Business

These are the top 7 issues facing the struggling restaurant industry in 2025

Published

5 months ago

January 1, 2025

These are the top 7 issues facing the struggling restaurant industry in 2025

Operating a restaurant in Southern California continues to be a difficult endeavor, with many establishments still struggling from pandemic losses.

Food and labor costs increased in 2024, remaining by far the largest expenses of running a restaurant, according to the Independent Restaurant Coalition. And the minimum wage is set to increase again in California starting in the new year — to $16.50 an hour.

Locally, several Los Angeles restaurateurs report that they have yet to recover from entertainment industry strikes last year, which severely affected the service industry. Paired with low patronage and pandemic-era loans and rent payments that came due, several acclaimed restaurants are struggling or have shuttered across the country, particularly in L.A.

Most recently, the well-regarded All Day Baby in Silver Lake closed on Dec. 15. Owner Lien Ta told The Times that the restaurant simply didn’t make enough money on a day-to-day basis to sustain operations.

All Day Baby in March 2020. The Silver Lake restaurant is now shuttered.

(Mariah Tauger / Los Angeles Times)

It’s unclear what 2025 has in store for restaurants, but the needs of restaurants and bars are complex and numerous. Here are the top seven challenges restaurants are likely to face in the coming year.

Labor costs

Labor has long been a top expense for restaurants. In California, a larger percentage of the bottom line is spent on labor compared to other states. This doesn’t just mean the dollars for paying staff but includes other costs, such as payroll tax and workers compensation insurance.

It used to be that a good goal for a restaurant was for labor costs to be about 30% of gross sales. But many restaurants are spending much more. At some establishments, labor can account for 50% to 60% of the bottom line.

Ross Pangilinan, chef-owner of Terrace by Mix Mix restaurant at South Coast Plaza in Costa Mesa, said he spends the most on staff, which can account for up to 34% of his bottom line. The higher the labor, the more payroll tax and workers comp, he noted.

“Labor is going to be the No. 1 challenge” for 2025, said Pangilinan, who operates small, independent restaurants, including Populaire, also in South Coast Plaza.

Larger restaurants regularly poach his staff, he said.

“The restaurants can pay higher wages. They are paying their cooks over $20 an hour and smaller restaurants are trying to compete with that,” Pangilinan said. “We’re a tiny restaurant at Terrace — 70 seats or so. We’re not backed by a big corporation or big investors.”

To stay competitive he’s raised wages for his back-of-house staff, who also benefit from tip sharing, he said. “They deserve as much as the servers do. They are working more hours and they are working as hard and, sometimes harder, than the front of house.”

Food prices

Food prices are up 28% since 2019, according to the Consumer Price Index.

Higher production costs, labor and fuel costs are a few reasons that food is so much more expensive now than before the pandemic. Severe weather and disease have affected several essential crops and livestock. Also, global events such as the war in Ukraine have led to supply chain disruptions.

While the rate of growth has slowed, food costs are expected to still increase in the coming year.

Egg prices already are going up due to the accelerating spread of H5N1, a highly transmissible and fatal strain of avian influenza. The virus is to blame for below-normal levels of egg production that can’t keep up with consumer demand, which leads to higher prices.

Luis Perez, executive chef at Chapter One in Santa Ana, said he’s already paying about $114 for a case of 180 organic eggs. A few months ago, he was paying less than $100.

He’s bracing himself for what the cost will be in the coming weeks. “On any given week, we go through four to five cases of eggs,” Perez said.

In response, he’s had to pivot more often than in the past. For instance, instead of serving airline chicken, he’s dishing up less expensive chicken leg meat since a few months ago. Instead of filet mignon, he’s serving hanger steaks.

He stopped buying mixed greens months ago from local farmers markets because it was just too costly. Perez said he currently charges about $15 for a salad but would need to charge upward of $23 to justify the cost of farmers market greens.

Health insurance

Federal law requires employers with 50 or more full-time or equivalent employees to provide health insurance benefits with minimum essential coverage.

