> [1] I'm suspicious of the majority of cases where this claim is made. A rational business person would see that such a business is already marginal and that they would likely be better off shutting it down and redeploying the capital elsewhere for a better return. This happens all the time. If the owner can't see this, keeping the business on life support isn't doing anyone any favors.
I agree with you, I would never own a restaurant or bar personally. But profits are really ~10% for the average mom n pop restaurant. It's just how it is. So $1mm in annual sales makes you $100k, more or less. People like owning restaurants, despite their best financial interests.
10% is when the restaurant is extremely successful. Average margins are lower than that.
Arguably there are way too many restaurants, in part due to low interest rates. If there were fewer restaurants, the volume would go up and the average restaurant would do a larger gross and be able to handle low or lower margins.
Consider that if someone lived through the last time the US had significant price inflation as an adult, they are 70+ years old. Costs are going up for anything with tight supply, including for labor. Very few working age adults, or business owners, have any experience with that. The transition will be alarming and painful but there is no back peddling now. Businesses with slim margins and an inability to rapidly raise prices just will fail.
> People like owning restaurants, despite their best financial interests.
Which is fine, but then it’s silly to base minimum wage policy on whether or not it will make somebody’s already-irrational hobby business less profitable.
> People like owning restaurants, despite their best financial interests.
And part of the problem is cultural. There is social capital that exists alongside human and financial capital, and because its hard to quantify we end up with this sort of hidden value that isn't accounted for.
I agree with you, I would never own a restaurant or bar personally. But profits are really ~10% for the average mom n pop restaurant. It's just how it is. So $1mm in annual sales makes you $100k, more or less. People like owning restaurants, despite their best financial interests.