Some of the costs involved in keeping a restaurant open are obvious — ingredients and labor are a given — but then there are the ones the customer doesn’t see... like the bill for repairing the HVAC system (which always breaks down), payroll taxes to the feds, payroll taxes to the state, insurance, workers comp insurance, fees for processing credit cards, fees for reservation systems like OpenTable and Resy, fees for delivery apps like DoorDash. What customers don't see is that behind the kitchen doors, most restaurants are hemorrhaging money.
In an op-ed for the Los Angeles Times, Heather Sperling, who co-owns Botanica with Emily Pfeiffer, outlined where every cent of every dollar goes at her Silver Lake restaurant.
Evan Kleiman: I'm grateful that you are coming to this with such an openness. Thank you.
Heather Sperling: I'll admit it felt a little scary but it also felt important and timely.
Evan Kleiman: What is the feedback that you got from customers about being so open?
I've gotten a bunch of feedback that ranges from "we had no idea" to "this really changes the way I think about restaurants in a positive way" to, not not from customers but from other restaurateurs, "this exactly encapsulates our attitude and our experience, thank you for putting it to words and getting it out there."
Oh, yeah. I'm sure.
This is restaurateurs in California, in Seattle, in the Hudson Valley. I've been hearing from people all over. Granted, Botanica's experience is not the exact experience of every restaurant but, as you mentioned, there are certain basic realities to how restaurants operate that the public is simply not thinking about when they evaluate how much a meal is worth to them.
Yeah, let's get into it. You write, "Of every $1 spent by a customer at Botanica in 2023, $1.05 went back out the door." Let's just go through the line items, starting with the biggest one of all, payroll. What percentage of your costs go to labor?
53.2% is our labor cost and that includes all of our benefits, all of our workers comp insurance. That's basically all of the dollars that go to paying the team that keeps Botanica open and running day-to-day, and also the taxes and fees and insurance we pay on that labor.
Heather Sperling, co-owner of Botanica in Silver Lake, calculated that of every $1 spent by a customer in 2023, $1.05 went back out the door. Photo by Carter Hiyama.
I think a lot of people don't realize that in the restaurant business, some of your costs are based on your payroll numbers, things like workers comp, for example, and of course, your payroll taxes.
Exactly. The higher your payroll is, the more people you employ, the more you will pay for your workers comp insurance. Your payroll taxes also grow in a way that correlates with the quantity of your payroll. That's something that also means as minimum wage has increased and in California, all of the restaurant staff in California are paid, at the very least, minimum wage because we don't have a tip credit or a tipped minimum wage, like some other states, where a server can be paid below minimum wage because they'll be receiving compensation in the form of tips.
In California, the entirety of a restaurant staff is paid, at the very least, minimum wage. As that has increased, since we opened Botanica in 2017, our payroll taxes have also increased dramatically. All of our back of house is paid well above minimum wage. Our front of house is paid minimum wage plus tips, except for some of our more senior front of house team who are paid above minimum wage also. It just means that for every dollar that goes out the door, we pay taxes on that, on what we pay to our team in labor, and also it impacts things like our insurance.
After labor comes products. What percentage are you spending on product, which isn't only food? And how much has that percentage changed since the pandemic?
Overall, on products, it's 26.2% but that includes everything — all of the produce we're buying from farmers, all of the natural wine we're buying from winemakers, coffee, tea, spirits, all of the goods that we're buying for our market, which we have at the front of Botanica, that sells primarily products from California-based, women-owned businesses. All of those things together, it's a little over 26% or 26 cents on every dollar that goes back out into the hands of makers, producers, farmers, who themselves, are really meaningful employers within our local economy and beyond.
Making the decision of who to buy those products from is a really key decision.
Yes. For us, it's the most essential and elemental part of what we do, and a huge motivator and why we do what we do. Supporting other people who are doing really meaningful work, especially farmers who I view as the stewards of our land as well as the winemakers who are farming and vinifying in an ecologically responsible way, the small product makers who are making these beautiful goods that we love to have in our pantry and we love to snack on. A huge reason why we do what we do is to support other people who are doing work that we think is thoughtful and ethical and exciting and important.
After product comes occupancy and administrative costs, which include all of the unsexy things you wish you didn't have to spend money on.
Exactly. Occupancy, of course, is rent. I will say that we have a very kind landlord who is a local resident. It's a family-run, small real estate company. It is a side project. I am very happy to support him with our occupancy costs. The other unsexy things are trash and utilities, credit card processing. I'd say that's the number one thing that I wish we didn't have to spend so much on. That's nearly $100,000 annually.
It always used to blow my mind when I was looking at that number because I'm like, this is a couple salaries. This is a couple more people I could support in my business. Explain what that is, because I think a lot of times people pull out their credit card — and now there are some businesses that won't accept cash — so describe how that works.