At the same time, the average cost of health insurance has increased for nearly every American. It’s no different for restaurant operators offering plans to employees. The average cost of single coverage health insurance was $8,951 in 2024, up 6% from the previous year, according to the National Restaurant Assn. For smaller outfits, the price was an average of $9,131.

Kerstin Kansteiner, owner of Alder & Sage in Long Beach, has a small staff and isn’t obligated to offer health insurance. Still, she decided to offer coverage to her six full-time employees. Three of them took her up on it. She also provides free dental insurance and a 401(k) plan.

“I promised myself, I can’t have health insurance myself and not offer it to my team,” she said. “We felt like we wanted to do the right thing.”

But that commitment comes at a price. Not long ago, Kansteiner said she got word from her health insurance provider that rates were increasing 17% to 19% in the coming year. She could switch to a lower-tier health insurance plan, but she said she doesn’t think it’s right.

“I ask my team to do the impossible every day,” she said.

She said she doesn’t quite know where she’ll find the money to pay her portion of the increase but doesn’t think she can pass it on to diners. Some already complain about prices on the menu, she said.

“I think we have to have a conversation with the public about what food really costs,” Kansteiner said.

Maricela Moreno, manager at El Tarasco in Marina del Rey

Credit card fees

As use of cash in everyday transactions fades, credit cards have become the de facto way to pay for meals, and that means card transaction fees have become a growing monthly expense for restaurant operators.

The fees are particularly a burden on smaller independent restaurants, which already operate on the slimmest of profit margins.

Delilah Snell, who operates Alta Baja Market, a restaurant and market in Santa Ana, said card swipe fees take at least 3% of her bottom line.

“Three percent means everything over the course of a year,” said Snell, who sells an assortment of products and prepared foods sourced from Mexico, California and the U.S. Southwest. “If a business makes $500,000 a year and it’s a 3% fee just for credit cards? That’s a lot.”

Visa and MasterCard dominate the credit card market, controlling around 80% of transactions in the U.S.

“With little competition in the industry, these companies set the terms, leaving independent businesses with few options to reduce their processing costs,” according to a statement from the Independent Restaurant Coalition. “The lack of competition stifles innovation and prevents smaller restaurants from negotiating better rates or leveraging alternative payment systems.”

Child care

Affordable child care continues to be a major challenge for restaurant workers. Nearly 3.5 million parents work in the restaurant industry and more than 1 million of those are single mothers, 40% of whom live in poverty, according to a 2016 report by the National Women’s Law Center and the Restaurant Opportunities Center.

The rising cost of child care and the lack of flexible options put both parents and businesses under pressure, said the Independent Restaurant Coalition. Dan Jacobs, a “Top Chef” star and chef-owner of Dan Dan restaurant in Milwaukee, said that as his team expands, more of his staff are starting families.

“The rising cost of child care across the country presents a tough dilemma: Parents are forced to choose between remaining in the workforce or staying home with their children,” he said in a statement. “It’s disheartening that in a country as advanced as ours, basic parental leave and childcare support remain out of reach for so many. It’s time for a change.”

Delivery app fees

Meal delivery apps became ubiquitous during the pandemic, and the demand for food delivery continues to expand. The delivery app market — dominated by DoorDash, UberEats and Grubhub — seems to be a blessing and a curse for restaurant operators.

The apps helped restaurants survive during the COVID-19 pandemic, when everyone was hunkered down at home. But that convenience comes at a cost to restaurants.

The commission rates can be as high as 30% per order, according to the Independent Restaurant Coalition.

“For small and mid-sized restaurants, the costs and constraints imposed by third-party apps are unsustainable,” the IRC said. “High commission fees, coupled with marketing expenses, drastically reduce profitability.”

Caroline Styne smiles standing next to a display of canned beverages.

Caroline Styne, a restaurateur who is co-owner and wine director of the Lucques Group of restaurants, said her restaurant relies on third-party delivery apps because she’d rather get a sale than not get one.

