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How Silicon Valley Is Killing Mom and Pop Restaurants

Skyrocketing rent prices are having a damning effect

6S Marketing/Flickr

Rising rent costs coupled with labor shortages have led to a concerning dining trend in Silicon Valley: The high-end, $500-a-person, restaurants are thriving, as are the fast-casual chains (Chipotle, Sweetgreen). But the in-betweens — the local, mom-and-pop eateries that once called the area home — are disappearing at an alarming rate.

Part of it has to do with a lack of real estate. As the New York Times explains, “more than 70,000 square feet of Palo Alto retail and restaurant space were lost to office space from 2008 to 2015, as the tech bubble drove demand for commercial space downtown.” The real estate that remains is so pricey, it would be nearly impossible to offset the costs of doing business as a restaurant.

According to the Times, “the cost to lease space in downtown Palo Alto, according to the city’s planning department, is now $7.33 a square foot, up more than 60 percent from four years ago.”

As the Times observes, “Successful restaurants often pay 4 to 6 percent of gross sales in occupancy costs, which include rent and other fees like insurance and property taxes.” Skyrocketing rent in Palo Alto means local restaurateurs are devoting more like 12 percent of their gross sales to occupancy costs, and it’s putting a major squeeze on their businesses; Howard Bulka, a chef and owner of Howie’s Artisan Pizza in Palo Alto, told the Times, “There’s just not enough profitability in this. Period.”

The outlook for local restaurants in Silicon Valley seems bleak: Though San Francisco has become one of the country’s top fine-dining destinations, most of the Bay Area’s top restaurants cater largely to the wealthy. The mid-tier, non-chain restaurants — those where up-and-coming chefs often begin their careers — are effectively dying a slow death.

Beyond real estate woes, there’s a lot of competition when it comes to staff — and not necessarily from neighboring restaurants. Tech titans like Facebook and Google are known to poach the area’s best restaurant talent, offering wages, benefits, and perks that mom-and-pop restaurants simply can’t match.

According to Eater SF, there have been more than 50 restaurant closures in the Bay area this summer alone. Meanwhile, Silicon Valley’s newest pizzeria, Zume Pizza, is staffed by robots, which is certainly one way to circumvent the labor shortage and impending minimum wage hike — but to what end?

How Tech Companies Disrupted Silicon Valley’s Restaurant Scene [NYT]
How Tech Billionaires Are Changing San Francisco’s Restaurant Industry [E]
All Tech Coverage [E]