The Restaurant Industry Is Broken. Can It Be Fixed?

But tell me about this restaurant that started you thinking about the larger state of the restaurant industry. Well, there's this restaurant in Minneapolis called Modern Times. It's really a diner-style place. It's a neighborhood restaurant. Hey. Two. Two? Awesome. It's all right there. Thank you. Open for breakfast and lunch, but it's really kind of known for its breakfasts. Do you know what you want to get? Big and egg toast? Really good pancakes, bacon and eggs, that kind of thing. I'll take a coffee. The thing that distinguishes this place compared to all the rest in Minneapolis, there are a lot like it, is that when I visited in the spring, there were no prices on the menu. Hmm. And so how do you know what to pay and how do you know what things cost? Well, like at any restaurant, you receive at the end of the meal something that looks like a check and what it is is really a solicitation to pay what you can, pay what you decide that you can afford. Wow. And on the day that I visited, I'd say half the people that were in the restaurant, according to its owner, couldn't afford to pay and didn't. Huh. This is deeply unrestaurant. Like. It is unrestaurant-like. It would seem antithetical to making money. And in some ways, the move was made as a reaction to how hard it is to make money. In restaurants. From New York Times, I'm Micah Bavaro. This is the daily on Sunday. There are a couple of key things to understand about the American restaurant industry right now. And they can seem contradictory. Menu prices are higher than ever, yet restaurant owners are barely scraping by. And that's because the business of dining out is in crisis. Today, my colleague, Brett Anderson, one of the journalists behind the Times' annual best restaurant list, explains where this crisis comes from and all the creative ways that restaurant tours are trying to fix it. It's Sunday, October 4th. Brett Anderson, welcome to the Sunday Daily. Thank you very much for having me, Michael. My pleasure. So you spend a lot of time in restaurants. You're a member of this SEAL team, six that drops into entire regions of the United States, and you quietly, stealthily scout for the best restaurants, and then you publish them as this coveted list, coveted if you're on it, painful if you're not. Yes, this year I traveled to 19 states for more locations, I honestly lost count. Wow. You know, looking for restaurants to write about for the Times, and also just like looking for stories, too, to write for the Times, because beyond drawing up lists, you cover the entire industry, which is what we really want to talk with you about here. So how did you end up hearing about this restaurant and Minneapolis that's breaking so many basic rules of the economics of the industry? Well, I've known about the restaurant for years for the simple reason that I'm from the Twin Cities. I get there to visit family as well as for work. And I was in the Twin Cities doing some reporting on the ICE operation in the area that a lot of the listeners, well recall, made a lot of news. People in the area felt it was akin to something like an occupation, right? And Dylan Alverson, who owns modern Times, had decided in the aftermath of the killing of Alex Prety, which is when I was there, that he was going to remove prices from his menu. He said it was a protest against what he called the fascist economy. I wanted to stop while we had federally armed chirps acting aggressively towards our citizens. I wanted to stop contributing to it financially. He was doing something that a lot of people in the Twin Cities were doing at that time, which was using what he had to try to do what he could. We started this out of a protest and we're seeing that it evolves into these different ideas. And in that conversation, he told me that he had been struggling to make a profit at his restaurant for many years now, and that even though he was busy all the time, even though he was generating what seemed to be quite a bit of revenue, he was simply not able to pay his bills and simply not able to pay himself very much. And I don't believe that in America, restaurants are capable of achieving a profit anymore. What he was explaining to me is something I'm heard from restaurants across the country in recent years, again and again and again, which is that the business model isn't working. We're struggling to stay alive and in fact, we don't know if we can. So, this is like a reset, this is saying how do we stop monetizing our staff and how do we stop monetizing our customers and have interactions that are based on, I mean, it's true hospitality. And what had looked on paper to be a pretty radical thing as he explained to me, it sounded less radical. So, he was kind of throwing up his hands and saying, as a restaurant that can't make this math work anymore, I'm going to try something new, I'm just going to take prices off the menu. Exactly. Why I wanted to open a restaurant, this neighborhood was to provide a community space that people could use that lived in this neighborhood, and the economy has been making it near impossible to continue doing that. And what was further interesting there is that in doing that by not charging, his business started to do better than it ever had, or better than it has in recent years, he was doing better financially by letting people pay