“It’s a little like you’re damned if you do and damned if you don’t,” Styne said of delivery apps. “They have us in a stranglehold. And because of that they are able to continue and even increase their price as time goes on.”

Styne said she encourages diners who want food delivery to do so directly on the restaurant’s website, instead of going through a third party; that makes the fees slightly lower for restaurant operators.

Service charges and tipping

Service charges and junk fees came to the forefront this year after California prohibited “junk fees,” hidden online ticket sale fees and fees tacked onto hotels, restaurants, bars and delivery apps.

At the last minute in June, the state Senate passed an emergency bill to exempt restaurants from the service-fee ban.

Regardless of the 11th-hour reversal, the practice of service fees has been called into question and sparked lawsuits against restaurant operators over its use.

At the same time, the practice of adding service charges to restaurant checks has grown in Southern California and across the nation in recent years, giving rise to a debate about how the fees should be treated by customers and workers.

Several restaurant operators and industry advocates favor a service-charge model. Advocates say such a model can provide more equitable compensation to all staff so that pay is not reliant on factors such as customer satisfaction or implicit biases that may affect tipping behavior.

Mary Sue Milliken, chef and co-founder of Mundo Hospitality Group, whose restaurants include Socalo, Border Grill and Alice B, said she hopes the entire restaurant industry will one day turn to a service-charge model and get away from tipping, which she said can lead to “bad behavior” and an inequitable system where front-of-house workers get paid exponentially better than back-of-house employees.

Two women in chef's clothing, in front of a large mural portrait of two people

But, she said, doing away with tipping would have to be done universally. Milliken compared it to how Beverly Hills in 1987 became the first city in California to ban smoking in restaurants — and most public places — while nearby cities continued to allow it.

“Beverly Hills had no smoking and all their restaurants were dead,” she said. “It has to be all in the state of California or the county of L.A. All have to do it to make it fair. There has to be some movement toward a better system.”

Business

CalRecycle drafts revised plastic recycling rules that are more friendly to industry

Published

9 hours ago

May 22, 2025

Press Room

CalRecycle drafts revised plastic recycling rules that are more friendly to industry

State waste officials have taken another stab at rules implementing a landmark plastic waste law, more than two months after Gov. Gavin Newsom torpedoed their initial proposal.

CalRecycle, the state agency that oversees waste management, recently proposed a new set of draft regulations to implement SB 54, the 2022 law designed to reduce California’s single-use plastic waste. The law was designed to shift the financial onus of waste reduction from the state’s people, towns and cities to the companies and corporations that make the polluting products. It was also intended to reduce the amount of single-use plastics that end up in California’s waste stream.

The draft regulations proposed last week largely mirror the ones introduced earlier this year, which set the rules, guidelines and parameters of the program — but with some minor and major tweaks.

The new ones clarify producer obligations and reporting timelines, said organizations representing packaging and plastics companies, such as the Circular Action Alliance and the California Chamber of Commerce.

But they also include a broad set of exemptions for a wide variety of single-use plastics — including any product that the U.S. Food and Drug Administration and the U.S. Department of Agriculture have jurisdiction over, which includes all packaging related to produce, meat, dairy products, dog food, toothpaste, condoms, shampoo and cereal boxes, among other products.

The rules also leave open the possibility of using chemical or alternative recycling as a method for dealing with plastics that can’t be recycled via mechanical means, said people representing environmental, recycling and waste hauling companies and organizations.

California’s attorney general, Rob Bonta, filed a suit against ExxonMobil last year that, in part, accuses the oil giant of deceptive claims regarding chemical recycling, which the company disputes.

Critics say the introduction of these exemptions and the opening for polluting recycling technologies will undermine and kneecap a law that just three years ago Newsom’s office described as “nation-leading” and “the most significant overhaul of the state’s plastic and packaging policy in history.”

The “gaping hole that the new exemptions have blown” into the bill make it unworkable, practically unfundable, and antithetical to its original purpose of reducing plastic waste, said Heidi Sanborn, director of the National Stewardship Action Council.

