Sharp rent increases and rising costs for a diminishing pool of labor have restaurateurs along Pearl Street scrambling to evolve and remain profitable.The news that The Cheesecake Factory will be leaving its Pearl Street location at the end of the year, after nearly 20 years in operation, is the latest sign of the coming change.
While Sean Maher, Downtown Boulder Partnership CEO, said he believes The Cheesecake Factory’s decision to leave was more of a result of the Pearl Street location no longer fitting its businesses model of operating large restaurants in suburban locations, the rising costs of rent and labor, as well as an ever-increasing base of competition, certainly contributed.
Carolyn Livingston, communication director for the Colorado Restaurant Association, said restaurants often operate on razor-thin margins of 3 to 6 percent. Any sort of increase in operating costs can necessitate a restaurant to reevaluate its business model and in the current environment “many of our members are telling us they’ve never seen it so difficult to run a restaurant,” she said.
With rent increases on Pearl Street as high as 30 percent there is a growing belief among industry experts that the restaurants along Boulder’s iconic pedestrian walkway might soon begin to change their approach.
Eric Skokan, owner of the Black Cat Farm Table Bistro, said he’s seen both his rent and labor costs increase by 30 percent over the last year and he expects the costs to keep rising as the new minimum wage law is phased in.
To offset those costs, he said all restaurant operators are increasing their prices, but it is a tricky balance to ensure they don’t price out their customers. Instead of trying to walk that line, he believes more restaurateurs will alter their models to require fewer servers and sell more affordable products, similar to Ruthie’s Boardwalk Social, the grilled cheese shop that opened this month at 1397 Pearl St.
“By 2020 the minimum wage will be $12 for standard employees and $9 for tipped employees,” said Peter Waters, an owner of Ruthie’s and T/aco. “It’s not that I mind paying the $9 an hour, I just don’t need it to go to the servers. I’d love to pay my kitchen staff $22 an hour, but the government’s telling me I need to throw $9 an hour at somebody already making $25 an hour in tips.”
In reaction, Waters cut out the front of house staff at Ruthie’s, and simplified the kitchen so an inexperienced chef can operate it and crank out inexpensive food.
“We took a lot of front of house people and trained them to work in the kitchen for a slightly lesser wage than they could make in one of the top restaurants in town, but definitely above the median of what people are walking out of a restaurant in Boulder with,” he said. “The goal is to be able to go to an employee who’s making $13, $14, $15 an hour and say, ‘Hey we’ve got a very simple kitchen, we’re averaging roughly $20 bucks an hour and we think we can give you a very substantial pay increase that will allow you to live in Boulder.'”
While it is easier to imagine this type of business model working in a grilled cheese shop, Maher noted this trend can be seen in some of the higher-end restaurants in Seattle, which enacted a $15 minimum wage in 2014 . Restaurants there, he said, are converting to buffet-style service.
“That whole fast-casual eatery is probably going to become more prevalent just because it’s so hard to find employees these days,” he said. “I’m not happy to see The Cheesecake Factory go, but I’m confident it will be replaced with something a little more in sync with the Boulder market.”