what they want by not charging. By not charging, he told me 50% of his clientele was not paying for food and he was still doing better than before, he had attracted so many donations that he was effectively more profitable than he had been when he was charging for food. That is truly counterintuitive. It struck me as a very illustrative commentary on how little money restaurants are actually making in this economy in the United States. I've covered restaurants for over 30 years now, and I've talked to a lot of restaurant tours. You hear a lot of complaints when you're a reporter, as you know, but it has never been as pervasive. The economic reality has become the dominant narrative in an industry and a culture that I've covered where for decades, the dominant narrative was creative expression, was hospitality, was sense of place. Now I believe that that has flipped, and while it might not be apparent to diners so much, it is very much to me in the perspective I have as a reporter. These restaurants are struggling to survive and in fact, many of the people I talk to fear that they might not be able to. Well, Brad, we want to talk about what happened to bring restaurants in the U.S. to this pretty dire place, and now very much in search of a new business model, and we're going to do that right after the break. We'll break back. The restaurants have always been a pretty low-margin business, so let's talk about how the last few years really exposed, not just how low-margin they are, but basically how broken the restaurant industry has become and led to all these efforts to reinvent it. Well, this chicken little narrative, as someone in the industry described it to me recently, dates to the COVID-19 pandemic, but it's roots go back decades further and really to the beginning of what many would call the American restaurant revolution. Okay, tell us that story. Well, you've got to think back to the 1970s. I'll use an example that maybe a lot of people will recognize, shape an East restaurant in Berkeley, California. It still exists. It's a famous restaurant. It's this historically important restaurant that really helped launch what we consider the sort of the farm to table movement in the United States. Alice Waters, its chef and owner, got that restaurant off the ground with a $10,000 loan from her father. She opened that restaurant with flea market items, second hand furniture. This was a Bohemian impulse, and oddly affordable. It was oddly affordable at a time when urban living was affordable. I bold enough to remember one of the reasons I wanted to move to a city in my twenties from the suburbs is was it was cheaper on top of the fact that it was just more interesting to me. And restaurants, as we know them, really arise from this model. You saw restaurants everywhere in all communities, particularly in urban areas, where the business was hinged to the personality of the chef, the sort of talent and even the ethics of the chef. That became part of the identity of the place. And that business model was built on a really different economy, particularly a really different urban economy, meaning what exactly? Well, let me give another example. Lutez, this is a New York restaurant. The former restaurant critic at New York Times, Mimi Sherch, and once called the best French restaurant in America. Andre Saltner, the famous chef, who ran the place, purchased it from its original owner in the 1970s, not with a bank loan, but with money he saved from working as a chef. And with that money, he was able to purchase not just a restaurant, but a four story townhouse in Manhattan. Now imagine someone today, in New York, making only working wages, being able to squirrel a way enough money to do something like that. So what you're really saying is that at the birth of the modern restaurant scene was an affordable urban real estate market. Exactly. And everything that went along with that, not only could you afford to open a restaurant for much less money, but people who worked in restaurants could afford to live nearby on a restaurant's salary. To give just a recent example about how hard the real estate is, Tom Calicchio, who's a famous chef, many listeners may know him by, because he's one of the hosts of Top Chef. He closed his flagship New York restaurant, Kraft, just this summer, citing real estate costs, among other rising costs, this famous chef, who has other income streams, was not able to afford to run a restaurant in New York City, given the cost to running a restaurant in New York City. Right. And today, real estate is just one and a long list of costs that have gone through the roof for restauranters, and the shutdowns during the COVID pandemic really exposed the fragility of this business model and exposed all these costs that restauranters feel like they're drowning under. Well, just explain that because I think we all on some very superficial level understand that the pandemic was terrible for restaurants because it shut so many of them down for so long. And beyond that, what do you mean when you say it exposed the fragility of the whole industry? Well, as we know, these restaurants were enabled to operate, in many instances for quite a long time, at least not operate as usual because people legally weren't allowed to eat inside restaurants, right? You can go them. So, you know, you're turning off the spigot on revenues. And I took