Credit card processors, the systems that collect payment in businesses, charge those businesses a fee for processing the credit card payment. For us, it's our point of sale system, Toast, that charges us fees. There are different fees. There's one fee for Visa and MasterCard, there's a higher fee for Amex. For every transaction that a customer pays with a credit card, we are charged between 2.5% and 3.5% of that transaction costs simply for the use of the credit card. So annually, in 2023 which is where the data for this article came from, we spent 3.1% of our revenue, or 3.1 cents on a dollar, on simply accepting credit cards. In the dollar value, that meant that last year, we spent $98,700 simply to accept credit cards.
And that whole category use was 13.8%
Yes, that's that whole long list of the cost of doing business, both physically and administratively.
Botanica is a popular restaurant. It's got a high visibility location in a neighborhood where many people have expendable income. Were you able to close 2023 with the profit?
We closed with a miniscule profit, 1.19%, but that was actually not due to income from restaurant operations. That was due to what I like to call money that fell from the sky. By that, I mean money that you can't really count on. For us, that was some location fees for when the restaurant was used for photo shoots, commercial shoots. There were a few other little things like that that are not part of regular restaurant operations. That is not dependable income. That enabled us to end the year with a small profit.
Sitting along a heavily trafficked stretch of Silver Lake Boulevard, Botanica only managed to make 1.19% profit in 2023. Photo by Summer Staeb.
I know that you're on the floor of Botanica all the time. Have you noticed a shift in the mood or the attitude of diners? Has the vibe changed?
The really interesting thing that we've seen since Covid is that our audience has changed. A lot of our regulars and people who we had really gotten used to seeing weekly before Covid seemed to disappear. I think it speaks to a couple things. I think it speaks to a bit of a migration that happened during the pandemic. I think it speaks to a lot of people using Covid as an opportunity to finally figure out how to cook and host and entertain and dine at home. I also think it speaks to some of our audience growing up, having kids. In many ways, I'm almost my own worst data point. I love to cook at home. I have two young children. I only eat at restaurants five, six times a month, at most, if I'm not traveling. So we have definitely seen things change.
It feels like sometimes our audience is a little more local tourists and less regulars. It took us a really long time post-Covid to hire enough staff to reopen for weekday breakfast and lunch. Once we reopened Wednesday, Thursday, Friday daytime, that's when we started to see more of our regulars coming in. But the dinner audience has definitely changed. The tourist traffic feels like it's back a little bit.
The thing that has hit us really hard in the last year, and I think industries across the city are still feeling the ripple effect of this, is the entertainment industry strike. That was quite a blow to restaurants among other LA businesses. Anecdotally, I can say a lot of our customers, who are people who work in the entertainment industry in some capacity, are still saying that things are not back in full swing for them. That, of course, impacts their ability to come and spend and dine.
You opened Botanica in 2017. How have your costs and your profits changed over those seven years?
When we opened in 2017 through the pandemic, so through the first quarter of 2020, the business worked. We managed to eke out a between 2% and 4% profit while staffing in a way that felt sustainable, while being able to support our staff. Coming out of the pandemic, it simply hasn't worked. The numbers haven't added up the way that they just organically did pre-pandemic. Our labor costs have increased nearly 40% and that's just due to the rise in minimum wage in Los Angeles, as well as an increase in market rate compensation for various roles. Our costs of goods have also increased in a less dramatic way, because, frankly, we were always buying the most expensive produce, the most expensive wine, the most expensive craft spirits.
We haven't seen our costs increase as dramatically because we were always spending basically the most that you can possibly spend on your products. It's really the cost of labor, and then the cost of a lot of services like repair work, like our dishwasher rental, the cost of our ice machine repair, the cost of our linen rental. Those are the costs that have increased because labor for all of those businesses is so much higher.
Now, post-Covid, the numbers don't organically add up the way they used to, and it really does make me concerned for the future of our industry, not just for the businesses that are struggling now, but for a generation from now. I really wonder if people with a lot of heart but not a lot of resources are going to be able to live out their dream of opening a restaurant.
I think that if we polled our listeners, an overwhelming majority would say that neighborhood restaurants that support farmers, pay a living wage, and serve delicious food are important to them, and yet, as you have profiled, the restaurants who do this in practice, all seem to be struggling. What do you want diners listening to know about what's at stake and how this moment feels different?
What I hope people know, and what I hope people take away from the article, is that spending at a restaurant like Botanica is not actually frivolous spending. It's not just about eating something that tastes good. It's not about splurging on a cacao date mocha. It actually is truly an investment in a really meaningful community and economy, and it also is a way to reference Michael Pollan's now 20+ year-old phrasing, "Vote with your fork."
I understand. Everyone is feeling the ramifications of Covid, the ramifications of the [entertainment] industry strikes all different things. I don't feel like we live in an especially flush and easy time in LA. I also would argue that for people who care about restaurants, care about regenerative agriculture, care about small businesses and small makers, spending money at a thoughtful neighborhood restaurant like Botanica is actually a really amazing way to invest in the things that matter to them.