Cities That Sizzle - San
Francisco
'Artistic
statement' restaurants make City by the Bay top fine-dining
market despite rising cost of doing business
Chef-owner Gary
Danko, in a 2000 San Francisco Business Times article on the
rise of free-spending patrons in local restaurants, observed,
"We're seeing the New Yorkization of San Francisco, and it's
about time."
Danko's relief
that local patrons are becoming comfortable with spending more
than $100 per person for a memorable evening of food and wine is
understandable: Operating costs are rising in the market long
known for relatively low average checks.
Referring to the
escalation of menu prices around town during the past two years,
Al Falchi of The Waterfront Restaurant & Cafe remarks that the
trend is "being spearheaded by the rising cost of doing
business."
"Rents are very
high here, the [state] minimum wage just went up to $6.25
without a tip credit, you have to provide [employee health]
insurance if you have a city lease, and utilities have gone up
dramatically," says Falchi, who has operated The Waterfront for
30 years.
Local food costs
also are growing, Falchi says, citing as an example the cost of
filet mignon, which has increased from a low of about $8.50 a
pound last year to a recent high of $11.50 a pound.
"It's not getting
less expensive to run a restaurant here," agrees restaurateur
Peter Osborne, who owns MoMo's in the emerging South Beach
neighborhood. South Beach is home to the new Pacific Bell Park
professional baseball stadium and several office and residential
building projects.
Some restaurant
watchers can't help wondering if rising menu prices might not
harm San Francisco's reputation as a haven for tight-fisted
fine-dining aficionados and lessen the city's immense
popularity.
In 2000, the
readers of Conde Nast Traveler magazine, as they had done in the
two prior years, recognized San Francisco as the world's leading
dining destination. Traveler readers also gave San Francisco the
highest overall ranking among U.S. cities for the 12th time in
13 years. And the readers of Travel and Leisure magazine in 2000
ranked San Francisco as the world's most desirable travel
destination for the fifth year in a row.
Veteran San
Francisco operator John Cunin, managing partner of Cypress Club,
confirms that "pricing has gone up." But he maintains that the
"3 percent to 9 percent" price hikes implemented by many
restaurateurs around the city appear to have met with "very
little [customer] resistance."
Cunin scoffs at
the notion that the downturn in the dot-com market could have
severe consequences for San Francisco restaurateurs. "Too much
has been made of the dot-com demise," he opines, adding, "The
people who were doing things right and had a bunch of money are
still there."
Besides, Cunin
says, "way prior to the dot-com bubble, San Francisco
established itself as a destination for business and travel, and
that has not changed." What's more, he maintains, "the
dining-out culture of San Franciscans is well embedded."
The San Francisco
Visitors & Convention Bureau "has really done its job," Cunin
says of that organization's success at filling the city's
31,000-plus hotel rooms.
Spread over 43
hills in a relatively compact 49-square-mile area, San Francisco
has a population of about 801,000. Its demographic makeup, as of
1998, was estimated to be 40-percent white, 34-percent
Asian/Pacific Islander, 16-percent Hispanic, 10-percent black
and 0.34-percent Native American.
The city claims
several unique sights and attractions, including squiggly
Lombard Street; prison-turned-tourist-destination Alcatraz
island; and the Golden Gate Bridge. Also endearing to many
visitors are those "little cable cars, climbing half way to the
stars."
Culinary art,
too, is a big part of the San Francisco tradition.
The city helped
launch the national fern-bar movement of the '70s and '80s with
the 1970 opening of Henry Africa's. And the retro-diner and
small-plate crazes of the mid-'80s and early '90s were fueled,
in part, by the 1985 debut of the Fog City Diner.
Grilling with
burning mesquite wood to sear in flavors, a widespread practice
today, was popularized in San Francisco in the 1920s by such
establishments as Tadich Grill.
San Francisco is
believed to have been the birthplace of several popular foods
and libations. Among them: chicken Tetrazzini, Crab Louis,
cioppino, the Joe's Special scramble, the Mai Tai and Irish
coffee.
Within foodie
circles San Francisco stands out from other American cities by
virtue of its high density of restaurants per capita. In 1999,
the most recent full year for which data are available, San
Francisco boasted one restaurant for every 216 permanent
residents within the city limits.
Augmenting that
relatively small core of resident consumers are a daily average
of 590,000 inbound commuters and the millions of day trippers
and overnight guests who visit the city each year. In all,
visitors annually spend about $6.5 billion on lodging,
restaurants, transportation and other goods and services,
tourism officials estimate.
San Francisco is
both a city and a county, and it anchors a federal metropolitan
statistical area that includes Marin and San Mateo counties. The
three-county area reported $2.95 billion in taxable
eating-and-drinking place sales in 1999, up a nominal 8.7
percent from the prior year. Of that aggregate 1999 sales
figure, San Francisco contributed 59.5 percent, or $1.72
billion, a nominal increase of 8.1 percent from a year earlier.
Many San
Francisco operators reported strong performances in 2000 and
credited a good deal of the growth to spending by patrons
affiliated with dot-com, technology and venture capital firms.
Among the operators are Niki Leondakis, senior vice president of
restaurants for Kimpton Hotel & Restaurant Group, and chef
Hubert Keller of Fleur de Lys.
Leondakis says
sales for her Kimpton's 28 restaurants on the West Coast and in
Denver, Salt Lake City and Chicago, rose by 9 percent last year.