Last March, after nearly three years of negotiations among various corporate, environmental, waste, recycling and health stakeholders, CalRecycle drafted a set of finalized regulations designed to implement the single-use plastic producer responsibility program under SB 54.

But as the deadline for implementation approached, industries that would be affected by the regulations including plastic producers and packaging companies — represented by the California Chamber of Commerce and the Circular Action Alliance — began lobbying the governor, complaining the regulations were poorly developed and might ultimately increase costs for California taxpayers.

Newsom allowed the regulations to expire and told CalRecycle it needed to start the process over.

Daniel Villaseñor, a spokesman for the governor, said Newsom was concerned about the program’s potential costs for small businesses and families, which a state analysis estimated could run an extra $300 per year per household.

He said the new draft regulations “are a step in the right direction” and they ensure “California’s bold recycling law can achieve its goal of cutting plastic pollution,” said Villaseñor in a statement.

John Myers, a spokesman for the California Chamber of Commerce, whose members include the American Chemistry Council, Western Plastics Assn. and the Flexible Packaging Assn., said the chamber was still reviewing the changes.

CalRecycle is holding a workshop next Tuesday to discuss the draft regulations. Once CalRecycle decides to finalize the regulations, which experts say could happen at any time, it moves into a 45-day official rule-making period during which the regulations are reviewed by the Office of Administrative Law. If it’s considered legally sound and the governor is happy, it becomes official.

The law, which was authored by state Sen. Ben Allen (D-Santa Monica) and signed by Newsom in 2022, requires that by 2032, 100% of single-use packaging and plastic foodware produced or sold in the state must be recyclable or compostable, that 65% of it can be recycled, and that the total volume is reduced by 25%.

The law was written to address the mounting issue of plastic pollution in the environment and the growing number of studies showing the ubiquity of microplastic pollution in the human body — such as in the brain, blood, heart tissue, testicles, lungs and various other organs.

According to one state analysis, 2.9 million tons of single-use plastic and 171.4 billion single-use plastic components were sold, offered for sale or distributed during 2023 in California.

Most of these single-use plastic packaging products cannot be recycled, and as they break down in the environment — never fully decomposing — they contribute to the growing burden of microplastics in the air we breathe, the water we drink, and the soil that nourishes our crops.

The law falls into a category of extended producer responsibility laws that now regulate the handling of paint, carpeting, batteries and textiles in California — requiring producers to see their products throughout their entire life cycle, taking financial responsibility for their products’ end of life.

Theoretically such programs, which have been adopted in other states, including Washington, Oregon and Colorado, spur technological innovation and potentially create circular economies — where products are designed to be reused, recycled or composted.

Sanborn said the new exemptions not only potentially turn the law “into a joke,” but will also dry up the program’s funding and instead put the financial burden on the consumer and the few packaging and single-use plastic manufacturers that aren’t included in the exemptions.

“If you want to bring the cost down, you’ve got to have a fair and level playing field where all the businesses are paying in and running the program. The more exemptions you give, the less funding there is, and the less fair it is,” she said.

In addition, because of the way residential and commercial packaging waste is collected, “it’s all going to get thrown away together, so now you have less funding” to deal with the same amount of waste, but for which only a small number of companies will be accountable for sorting out their material and making sure it gets disposed of properly.

Others were equally miffed, including Allen, the bill’s author, who said in a statement that while there are some improvements in the new regulations, there are “several provisions that appear to conflict with law,” including the widespread exemptions and the allowance of polluting recycling technologies.

“If the purpose of the law is to reduce single-use plastic and plastic pollution,” said Anja Brandon from the Ocean Conservancy, these new regulations aren’t going to do it — they are “inconsistent with the law and fully undermine its purpose and goal.”

Nick Lapis with Californians Against Waste said his organization was “really disappointed to see the administration caving to industry on some core parts of this program,” and also noted his read suggests many of the changes don’t comply with the law.

Next Tuesday, the public will have an opportunity to express concerns at a rulemaking workshop in Sacramento.