note during the pandemic of how many of the sort of most famous people in the industry, people who you would assume had resources to burn were talking about as though they could not afford to have their business shut down for six weeks. And that's what I mean about exposing the fragility of it, right? There was no margin, there was no cushion, there was no rainy day fund. Yeah, what is a restaurant worth if it's not open? It turns out not much. So that there was also these other things during the pandemic that occurred. The biggest was the killing of George Floyd and the racial reckoning that followed it. And, you know, in the restaurant industry, we saw some spillover here. This was an industry that was already roiling from the MeToo movement, which hit restaurants very hard. And you had this environment in which restaurant tours were taken to social media to try to pledge their solidarity to the people who are on the streets during the Black Lives Matter movement. That invited employees to jump on the social media as well and point out where some of these restaurant owners perhaps weren't as righteous as they're trying to present themselves to be, where they were making complaints about workplace conditions and treatment in the workplace and pay and all the rest. And it was a very contentious time for restaurant tours and for restaurant employees who had felt that they had been mistreated for so long and saw on the streets of cities across the country this permission to air their own grievances about their workplaces and how they'd been treated. And this dynamic was one of the factors that caused labor costs to really rise. You know, people were saying, "I'm not going to go back to work at a restaurant if I can't make a living wage." And living wages in a lot of cities is much higher than it used to be. And you know, a recent study that came out last year, industry studies, said that wages are up 41% compared to pre-pandemic levels in the restaurant industry, which of course is great for workers and perhaps was quite overdue. But from the perspective of a restaurant tour who, as you've already established, is dealing with really high, real estate costs is dealing with the hit of the pandemic is suddenly a very big new expense. It's a big new expense and you're right. Higher wages we shouldn't see as a net bad. But it is a challenge for a small business, right? As many restaurants are, even many of the most famous restaurants can be as few as 25 tables. Right. And that's not the only increased cost that they're facing. You may recall during the pandemic, you know, was when we first started seeing at least in modern times inflation become a very potent political issue that animated a lot of people. And we covered a lot on the daily. Actually, the government's response to the pandemic, which was instinctive and somewhat natural, which is to pump all of us money into the consumer world ended up making everything a bit more expensive. Yeah. Food costs are up 35% for restaurants compared to pre-pandemic levels. And that's a big, big number and particularly for businesses that already had very small margins and whose other costs are also rising. There has become, I'd say, in the last year and a half, even a sort of new form of communication from restaurants on social media where they are taking to their online media feeds and trying to communicate with people just how much their costs are rising. There isn't room to sell affordable food in Seattle. I'm here as well. I'm thinking specifically, last month, there's a restaurant that serves Indian street food in Seattle called Spice Walla. Our cost of goods, which is the cost of anything goes into the food that we serve you has doubled since 2018. And the owner posted to Instagram a video in which he showed all these different ingredients that were up. The cost of chicken is up 13%. The percentage increased that they've had to pay. Potatoes, 54%. And what he's trying to do there is what a lot of restaurant tours are really struggling to do, which is to communicate with their customers to try to say, look, these rising menu prices are not a result of our greed. They're really a matter of our own personal survival. We just cannot keep up with these costs. We cannot operate a profitable business without passing some of that cost on to customers. Right. I'm surprised you haven't yet brought up credit card fees. Credit card fees are something you hear a lot of people complain about. And it is sort of striking for me. I always just assumed as a consumer that this era in which we've gone to almost a cashless society would be good for retailers. You know, it like sort of removes this barrier of like, oh, I don't have enough money in my pocket. And, but that's just not the case for restaurant tours, at least those that I talk to. They increasingly talk about how these two to four percent swipe fees are just killing them. A times to the story in which it said that that was the third highest cost behind labor and products that restaurants have are credit card fees. Right. And because no one's paying cash ever at all anymore, every bill involves the credit card fee. Not just credit card fees. There are all of these assortment of fees that restaurant tours have to pay to basically all of these industries that have built and built on the backs of restaurants. Think about delivery apps. Think about the