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Industry leader: Business reality eats into restaurant profits
By PAT JENKINS
The reason Cocos Bakery Restaurant in Federal Way closed permanently last week wasnt revealed by the owner, but it may have something to do with how hard it is for many restaurants in Washington to make money.
The general public sees busy restaurants and generally believes theyre doing good business, when in fact their profitability is constantly squeezed, said Gene Vosberg, president of Washington Restaurant Association.
In at least one national study of restaurant profits, Washington ranks last among all 50 states in the U.S., according to Vosberg. He said the costs of unemployment benefits, workers compensation and the states minimum wage of $7.35 an hour the highest in the country make it hard for restaurants to survive.
Restaurants are run by entrepreneurs who will always try to make things work despite the high cost of doing business, Vosberg said. The problem is that theyre afraid if they raise the cost of their meals, theyll drive their customers away. Its a tough business.
While not commenting specifically on Cocos because he didnt know any particulars about why their three locations in Washington are closing, Vosberg said struggling restaurants generally try until the last minute to keep going.
With such thin margins, anything that makes them stumble can put them in the fire real fast, he said. Suddenly theyre not making payroll, then they arent making tax payments. Everything starts to snowball.
Tim Pickwell, a senior vice president of Cocos Bakery Restaurant, said the franchisee of the Cocos here and two others in Washington closed them for personal financial reasons.
Although the restaurant industry is growing, its harder to make the bottom line because of thin operating margins, Vosberg said. The amount of business may be good, but operating costs are burdensome and the margins are extremely slim.
The good news for restaurant diners in Federal Way, Vosberg speculated, could be that if Cocos doesnt reopen, the willingness of restauranteurs to face business challenges means another eatery could open in the site real soon. The building sits on a slight rise above Pacific Highway South, highly visible from the heavily traveled road.
During the 2005 session of the Legislature that opened this week, the Washington Restaurant Association, an industry organization, will resume its annual lobbying for a business climate thats more friendly than the current labor-related costs imposed by the state, Vosberg said.