However, Sanborn fears there will be little time or appetite from the agency or the governor’s office to make substantial changes to the new regulations.

“They’re basically already cooked,” said Sanborn, noting CalRecycle had already accepted public comments during previous rounds and iterations.

“California should be the leader at holding the bar up in this space,” she said. “I’m afraid this has dropped the bar very low.”

Business

OpenAI teams up with former Apple design chief Jony Ive as AI race heats up

Published

1 day ago

May 21, 2025

Press Room

OpenAI teams up with former Apple design chief Jony Ive as AI race heats up

Jony Ive, a former Apple executive known for designing the iPhone, is joining forces with OpenAI, the San Francisco startup behind popular chatbot ChatGPT.

On Wednesday, OpenAI said it’s buying io, an AI devices startup that Ive founded a year ago, for nearly $6.5 billion in an all-stock deal, the largest acquisition in OpenAI’s history.

“We have the opportunity here to kind of completely reimagine what it means to use a computer,” OpenAI Chief Executive Sam Altman said in a video with Ive about the partnership.

The pair don’t specify what AI devices they’re working on, but Altman called it “the coolest piece of technology that the world will have ever seen.”

The partnership shows how OpenAI is taking on some of the world’s most powerful tech companies including Google, Apple and Meta that are also working on AI-powered devices to shape the future of computing.

Chirag Dekate, a VP analyst at Gartner, said the announcement reflected an “inflection point” in the tech industry, where future products and services will offer users more personalized and proactive assistance.

“This shift suggests a future where technology is less about the tools themselves and more about the intelligently orchestrated experiences they enable,” he said in an email.

Globally, spending on generative AI is expected to total $644 billion in 2025, an increase of 76.4% from 2024, according to a forecast by Gartner, a research and advisory firm based in Connecticut that focuses on technology.

The race to build AI-powered wearable gadgets and roll out more AI tools that can generate video, text and code and help people shop also means that major tech companies are recruiting top-tier talent. Earlier in May, OpenAI hired Fidji Simo, a former top Meta executive and the chief executive of grocery delivery startup Instacart, to lead the startup’s applications team.

Ive, a British American designer, is a well-known figure in the tech industry because he designed some of Apple’s iconic products such as the Macbook, iPhone, iPad and iPod. Joining Apple in the 1990s, Ive became Apple’s chief design officer in 2015.

He left the company in 2019 and started LoveFrom, a creative collective and design firm that worked with brands including OpenAI.

Silicon Valley tech companies have been working on gadgets, including headsets and glasses, for years but they’re still not as ubiquitous as the smartphone.

There have also been major flops such as Humane’s AI pin, a wearable virtual voice-operated assistant that was criticized for various issues such as providing inaccurate information and overheating. In February, San Francisco-based Humane shut down the AI pin after it was acquired by Hewlett-Packard.

But the fumbles haven’t stopped tech companies from barreling forward with building glasses, brain-computer interfaces and humanoid robots as they look to a future beyond the smartphone.

When Google released smart glasses in 2013 that could shoot photos and videos, the company faced concerns about people using the device to surreptitiously record other people or read text while ignoring others.

But the gadget resurfaced years later. This week, Google unveiled a prototype of its AI smart glasses at its annual I/O developer conference in Mountain View, demonstrating how people can use the device to search for information about a painting, travel and other topics without having to type on their smartphone. The search giant is partnering with eyewear brands Warby Parker and Gentle Monster on smart glasses.

Last year, Santa Monica-based Snap unveiled the fifth generation of Spectacles, its augmented reality glasses that overlay digital objects on the physical world. The device, which was only available for developers, allowed people to play with virtual pets, conjure up images with a voice command or swing a virtual golf club.

Meta teamed up with Ray-Ban on smart glasses that include an AI assistant that can answer questions, translate and help take a photo. It’s also working on a more powerful pair of AR glasses that lets people take video calls, get recipe recommendations and multitask in other ways.