food distributors, the reservation platforms. All of these things take a cut. I don't think people know that, by the way, but I mean, I use seamless. And it wasn't until I was doing some research for our conversation that I, and I'm embarrassed to say this, I discovered for the very first time that all these services charge the restaurants basically a commission. Most of the restaurants I talk to say that when you order using a delivery app from them, they lose money. That they basically consider it a marketing cost. And it's a risky one because if you get your food delivered from a restaurant and it arrives cold or something disappointing happens and root, the customer is going to blame the restaurant more likely that it's going to blame the delivery app. And so they're basically showering this risk while paying for the privilege in a way that causes their profits to go away. Right. So in all these ways, our restaurants prices are basically just kind of nickel by nickel, fee by fee, going to the roof. Yes. Someone in the industry described it as these relationships, these business relationships, that began as symbiotic relationships have turned parasitic. And all of these extra costs, particularly independent restaurants, they do not have the negotiating ability to get better terms from these big companies as maybe some chains do. Right. And so they're now routinely charging a whole lot more for food. Yes. Yes. And customers are noticing. And as a result, going out less or complaining more, neither of which is good for business. Right. After the pandemic, when the cost of actually eating out started to reflect the cost of actually eating out, I think it was, and I'm speaking a little bit personally here, at times jarring, just how much more expensive a restaurant that you had been frequenting in the past suddenly was. And it began to change my relationship with certain restaurants. A place that I could visit was some frequency because it felt reasonably affordable, now felt like a very, very special occasion kind of place. And therefore, I went there a lot less. And I have to say, so I eat out restaurants constantly for work. I'm settling a lot of checks. I've seen a lot of prices. But just this past week for my son's 12th birthday, he wanted to go to five guys. You know, it's a national chain of sort of fancy fast food hamburgers. And it costs nearly $80 for a family of 40 to eat there. Right. Family of 40 eat basically burgers and fries. Burgers and fries. And there was a shake involved. Of course, there was a shake. Yeah. That's expensive. Yeah. But Brett clearly raising prices alone, which is really restaurants only card to play has not cracked the code. Because as you said, the beginning of this conversation, every restaurant tour you talk to says that the business model is still broken. Yes, it's true. And you know, there's a phenomenon that you hear a lot of people restaurant tours sort of complain about, which is that when people see busy restaurants and it's not as though restaurants aren't busy, right? You see what appears to be a successful business, a restaurant that you can't get a reservation to. That is not evidence of a restaurant that is financial successful. You hear this over and over from people. The National Restaurant Association came out with a report recently. And this is the largest trade group representing restaurants of all types that said 42% of restaurant owners reported that their restaurants were not profitable in 2025. That's a lot. Yeah. Basically means if you walk into a restaurant, there's a almost half chance that it's not making any money. That's correct. And that tracks with what I hear, you know, the anecdotal evidence of the interviews and what I hear from people. It's now really affected what I see when I visit restaurants where I used to see trends and innovations that were sort of arising from immigrant culture, from chefs finding new ways to express themselves personally. I now see business solutions. I see attempts to find revenue in new places by any means necessary. Well, I want to talk about all these business solutions you're now seeing in restaurants that you visit right after one more break. We'll be right back. Right now that you've laid out the scale of the financial crisis for restaurants, talk about these business solutions that you are seeing popping up all across the industry. Well, one thing that is hard to miss when you go particular to larger cities is a sort of a bumper crop of Italian restaurants, of steak houses, of kind of off the shelf French bistros. And what are those three things that have been common as business solutions? They are proven successes. You see a lot less risk taking, which isn't to say that some of these places aren't very good, but you know, it's also sort of known that you can get high margins on pasta, steak houses. You don't need to put a lot of training to teach a chef to make a really good steak. No, there's a thermometer you could just pop in the meat. Yes, like there's these sort of explanations, I think, is part of why we're seeing those sorts of trends. And just to make sure I understand, if the steak doesn't take that much expertise to make, then maybe that means there's less labor involved. And since labor costs have gone up, this is how we, as a restaurant perhaps, create a more profitable business. Correct. These are also types