Business

Industry leader: Business reality eats into restaurant profits

By PAT JENKINS

The Mirror

The reason Coco’s Bakery Restaurant in Federal Way closed permanently last week wasn’t 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 they’re 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 state’s 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 they’re afraid if they raise the cost of their meals, they’ll drive their customers away. It’s a tough business.”

While not commenting specifically on Coco’s because he didn’t 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 they’re not making payroll, then they aren’t making tax payments. Everything starts to snowball.”

Tim Pickwell, a senior vice president of Coco’s Bakery Restaurant, said the franchisee of the Coco’s here and two others in Washington closed them for “personal financial reasons.”

Although the restaurant industry “is growing, it’s 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 Coco’s doesn’t 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 that’s more friendly than the current labor-related costs imposed by the state, Vosberg said.

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