Santa Monica's Wage Keeping Eateries Out

By DEBORAH BELGUM
Staff Reporter

Bill Allen knows a good restaurant location when he sees one.

As chief executive of Fleming's Prime Steakhouse & Wine Bar, he has been slowly expanding his four-year-old chain nationwide including L.A., where he is aggressively looking for prime spots.

One location off his list: Santa Monica.

"I won't even touch that area right now," he said.

While Allen believes that Santa Monica could a great place for a restaurant, he's worried that a looming living wage referendum, if passed, would cut heavily into his profit margin.

The measure, which would nearly double the minimum wage for beach-area workers to at least $10.50 an hour, will be on the November ballot.

The ordinance would only apply to businesses located near the city's coastal area, between the beach and 4th Street, and in the core downtown business area the most desirable locations for restaurants. It only applies to businesses bringing in revenues of more than $5 million a year.

The likelihood of the ordinance passing is putting a damper on new restaurant growth throughout Santa Monica, as workers vie for employment at the coastal establishments with higher salaries.

Supporters of the living wage ordinance, however, say very few restaurants would be affected by the minimum wage increase because only a handful in the designated zone generate more than $5 million a year.

"The business community is screaming wolf about this ordinance," said Vivian Rothstein, director of SMART, or Santa Monicans Allied for Responsible Tourism, which supports a so-called living wage.

Perhaps, but several restaurateurs looking to open near the beach aren't taking any chances.

Mark Running, a joint venture partner with Roy's Restaurant, a high-end chain started by Roy Yamaguchi in Honolulu, has been scouring the West Coast for good locations. He and his partners had their eye on several prime spots close to the Third Street Promenade. But a possible minimum wage of at least $10.50 an hour, plus benefits, ($12.25 without) has halted the restaurant's Santa Monica expansion plans.

"We'd love to locate there," Running said. "But that ordinance is literally holding us back. We have looked in the zone that will be under the living wage ordinance. It is obviously the best area to be located. But right now it is a deterrent that will keep us from going there until it is resolved."

Chains bypass city

Executives at Darden Restaurants Inc., which operates hundreds of high-volume Olive Garden and Red Lobster eateries, are taking a wait-and-see attitude about expanding to Santa Monica's coastal zone.

The living wage ordinance was passed by the Santa Monica City Council in May 2001 on a 5-1 vote. It was to have gone into effect this summer, but a business group called Fighting Against Irresponsible Regulation, made up of hotel owners and business owners, collected 7,145 signatures enough to place the measure on the November ballot.

"The law could have been in place and working now," said Santa Monica Mayor Michael Feinstein. "But it is this uncertainty created by the referendum campaign paid for by the big hotels and the Santa Monica Chamber of Commerce that has led to this."

While most restaurants don't gross more than $1 million a year, their owners are worried the ordinance will have a ripple effect on their businesses.

One of those is Jack Srebnik, who notes with pride that 90 percent of his employees at his 17th Street Caf & #233; on Montana Avenue out of the projected zone have been with him for nearly a decade. Srebnik pays most of his employees salaries that are above the current $6.75 minimum wage, but he can't match the living wage.

"If I have a good employee and he or she can go down to the coastal zone and earn more money, I'll have to pay the piper to keep that employee. It's the domino effect," said Srebnik, noting that labor costs now make up 30 percent of his costs in the labor-intensive restaurant business.

Successful in other cities

Since the first living wage ordinance was instituted in Baltimore eight years ago, the movement has spread to more than 80 cities and counties nationwide.

David Neumark, an economics professor at Michigan State University, studied 36 cities with living-wage laws and found the slight job losses caused by the higher wages were more than offset by the drop in poverty levels.

"From a study done by the city of Santa Monica, it has been shown that a business of that size ($5 million) can absorb that increase (in wages) and make a profit," Rothstein said.

But Marvin Zeidler, co-owner of the Broadway Deli, which has been on the Third Street Promenade since 1990 and grosses about $7 million a year, doesn't buy it.

Most restaurants, he claimed, operate on a slim 5 percent profit margin. He estimates that an increase in the minimum wage would cost his 10,000-square-foot deli about $1 million a year. "If we took $1 million off our profit we would be in the red, red, red," he exclaimed.

Moving beyond the coastal zone isn't a practical option, Zeidler said, because start-up costs to a launch a new location are expensive. Hook-ups to the city sewer system alone cost $20,000 to $30,000. "I don't think moving is very logical," he said. "And who is to say they wouldn't extend the living wage to Lincoln Boulevard or 14th Street?"

As it is, restaurants on or near Third Street Promenade have be hurt by a drop in international tourists after the Sept. 11 terrorist attacks. Also rents have skyrocketed.

That's why Teasers, a sports bar that had been on the Promenade for 17 years, closed its doors last year.

Owner Tony Palermo said the landlord wanted to triple his rent to $9 a square foot from $3. "The Promenade is so hard for most guys now," said Palermo, who also owns Tony P's Dockside Grill in Marina del Rey. "There are more bums down there, and fewer tourists after Sept. 11. Some guys saw their business down 40 percent for a while. You just don't catch up with that for months to come."

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