of restaurants that tend to be higher price to begin with and attract affluent diners. And as we sort of know about this economy that we're living in and that these restaurants are struggling in, affluent people are doing fine. If you can be catering to them and have a really safe business model, well, that's one of the safest things you can do if you're opening a restaurant today. Got it. Okay, so that's why we're seeing a proliferation of Italian restaurants, steak houses. What else are you seeing out there that solves this problem? Well, you're seeing these other smaller little innovations that you see across restaurant styles. It's now much more common to find restaurants that are serving what we sort of consider to be high-end food created by a very well-trained and respected chef where you order at the counter. And I think about the place like Rye Bunny in Washington, DC, which is one of the restaurants that made our list this year. And it's run by a chef and his wife and partner who had a successful restaurant in that same space for years that they, even though it was very popular, that they decided to close. They didn't feel like the model was working anymore. Rye Bunny is the concept that they came up with to open in that very same space. And the biggest difference you notice when you go into it is that there's a huge line of people waiting to order. They're ordering at the counter, right? This is a way to save on labor costs. But the food itself is as impressive as it was at its old restaurant. If not more, it's looking in sort of this loose Mediterranean style. You've got bataki mushrooms. You've got really wonderful local ingredients. It has a great stake. Like, this is a very, very high achieving sort of neighborhood American bistro. But you make your order to someone who's standing behind a cash register. And I think that that has all kinds of virtue. And I say that, selfishly, as a parent of two small children, when you are able to order really good food from a counter, then you're not having to worry that your kids are going to lose their mind while you wait for a waiter, wait for us to come over. And so it kind of makes a certain kind of high quality restaurant accessible to families. Well, you also just landed on another feature of this model is that tables turn more quickly when you're not waiting for service. So you're able to serve more people. It's another benefit of this kind of model. What kind of changes are you actually seeing on the menus of the kind of restaurants we're talking about here that makes their business more successful? I think it's instructive to look at desserts. I don't know if you have seen this where you live, Michael, but there's a lot of soft serve out there. There's a lot of, there's a lot of things you can scoop on restaurant lists or things you can make in a pan like Trizle Chase cake and then slice, make a head. These things are delicious, but they also do not require you to hire a pastry chef, which is an expensive position that has traditionally been part of high-end restaurants. That is something that is a luxury that a lot of our best restaurants in the country have realized that they are going to have to live without if they want to survive. And Michael on the complete opposite end of that spectrum from soft serve ice cream, we have caviar. I don't know if this is something you've noticed, but I have, do you want caviar at the top? Whatever. It has become so customary to find caviar markups and add-ons at restaurants that I have stopped mentioning them in my writing. They are just almost ubiquitous at restaurants, including these steakhouse and Italian places. And there's a lot of chefs who are doing this, I think, somewhat begrudgingly. Right, because it's an obviously solid way to overcome the economic challenges of this moment. It appears quite craven, obviously, but also, you know, a lot of these people who work in restaurants are middle and working class, and they are growing tired. They tell me of cooking, food, that only a very small sliver of the population can afford. The sense of weariness I'm hearing from chefs is not just coming from those who are charging markups for caviar. Still in Alverson, the owner of that restaurant up in Minneapolis. This is the restaurant tour who ultimately ends up charging nothing on his menu. Yes, you know, he told me that it was feeling exploitative to charge what he was charging for pancakes. And it was, you know, one of the reasons that he wanted to try this experiment by removing prices from his menu altogether. You mentioned that when you were out there, this decision to drop prices from the menu for Dylan had been something of an unexpected financial boon. Did that remain the case? Well, I called Dylan actually last week to find out how things had been going. And it turns out that it was very complicated, removing prices from the menu, presented challenges that went beyond making ends meet economically, such as, well, they were attracting lines up to two hours of people. It grew to a point where the weight was so long because the need was so great that basically only people that could wait for two hours to eat, were able to be customers. And as I mentioned earlier, up towards a half of those people were trying to get free meals. This was something that became disturbing to neighbors. A lot of those folks who were trying to get