As restaurants gear up for Arizona Restaurant Week, they have more on the line than ever. The business of serving food has become a minefield, and many independents are hanging on for dear life.

By all outward appearances, the restaurant business is booming.

Not a month passes in the Valley without a bevy of fresh openings, many backed by big money and bigger fanfare. Those who revel in the local dining scene marvel at where it is compared to five years ago, with choices and quality that abound like never before in the region’s history.

And yet, as more than 120 restaurants put their best foot forward during the spring Arizona Restaurant Week, many do so with more on the line than ever before.

“The traditional restaurant is broken,” says Kevin Binkley, four-time James Beard Award finalist and chef/owner of Binkley’s in Phoenix. “It doesn’t work and we’re trying to rethink it.”

Binkley sings a refrain that’s rapidly becoming a plaintive chorus.

“There’s no question this is the most challenging time I’ve ever seen,” says Bob Lynn, a four-decade veteran of the restaurant industry whose company, LGO Hospitality, operates Arcadia favorites La Grande Orange Pizzeria, Chelsea’s Kitchen, Ingo’s Tasty Food and Buck & Rider.

Though customers are excited by the growth in the Valley’s dining scene, many chefs and restaurateurs paint a picture of a troubled industry, constrained not by the skill and ingenuity of its talent, but by a combination of economic, demographic and cultural factors that have pushed far too many restaurants to — or past — the brink of viability.

“The idea is that if a restaurant is open, they must be doing well and it’s always going to be there and you can just go whenever,” says chef Danielle Morris, whose Chandler restaurant, Earnest (previously Cork), was forced to close last year in the face of anemic crowds. “They just don’t realize.”

Despite appearances, many local restaurants are in crisis, particularly the kind of mid-range independent operations that are crucial to a vibrant dining scene. Ironically, as pride in the Valley’s restaurant scene grows, so does a nagging pessimism about its ability to overcome a confluence of obstacles that threaten to derail the progress of a developing food culture.

Slim margins, growing slimmer

Historically, restaurants have always operated on slim margins. According to the National Restaurant Association, full-service restaurants have a median income before taxes of 6.1 percent — just $6.10 on a $100 check.

That doesn’t leave much wiggle room. Even small fluctuations in costs can send the bottom line careening into the red. But over the past five years, the three biggest expense categories for restaurants — ingredients, labor and rent — have all lurched up, putting many restaurants in a perilous state.

Organic, sustainable and locally sourced ingredients are generally more expensive to produce. But while diners are increasingly demanding these foods, they aren’t always willing to pay the costs associated with them.

“It’s discouraging. We all know what’s right, but everybody is more concerned about the dollar sign as opposed to what they’re putting in their body,” says Binkley, who in the last year has sold or handed off control to all of his restaurants, keeping only fine-dining Binkley’s in midtown and Bink Cafe in Carefree. He also shifted the former to prepaid seats — $160 a person — and a tipless service-charge model to survive.

“My food costs go up, but I can’t raise menu prices. So what does that do? It puts me out of business.”

Increased demand for seafood isn’t helping, either.

“Everyone sees steak as this luxury item. It’s not. Halibut’s a luxury item,” says Josh Hebert, chef/owner of Posh Restaurant in Scottsdale. “I can get a whole prime New York strip for $13 a pound. Halibut is $32 a pound. Scallops are $30 a pound. Ahi tuna is $27.”

But food cost is only one piece of the puzzle, Hebert says. Having spent the past two years scouting locations for his ramen shop, Hot Noodles, Cold Sake,he got a thorough look at how booming commercial property values have put the squeeze on restaurants when it comes to paying the rent, especially in growing dining hubs like downtown Gilbert.

“I’ve heard some stories that the original tenants were somewhere around $13, $14, $15 a square foot,” Hebert says. “Now people are asking upwards of $50 a square foot for those spaces. If I were to go there right now as a restaurant owner, it’s likely that the only person making any money at that space is my landlord.”

