Why Chefs Are Turning to Other Revenue Streams Than Restaurants

As if the average 5-6 % profit margin wasn’t tough enough for restaurant operators, the minimum wage increase to $15 means restaurants will be even less profitable.

Cover of one of Tom Douglas' cookbooks|  Amazon.com

Cover of one of Tom Douglas' cookbooks| Amazon.com

Many operators have argued that an increase like this would not only be detrimental to their business, but the employees would ultimately suffer with weekly hour cuts and even may lose their job entirely.

“The cost of doing business is just crazy,” said Hugh Acheson, Top Chef judge and chef, while on a panel at the recent Food & Wine Classic event.

With that in mind, even super star chefs are struggling with these thin margins.

Acheson’s fellow panelist Tom Douglas, a restaurant mogul in Seattle with 18 restaurants decided to drop tipping at all of his restaurants. Instead, there is a 20% service fee which helps to cover FOH and BOH costs. With the $15 minimum wage, it will cost Douglas $5 million more just this year for his 850 employees.

“If we only had restaurants we would be out of business,” said Douglas on the panel. “The restaurants would not be able to sustain this hit.”

Where the Real Profit is

So that’s why these chefs who have been able to develop themselves as their own brand, are exploring other revenue streams like e-commerce and cook books.

Douglas has gone this route with cookbooks and a line of sauces and rubs.

But the increased labor costs aren’t the only thing contributing to the slim margins, rents in the best culinary cities in the world are extremely high.

“It’s so tough to live in Boston right now with rents and developers,” said Barbara Lynch, James Beard winner and operator of eight Boston restaurants on the panel. “Believe me, I want to make money, but I don’t want to do another brick and mortar. You have to keep going and reinventing.”

Evidently, even the most successful operators are taking a major hit from the minimum wage spike. So what does this mean for the little guys? Could the impact be so great that we see even more restaurants being forced to close up shop? Read more