She indicates much of that growth came from the company's 11
restaurants and cafe in San Francisco, most notably the Masa's
and Fifth Floor fine-dining venues. High-end wine purchases
drove the food-to-beverage sales ratio at Masa's and Fifth Floor
from approximately 75-25 to 60-40, the Kimpton executive says.
The continued
popularity of Fleur de Lys, long considered one of the city's
finest restaurants, has inspired Keller, his wife, Chantal, and
their partner Maurice Rouas to strike out in a new direction.
The trio, backed by some investors, is developing a 180-seat
French brasserie in a historic building on Townsend Street near
Second Street in South Beach.
Keller says the
"time is right" to develop a brasserie because from coast to
coast "French is in, again." He says the move is not a
reflection of any downturn in fine dining, as that business just
keeps "getting better."
Charles Condy,
co-owner of Aqua and Charles Nob Hill, with average tickets of
about $90, agrees with Keller that "restaurants at the high
level are doing great business."
According to some
sources, South Beach pioneer Osborne enjoys Mardi Gras-like
business at 320-seat MoMo's when Pacific Bell Park has day
games. Despite the benefits of being directly across from the
stadium, Osborne says he's more than aware that "a business
can't survive on 81 good [game] days a year."
"My marketing
mission statement has been, and continues to be: 'We are a
destination restaurant, and there happens to be a ballpark
across the street,'" "Osborne says. "It's not, 'We're the
restaurant across the street from the ballpark.'"
San Francisco
operators and broker Steve Zimmerman of Restaurant Realty Co.
say restaurant lease rates for many parts of the city are
running $3 to $5 per square foot per month. However, rates are
as high as $6 to $10 per square foot in some parts of Union
Square, the city's high-end shopping district, and stretches of
Castro Street, they report.
San Francisco
lease and sales rates have climbed steadily in recent years as
the commercial real-estate vacancy rate has plummeted to less
than 2 percent for class "A" space and less than 3 percent for
class "A" and "B" combined.
Office space is
in such short supply in San Francisco that office rents eclipsed
retail rates last year, prompting some landlords to ignore the
restaurant operators they once might have sought out. In at
least two cases established restaurants have closed to make way
for businesses willing to pay substantially higher rents.
However, that's
not to say that established operators can't find some site
deals.
"Percentage rents
are going up, but the good news is that I'm seeing more
landlords willing to give TI," or tenant-improvement subsidies,
reports San Francisco restaurateur and consultant Robert Puccini
of Oritalia and Puccini & Pinetti Italian Grill & American Bar.
The monthly
unemployment rate in San Francisco averaged 2.76 percent last
year and was 2.5 percent in December. Operators say that high
employment pushes up payroll and makes it difficult to keep
restaurants staffed, as does the city's status as the
least-affordable housing market in the nation.
The California
Association of Realtors' officials reported in November that
just 17 percent of the households in the San Francisco Area
could afford to buy a median-priced home in the region, compared
with 54 percent nationwide.
"My labor costs
[have] really gone up," Cypress Clubs' Cunin acknowledges. "For
a long time people would come to San Francisco almost as if they
were going to Burgundy to 'stage.' Good, smart, clear-eyed
people would come to work for $8, $9 or $10 an hour, but those
days are gone."
Leondakis of the
Kimpton Group says, "In addition to having to pay people more,
there is a lot of competition among restaurants to offer better
benefits. Signing bonuses used to be the last resort; now
everyone is offering them."
Despite the
challenges, most San Francisco operators remain optimistic.
Chef-restaurateur
Adriano Paganini has opened 14 Pasta Pomodoro restaurants in the
Bay Area since 1994, including nine in San Francisco. He says it
is San Franciscans' love of food that makes it possible to serve
them profitably at his establishments, which seat from 25 to 100
people and generate average tickets of about $13.
"We pay more
there for rent and employees," Paganini says of San Francisco.
"But people in San Francisco go out to eat a lot, so we're able
to manage it through volume."
Restaurateur-consultant Puccini offers a different perspective
on the reasons why some operators thrive in the San Francisco
environment: "This is still a town where restaurants are an
artistic statement, maybe even more so than a business."
SAN FRANCISCO
(2001 estimates,
except as noted; growth rates are est. 2001 vs. est. 1999,
except as noted)
Population: 1.70
million, +1.19% Population growth, est. 1999 vs. 1990: +5.00%
2006 population
forecast: 1.73 million
Disposable
income: $63.80 billion, +10.00%
Household income:
$95,566, +9.31%
Per-capita
Income: $37,619, +9.05%
Eating-and-drinking place sales (1999): $2.75 billion
No. of
foodservlce & drinking places (1997): 4,889
Foodservice &
drinking place payroll (1997): $856.4 million
No. of
foodservice & drinking place employees(1997): 69,690
No. of residents
per foodservice & drinking place (1997): 342
Hourly minimum
wage: $6.25 (to rise to $6.75 on 1/1/02)
Employers'
tip-credit allowance: None
State and local
sales tax: 8.25% in San Francisco County; 8.0%, San Mateo
County; 7.0%, Marin County
Annual economic
impact of travel and tourism (1998): Travel expenditures --
Marin County, $468 million; San Francisco, $6.95 billion; San
Mateo County, $2.2 billion. Jobs/payroll -- Marin, 4,880/$105.6
million; San Francisco, 50,960/$1.07 billion; San Mateo,
34,940/$1 .17 billion.
(Source:
California Division of Tourism)