Put together, rising food and rent costs are already putting a brutal squeeze on restaurant margins before the elephant in the room — the cost of wages — is even addressed.

Chefs and restaurateurs agree that restaurant staff — particularly back-of-house employees like cooks and dishwashers — are underpaid, often vastly so. At the same time, passage of Proposition 206, which phases in minimum wage increases over four years — including the recent jump to $10 per hour from $8.05 — has been a tough blow for an industry that operates on thin margins and is already struggling with other cost increases.

“(Back of house) is paid so little, I don’t think people even realize,” says Eliot Wexler, who shut down his critically acclaimed Phoenix restaurant, Noca, in 2014 and currently operates Nocawich in Tempe. But Wexler and others say that what the staff deserves doesn’t change the financial reality of trying to run a restaurant with rapidly increasing wages.

Wexler estimates his wage costs at Nocawich have increased by 25 percent since the implementation of Prop. 206 on Jan. 1, enough to put a restaurant operating on single-digit margins in the red. Wexler’s estimate is mirrored by Amber Haddad, vice president of brand development for Fox Restaurant Concepts, the Phoenix-based restaurant group owned by James Beard Award-nominated restaurateur Sam Fox.

“We’re really challenged with this last wage increase,” says Haddad, who estimates the wage costs at the group’s Valley restaurants have risen “20-25 percent” since last year.

Too many kitchens, not enough cooks

But some are quick to point out the increase isn’t purely statutory.

“Minimum wage isn’t even in play (for back of house) because it’s impossible to find even a dishwasher for less than $12 an hour,” Hebert notes. “We’re just talking general supply and demand.”

The employee shortage isn’t unique to Arizona. The National Restaurant Association has called recruiting a “top challenge for restaurant operators” in its 2017 Restaurant Industry Outlook report.

A growing number of restaurants, low unemployment and fewer people entering the restaurant workforce have combined to turn the old adage on its ear: too many kitchens, not enough cooks.

“There’s been mounting pressure with just not being able to find great people,” Haddad says, noting that other trades “will hire the same kind of people we hire for more money.”

Conditions have become bad enough that it’s frustrating for even the most passionate chefs, to say nothing of the rank and file, who are harder and harder to come by.

“There’s less and less people going into restaurants, because why would you?” Binkley says.

“You work your ass off, you make no money, your hours are crazy. I can make way more doing something else and working half as hard. I love the kitchen, but I hate the business.”

While a shortage of restaurant workers is a national trend, many local chefs and restaurateurs suggest the Valley is having a particularly difficult time retaining culinary talent, leading to an industry brain drain.

“I still have a connection in Phoenix. I love the place. I just felt like I didn’t belong there,” says Jeremy Stephens, Hebert’s former sous chef at Posh, now executive sous chef of The Troubadour hotel in New Orleans.

“Part of the frustration was working really hard trying to do something different and new and exciting and adventurous, but no matter how hard you would try, you still know that only 3 percent of the population is going to eat at your restaurant,” Stephens adds. “Phoenix is (far bigger than) New Orleans, but in New Orleans, we’re at full capacity pretty much seven days a week.”

For cooks with a passion for the craft and a desire to do great work, this can be a difficult pill to swallow. The notion that it’s harder to color outside the lines and still fill seats in the Valley is one that’s commonly expressed by current and former Valley chefs like Craig Degel, who cooked at Noca, Earnest and Solo Trattoria but relocated to Chicago.

“Every city has got its adventurous diners,” he says. “But percentage-wise, it’s a smaller amount of people (in Phoenix).”

Other cultural complications factor in as well.

More woes, no-shows

Every city has a dinner rush, but it’s an extreme phenomenon in Phoenix, where most diners will only make reservations in a narrow, 90-minute window. They don’t realize that, in effect, this puts an enormous strain on restaurants, both from an operational and financial standpoint.

“In other cities, people are eating after 8 (p.m.). But in Phoenix, you can’t get anybody to sit before 6:30 and you can’t get anybody to sit after 8. That’s an incredibly difficult thing. You can’t run a restaurant on one turn,” says Degel, explaining that it’s hard to keep a restaurant viable when each seat is only filled once per night.