And Apple, which unveiled a pricey mixed-reality headset known as the Vision Pro in 2023, is also reportedly working on smart glasses.

In the video with Altman, Ive said the products that people use to connect to technology are decades old, so it’s “just common sense to at least think surely there’s something beyond these legacy products.”

“I have a growing sense that everything I’ve learned over the last 30 years has led me to this place and to this moment,” Ive said in the video.

Business

Darren Aronofsky joins AI Hollywood push with Google deal

Published

2 days ago

May 21, 2025

Press Room

Darren Aronofsky joins AI Hollywood push with Google deal

Director Darren Aronofsky has pushed artistic boundaries with movies including “Requiem for a Dream” and “Mother!”

Now his production company is working with Google to explore the edge of artificial intelligence technology in filmmaking.

Google on Tuesday said it is working with several filmmakers to use new AI tools as part of a larger push to popularize the fast-moving tech. That effort includes a partnership with Aronofsky’s venture, Primordial Soup.

Google’s AI-focused subsidiary DeepMind and Aronofsky’s firm will work with three filmmakers, giving them access to the Mountain View, Calif.-based giant’s text-to-video tool Veo, which they will use to make short films. The first project, “Ancestra,” is directed by Eliza McNitt. Aronofsky is an executive producer on the film. “Ancestra,” which premieres at the Tribeca Festival next month, combines live-action filmmaking with imagery generated with AI, such as cosmic events and microscopic worlds.

“Filmmaking has always been driven by technology,” Aronofsky said in a statement that referenced film tech pioneers the Lumiere brothers and Thomas Edison. “Today is no different. Now is the moment to explore these new tools and shape them for the future of storytelling.”

The push comes as Google and other companies are making deals with Hollywood talent and production companies to use their AI tools. For example, Facebook parent company Meta is partnering with “Titanic” director James Cameron’s venture, Lightstorm Vision, to co-produce content for its virtual reality headset Meta Quest. New York-based AI startup Runway has a deal with “Hunger Games” studio Lionsgate to create a new AI model to help with behind-the-scenes processes such as storyboarding.

Many people in Hollywood have been critical of AI tools, raising concerns about the automation of jobs. Writers worry about AI models being trained on their scripts without their permission or compensation. Tech industry executives have said that they should be able to train AI models with content available online under the “fair use” doctrine, which allows for the limited reproduction of material without permission from the copyright holder.

Proponents of the technology say that it can provide more opportunities for filmmakers to test out ideas and show a variety of visuals at a lower cost.

New York-based Primordial Soup said in a press release that Google’s AI tools helped solve “practical challenges such as filming with infants and visualizing the birth of the universe” in “Ancestra.”

“With ‘Ancestra,’ I was able to visualize the unseen, transforming family archives, emotions, and science into a cinematic experience that feels both intimate and expansive,” McNitt said in a statement.

The two additional filmmakers and films participating in the Google DeepMind-Primordial Soup deal are not yet named.

Google made the announcement as part of its annual I/O developer conference in Mountain View.

During the event’s keynote address on Tuesday, Google shared updates on its AI tools for filmmakers, including Veo 3, which allows creators to type in how they want dialogue to sound and add sound effects. The company also unveiled a new AI filmmaking tool called Flow that helps users create cinematic shots and stitch together scenes into longer films and short stories.

“This opens up a whole new world of possibilities,” said Demis Hassabis, chief executive of Google DeepMind, in a news briefing on Monday. “We’re excited for how our models are helping power new tools for creativity.”

Flow is available through Google’s new $249.99 monthly subscription plan Google AI Ultra, which includes early access to Veo 3, as well as other benefits including YouTube Premium, Google’s AI models Gemini and other tools. Flow is also available with a $19.99-a-month Google AI Pro subscription.

Google is making other investments related to AI. On Tuesday, L.A.-based generative AI studio Promise announced Google AI Futures Fund as one of its new strategic investors. Through the partnership, Promise will integrate some of Google’s AI technologies into its production pipeline and workflow software and collaborate with Google’s AI teams.