free meals had, for instance, drug problems. They were perhaps homeless and people started to fear crime and there was tension with neighbors. It was also challenging for the staff and while I think that the staff, as far as I could tell when I was there, really, really appreciated that challenge and really wanted to deliver on it, it became quite physically exhausting for everyone. Everything culminated to a point where I was like, we just, we have to stop. And so Dylan announced that what he had called postmodern times was going to close down for a break and re-open again in August as modern times with a business model that sort of split the difference between the experiment he was running and the traditional restaurant that that replaced and split the difference, how, what model did he settle on? Well, there are no prices back on the menu, but he is still, he tells me, giving away 125 free meals a week. He went out and got a grant to help support that particular program, but the prices on the menu are not designed to fuel that charitable effort. The prices that are on the menu today, he says represent the lowest price he can charge and still meet all of his expenses. So we reopened with our menu priced at basically a zero profit margin, which is a continuation of this idea that I keep pushing that there is no longer a profit margin in restaurants. Though we have menu items that are priced at $24 that is reflective of a modest living wage and the real cost of food without a profit involved. So he is not making money and therefore I wonder, is this any kind of pathway forward for the rest of the industry, it doesn't sound like it would be? Well, he would say otherwise, he is actually arguing that this new model is something that other restaurants could adopt. He's trying to create an example where you have a restaurant that is using donations to feed people who can't afford to feed themselves while still meeting its bills and paying its employees with the for profit arm inside that very same restaurant. If I can create a fundraising mechanism that can raise money to provide hospitality, we can take that program and add restaurants to it. He thinks that if other places adopt this model, that it would take some of the burden off his restaurant to be feeding all these people and create some economies of scale. That's really interesting. I mean, basically he's saying that the industry's math is so bad that you might as well do something like become a quasi-non-profit that can pay all your staff, pay all your bills, keep up with the rising food costs and all the fees and commissions and that might be okay to not have a profit at the end of the year. Yeah, I mean, I have to say something that he said that really stuck with me is he and his staff during this challenging time when they were trying to do this radical thing discovered that they liked providing this service to people who otherwise weren't able to afford restaurants. They appreciated working at a place where that financial barrier had been removed and that was open to everyone in their community regardless of how well off they were. There was something about it that made their work feel more worthwhile. We kind of went back to this core idea of hospitality, which is just offering comforts, relationships that are formed through inviting people in and feeding them, basically. And Dylan told me that that's the reason that he's doing this, not because he wants to make a lot of money. Not only does he think that it's not really possible in this economy, but what he's really interested in is providing a space for people to come together and feel human and feel included and feel safe and satiated for a little portion of their day. Which is ultimately the very idea at the heart of a restaurant. Indeed. It is. And there are people all over this country that are being really nice to perfect strangers. And you know, you cover politics a lot on this show, you know, in that context, in this context of polarization that we live in and not nicest to strangers. Yes, I have a deeper appreciation for this business that is founded on trying to treat people with respect and give them the benefit of the doubt. Foundationally, that is their goal. That is the goal of restaurants. These experiences of being able to hang out with your friends, being able to escape from whatever it is for a little bit of period of time. For being around people that you don't know, being treated well, all of that feels kind of like more essential than it ever has to me before. And it makes me think that as challenging as the restaurant businesses become, I really think that we all should be hoping that we can save it. What we're at. Thank you very much. Appreciate it. Thank you so much for having me, Michael. It's been a pleasure. You can read more from Brett Anderson and all of our food writers on the New York Times app. If you don't already have the app, we want to let you know that if you download it right now, you'll get access to all of our journalism free for one month. So give it a try and thank you. Today's episode was produced by Tina Antillini. It was edited by Wendy Dorr, engineered by Daniel Ramirez, and contains music by Dan Powell, Loni Misto and Marion Lasano, fact-checking by Lena Richards and production assistants from Dalia Hadad. It's Ed for the Sunday Daily. I'm Michael Borough. See you tomorrow.