Arcadia resident Chris Spiekerman, a pediatrician who grew up in the Valley, dines out two to four times per week. And he’s the first to say, “There’s no way we’re eating at 8:30 (p.m.). We’re not on that schedule. Every day we’re getting up with the kids, we’re getting up at 6:30 in the morning. It’s tough to get off that schedule when you’re 40 years of age.”

But at least he shows up.

Many local chefs and restaurateurs say their no-shows have spiked in the past few years, leaving more and more seats empty during the critical dinner rush when a restaurant needs to be earning money off every table to make ends meet.

“It’s inconsiderate, and you can’t make that (money) up,” Wexler says. “Your chicken fried steak just lost its gravy on top.”

While many restaurateurs also mourn the loss of expense account dining that dried up during the recession and never quite returned, that concern pales in comparison to one of the biggest challenges unique to the Valley: its heat.

“What business makes enough money in seven months to support the other five?” Wexler says, referring to Valley’s extreme seasonality. “My business drops 40 percent from March to July. The smart business thing is to close in May and see you back in October. But you would have to find a new staff (every year), which represents all kinds of problems.”

For many restaurants, surviving the summer is a matter of hanging on by their fingernails until winter visitors return. Figuring out how is the trick.

The benefits of being big(ger)

As the affordability and convenience of fast casual command a greater share of the Valley’s dining dollars, it’s traditional mid-range table service restaurants that seem to be taking the biggest hit. But where it used to be local independents and national chains competing for the same slice of the pie, there’s another category of restaurant that carries a growing clout with every passing year.

“I love all of the local chain places,” Morris, the Chandler chef, admits. “Postino has been my favorite for, like, 15 years, since before it was a chain. I ate there twice this weekend.”

Locally based groups like Postino’s parent company, Upward Projects, along with LGO Hospitality, Fox Restaurant Concepts and others have managed to thrive in an increasingly challenging environment, partly by virtue of their size.

“I think the business is changing everywhere, becoming more group-oriented,” Wexler says.

It’s certainly the case in the Valley. In addition to LGO, Fox and Upward Projects, local companies like Riot Hospitality, Square One Concepts, Genuine Concepts and Evening Entertainment Group are building extensive restaurant groups that possess natural advantages that individual restaurants might lack.

Fox Restaurant Concepts, now with 60 restaurants spanning 10 states (roughly half of them in Arizona), has the benefit of numerous locations where they can test ideas before using that data to streamline operations across the organization, as they did to adjust to the minimum-wage increase.

“Do you really need roll-ups on the table, or should we set the setting with an open linen and open silverware just to take 35 seconds out of every time you have to set a table? All those 35 seconds, they add up,” Haddad explains.

Though the Fox group is not immune to the staffing shortages that plague the industry, they’re often in a better position to attract workers.

“We are able to pay sometimes better than what we need to,” Haddad says. “That’s a great luxury. And I think for career-oriented restaurant workers out there, young cooks and servers and hostesses that want to be restaurant managers and chefs, they really see career opportunity.”

Groups like LGO, with restaurants in Arizona and California, can offer geographic flexibility as well.

“Our people are moving back and forth all the time,” Lynn says, “and we see it as a big benefit to make that easy for them to do, because they love it.”

But Haddad and Lynn both stress that maintaining a local identity is critical to their success. It seems to be working.

‘Local loyalty’ to Valley chains

Mesa resident Jana Berrelleza, a graphic designer who now lives in Gilbert, used to eat at national chains all the time. Not so much, anymore. “It just seems like everything has shifted from chain restaurants to more local places, so we try to support more local places.”

Lisa Corprew, a dean at University of Phoenix, dines out frequently with her daughter and extended family. The Phoenix resident echoes a similar sentiment.

“I can’t remember the last time we went to someplace like Outback, and I couldn’t even tell you where a Chili’s is anymore. Those kinds of places seem to be gone, which is fine. I don’t miss them.”

