjust to rising labor costs, said he’s talked to about 30 operators who intend to add a surcharge to diners’ bills.

“These are mandated increases to the cost of doing business that we have absolutely no control over, ” Zolezzi said. “I’m getting calls like I never have before, they’re saying, I need a broker because I am through, I need to sell my business. Some are feeling like their back is up against the wall and feel this is all they can do.”

The levy, which many believe will eventually become the new normal, is not likely in the near term to show up on receipts at fast food and fast casual outlets where there are few tipped employees. San Diego McDonald’s restaurants are not implementing a special charge, a spokeswoman said, nor are Jack in the Box’s 44 company-operated outlets and the Carlsbad-based Rubio’s chain.

Burger Lounge CEO Dean Loring said his San Diego fast casual company opted instead to spend $30, 000 on an industrial engineer to help improve efficiencies, like letting customers pour their own beverages instead of the employees and asking workers to tighten up their conversations with customers during the ordering process.

San Diego restaurateurs aren’t exactly on the vanguard of change when it comes to upending the conventional restaurant check. They’re following a well-trod path forged by their peers in San Francisco and Los Angeles, who have adopted surcharges as a way to help cover healthcare costs.

In San Francisco, restaurants began experimenting with the surcharge approach not long after the city enacted in 2008 a law requiring businesses with 20 employees or more to spend a certain amount on healthcare for those who are uninsured.

The city’s minimum wage — $13 an hour - is even higher than San Diego’s and is scheduled to jump to $14 this July.

Some San Francisco eateries have tried variations of a no-tipping model but ultimately many retreated because of diners’ unwillingness to cede control over the gratuity, said Gwyneth Borden, executive director of the Golden Gate Restaurant Association.

“The reality is restaurants here have raised their prices and added a surcharge because of all the mandates, ” said Borden, who has been advising some of San Diego’s restaurant owners on the San Francisco experience.

“The San Diego restaurateurs are concerned about perception issues, just like we were. Some politicians and consumers were offended by the surcharge. So my advice to San Diego was don’t label it as something you’re doing because of the minimum wage because people will perceive you’re complaining or making a political statement.”

San Francisco fast casual restaurant operator Steve Sarver said he held off a few years before implementing a 4 percent surcharge, even after raising prices to help weather the financial impact of continuing hikes in the minimum wage.

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