The Big Short Order

For the last decade, the names of Austin restaurants and chefs have peppered the awards lists of national food magazines and organizations. From the headlines, it appears that the local restaurant scene is smoking hot, but a deeper read tells a different story. The average diner might not be aware, but some of those in the industry see a bubble bursting.

The new year kicked off with the stunning news that not one, but two of Austin’s fine-dining establishments had closed. Being named one of Bon Appétit’s best new restaurants in 2011 didn’t save Congress from shutting its doors to become part of Second Bar + Kitchen, its more casual and popular sister restaurant next door. And having one of the most sought-after wine lists in the Southwest couldn’t keep French restaurant LaV afloat.

Fine dining isn’t the only victim, though. The extensive list of recent closings shows that restaurants in all price ranges and with all types of cuisine have shuttered almost as fast as they’ve opened, with an average of four closures to every five-and-a-half openings per month in 2016, judging by announcements of closures and openings on local media hubs. Even regional and national chains have fallen victim. When Cantina Laredo—one of the original anchor tenants of the 2nd Street District, and part of a successful regional chain—announced its closure, a wave of surprise rippled across the restaurant community, leaving many to wonder if Austin had suddenly hit some kind of peak restaurant saturation.

IT’S COMPLICATED

“It’s complicated,” says Chef Jesse Griffiths of Dai Due, whose business recently celebrated its 10-year anniversary and is edging up on the third year at its brick-and-mortar restaurant. “When I first moved to town, Jeffrey’s was the big restaurant, then Emilia’s opened with Will Packwood serving some of the best food Austin had seen,” Griffiths says. “The restaurant scene exploded in the last five years with restaurants coming from other parts of the country. Rising waters raise all ships, but what happens when the waters go back down?”

This summer, the tide ebbed. Chad Dolezal, chef and co-owner of The Hightower, an almost 3-year-old neighborhood restaurant in East Austin, realized that the normal summer slump started early this year. “Summer is always slow,” says Dolezal. “But this year, we were doing our summer numbers in April, and summer was the worst in the last three years. We’ve been open long enough to learn that we need to store some acorns for winter, but others won’t make it through this.”

In a rapidly growing city that’s as populated, food-centric and monied (if disproportionately) as Austin, what could be causing this downward trend? Zack Northcutt, former executive chef of Swift’s Attic, blames the slowdown on the overcrowded market. “A restaurant requires, on average, about a million dollars a year to make it,” says Northcutt. “Can we support another thirty million a year if thirty new places open?” Andrew Curren, executive chef of ELM Restaurant Group, agrees—diners have so many choices that it’s difficult to build a regular customer base. “This industry is built on repeat customers,” says Curren. “The people who love your restaurant…instead of seeing them twice a month, you now see them twice each year.” In addition to the crowded market, many Austin restaurants face increased rent renewals or sky-high rents from the get-go. “Austin is experiencing unusual demand for commercial realty and that’s reflected in the price almost everywhere in the city,” says Texas Restaurant Association CEO Richie Jackson. “It’s easy to see in downtown because of the congestion and the cranes, but it’s true in other parts of the city, as well.”

“Some restaurants think they will get bigger sales and ticket numbers by being closer to town in a hot spot, but that’s a gamble,” says Northcutt. “One of the crazier rent proposals I saw downtown would have needed to average $125 dollars per person to cover rent, not to mention all the other bills.”

Barley Swine uprooted from its original South Lamar location to Burnet Road because of unreasonable rent, and Prelog’s, a European restaurant located downtown, recently closed citing rent renewal at a much higher rate as the cause. While the owners of Prelog’s have pledged to find a new location, other restaurants, such as Tex-Mex icon El Azteca, couldn’t withstand the real estate pressure and is closing permanently. “Those who have now come to term in their contracts are renewing in a much more robust rental market in Austin, and are trying to figure out how to make it work and maintain profitability,” says Jackson.

THE LABOR FACTOR

Another factor at play is how all of this growth has affected the industry’s labor force. “Where do the cooks live who make eleven to twelve dollars an hour?” asks Griffiths. “[Workers] have to move further and further out.” The high cost of living near the city pushes restaurant workers out into the suburbs, causing many to manage a challenging, expensive or nonexistent way to commute—particularly if they’re forced to depend on Austin’s notoriously limited and inadequate public transportation services. Most buses and trains don’t run late at night when kitchens close and staff are trying to get home.

A dearth in back-of-the-house staffing is adversely affecting the industry’s stability, as well. “It’s so expensive to live here now that we have people interview who have been cooking for three months and want seventeen dollars per hour,” says Dolezal. “I have to tell them ‘no’ because then they would make more than anyone here.” And the value of a culinary degree doesn’t seem to help. “It’s so expensive to go to culinary school,” says Curren. “People graduate with a degree but no experience, so they start at the bottom and they’re saddled with debt. And when they do have the experience, the dilemma is that you don’t need more kitchen managers, you need more line cooks, but they don’t want to work for that pay.” Some culinary grads even end up taking front-of-the-house positions because there’s often more money to be made—there are, literally, not enough cooks in the kitchen. “Staffing is an issue all over the state,” says Jackson. “The unemployment rate is low and the staffing costs have gone up. As the costs go up, the expectation is higher for the quality of the staff. In a tight market, that’s a challenge.”

Recent changes in immigration rates from Mexico have also taken a toll on staffing. Mexican immigrants have traditionally played a huge and important role in Texas’ restaurant workforce—comprising 11 percent of all restaurant workers nationwide, according to the Bureau of Labor Statistics. But beginning in 2012, immigration rates began to steadily decline, with more Mexicans now leaving the U.S. than moving here.

To help steady the shifting sands, some restaurants have begun to offer bonuses and expanded benefits to attract talent. “In Austin, you can pretty much work at any restaurant you want if you walk in with some talent, clean clothes and a good handshake,” says Curren. “We offer incentives to employees who get their friends to work for us, and we’re still understaffed.” Nicholas Yanes, executive chef and partner of Juniper, decided he had to offer a higher quality of life to minimize turnover for his new restaurant. “From the beginning, we’ve provided benefits, family meals for the entire front and back of the house each day, and we close two nights each week to give people time off,” says Yanes. “It costs me more money in the long run if my employees don’t have the right benefits.”

But even if restaurants are able to tackle the current staffing challenges, an upcoming change to the national overtime rules will put additional pressure on salary costs and scheduling. Previously, managers and assistant managers of all types—kitchen, floor, bar, etc.—were considered exempt employees who were not paid overtime. For example, an executive chef could ask a sous chef or chef de cuisine to put in a few extra hours without it impacting the budget. But the new ruling requires that any manager or assistant manager who makes less than $47,476 (just over $22 per hour) be paid overtime. Not only does the change put a tight squeeze on already slim margins, but could result in senior managers picking up the slack—regularly working 60 to 70 hours a week to make up the difference. “I broke down my pay and, for the hours I work, I’m making $3.50 to $4.50 an hour,” says Dolezal. “It’s the way this industry works.”

WHAT’S NEXT

So has the restaurant bubble in Austin completely burst? And what does the future hold? Despite myriad challenges, many remain optimistic about the future. “Austin’s a good market,” says Jackson. “But given the costs of opening a restaurant today, and the challenges with labor, you have to be spot-on in your delivery. There isn’t much room for mistakes.”

This appears to be true, and with a possible hike in the minimum wage on the horizon, no forecasted relief from rising rents and another three dozen restaurants rumored to open before the end of 2016, more closures are inevitable. “Austin’s not this city of gold,” says Griffiths. “We can only support so much.”

By Kristi Willis • Photography by Marshall Wright