But while diners like Berrelleza, Corprew and Spiekerman tend to consciously avoid large-scale national chains, they’re more forgiving, if not downright warm, when it comes to local groups.

“We like to typically go to places that have more of a vibe to them,” Spiekerman says. “At least with Fox, The Henry, places like that, they don’t look so commercialized even though you know it’s kind of a commercialized deal.”

Corprew remembers when the first Postino opened in Arcadia in 2001. “I still see it as a neighborhood place, even though I can literally drive through my circle of the world and see three of them. I guess it’s sort of local loyalty.”

Asked why they often gravitate toward local groups rather than sometimes less conventional independents, the themes that emerge involve cost and convenience.

“Those premiere dining places, I don’t know who can afford going to them, and I do well,” Spiekerman says. And though he names FnB and Citizen Public House as a couple of favorites, he’s often more likely to eat where he can do so quickly. “If you go to a Fox restaurant, usually you sit down to get your drink, you get your meal, you’re in and you’re out.”

Berrelleza also names FnB,a chef-driven Scottsdale restaurant, as one of her favorites. Despite dining out multiple times per week, she guesses she has only visited three times in the past year, citing a long drive from Gilbert, the difficulty of sneaking away from her small children and higher prices than restaurants like Postino

Indeed, though subject to the same price pressures as independents, some local groups are able to structure their operations with low prices in mind.

“Our restaurants are casual dining. We need the price point to be reasonable, and frequency is really important to us,” Haddad says.

“Too high of a price point doesn’t bring enough guests to want to use us regularly enough. The math just doesn’t pencil out when we don’t get that frequent guest.”

In this manner, some local groups are capturing the reliability and pricing that was once the hallmark of larger chains, while offering diners an attractive local alternative.

But when it comes to pricing, how low is too low? And can local groups maintain quality with multiple outlets?

Many chefs and restaurateurs expressed admiration for the success Fox has achieved, some feel they can’t compete with such a large organization and fear its growth is hurting the diversity of the restaurant scene.

Everyone is doing their best to make good food at a price diners can afford, but it’s a question that some of the larger groups struggle with. Lynn launched his career helping turn Houston’s into a national phenomenon and now owns multiple restaurants in the Valley, but he’s uninterested in duplicating them.

“I think when things are being replicated, the reason that someone’s doing that is for ease of growth. But built into that kind of thinking is what we did at Houston’s, and that was create a recipe book, create a training manual, hand it to a person and basically say, ‘Don’t think, do this.’ That’s just not how I want to spend the rest of my life, you know?”

Helping the best survive

With hard times here and harder times on the horizon, one simple fact is inescapable. Restaurants that are full will survive. Restaurants that aren’t won’t.

“If you like a place, you need to support it, especially in the summertime, because it only survives by you walking in the door,” Wexler says. “Goodwill, thinking how great it is, that doesn’t pay the bills.”

Morris laments that too many customers expected her to be there without supporting the restaurant on a regular basis. “People were coming just twice a year, birthdays and anniversaries, and they were surprised when I closed. I needed more people to eat there Tuesdays, Wednesdays and Thursdays.”

Some suggest that if they want their favorites to survive, diners need to focus less on dining frequently and more on dining well.

“We just need people to try things,” Stephens says. “If you don’t like it, I’m more than willing to give you two more things just for trying it.”

Valley chefs say that even little things can help, like being willing to eat an hour later, or taking a moment to cancel an unwanted reservation in a timely fashion so there’s still time to fill the table.

Those like Lynn who have worked in the industry for a long time know full well that it’s a tough way to make a living, and they expect no quarter.

“The restaurant business is the land of giants, and you’ve got to be resilient and you’ve got to stay on it and you’d better love it and give everything you’ve got to it,” Lynn says, “because it’s always changing and people are emotional about food and connected to it.”

Source: http://www.azcentral.com/story/entertainment/dining/dominic-armato/2017/05/19/why-metro-phoenix-restaurants-are-struggling-survive/318031001/