Spot Burgers proprietor Josh Kim is an outspoken critic of many Philadelphia policies. Between tempting food pics and burger-adjacent jokes, the 5,000-strong Twitter following he built for his food cart-turned-Brewerytown BYOB is often treated to his thoughts on how hard it is to operate a restaurant here. He’s railed against the soda tax as “funding the city’s corruption,” put up a drumbeat of complaints about potholes on neglected city streets, derided the way the PPA operates in “secrecy,” and agitated for better and clearer mobile vending regulations.
But for all that, Kim is still glad to be in Philly. The thought of jumping ship for the suburbs never crossed his mind.
“The dining culture in the city is very different from the ‘burbs,” Kim observed. “Suburbanites tend to flock to cookie cutter establishments. City folk look for gems, something edgy.” Yes, he said, doing business in the city comes with way more regulation and taxes. “However, these are trifles when you weigh [them] against the potential business and recognition on the culinary scene.”
As an unprecedented number of restaurants continue to flood Philly, proprietors are being forced to consider whether fighting for their ever-shrinking piece of the pie is worth the hassle.
At least one restaurateur recently decided it was not.
Last week, when Dave Magrogan confirmed to Philly.com that the University City outpost of his healthy plates wine bar Harvest Seasonal Grill was closed for good, he added a rant about leaving the city entirely.
“I think I have matured past trying to push uphill against excessive taxes, regulations, and higher cost of construction. Less expensive to build, operate and grow business in the suburbs,” he told Michael Klein.
The story, “Restaurateur Magrogan says he has soured on Philadelphia,” sparked intense discussion, garnering more than 700 comments and 2,300 Facebook interactions. Haters came out to hate on all sides, whether it was to bash Magrogan’s various brands — Harvest, Kildare’s, Doc Magrogan’s Oyster House, Red Star Craft House — as serving “assembly line food” or to join in and snipe about Philadelphia’s biz environment.
Magrogan’s diatribe even garnered a response from the city’s Commerce Department.
In reply to an email from Billy Penn, spokesperson Lauren Cox said that while the city “appreciate[d] the concerns outlined by Mr. Magrogan, in general Philadelphia’s food industry continues to thrive.” Cox cited the two most recent State of Center City reports to back up her claim; there were 50 more food establishments listed this year than in the 2016 summary, which already counted 956 in the district.
Spot Burgers’ Kim sees Magrogan’s broadside against the city as a “convenient way to take your ball and run,” noting that “many chefs and entrepreneurs are finding Philly an ideal market.”
Michael Schulson is one of them. “I love the energy in the city,” said the chef-restaurateur, whose venues include Harp & Crown, Double Knot, Sampan and Independence Beer Garden. “It’s my brand.” He noted that not only is the city’s downtown population growing, his customer base also includes people from elsewhere — conventioneers and tourists but also lots of day-trippers from South Jersey or the Main Line. “That’s what Philly is about. It’s a melting pot of the areas around us.”
When Schulson did try a restaurant in the suburbs — he was one of the opening partners at now-shuttered Saint James in Ardmore — he found it “a very different beast.” Instead of a steady flow of business from happy hour through late night, suburban dining happens all at once, in a crush. “You’re only busy from 7 to 8 but you still need a full staff,” he explained, noting that just finding qualified employees outside the city is tough. “It’s a very different sales model.”
However, Schulson does see Philly restaurants’ heavy tax load as troublesome.
“They did the soda tax, the liquor tax, the hotel tax… The city definitely needs the funding, but we need to stop thinking the solution is taxing us,” he said. “Restaurants operate on such a low profit margin. Ten percent is average.”
Schulson is optimistic that there is a different solution out there. “I’m confident that the mayor and City Council — you have business people there now, Allan Domb — these guys, they’re smart enough to figure something else out.”
Indeed, per the Commerce Department’s Cox, the city has been working on ways to reduce the small business tax burden.
“Mayor Kenney has committed to lowering both the Wage and Business Income Receipts Taxes in his first two budgets,” Cox said, adding that Council also recently exempted the first $100,000 in gross receipts and a proportionate share of net income from the BIRT. Looking forward, she said, a special committee recently created by Council President Darrell Clarke is about to dive in to review the entire Philadelphia Code in order to identify outdated and confusing regulations — and there’s a subcommittee specifically dedicated to the food/hospitality sector.
The committee might want to reach out to Doug Hager. Proprietor of Brauhaus Schmitz, Whetstone Tavern, SkyGarten and Wursthaus Schmitz, Hager said he’s “probably one of the few who have read the entire 150-page health code for the city,” which was last updated in 2008.
“I’ve had health inspections where I’ve gotten in trouble for one thing,” he said, “but then after we changed it, a different inspector came in and we got in trouble for changing it.”
Hager also noted that in the eight years he’s operated a beer hall on South Street, costs have doubled or more across the board. “Liquor license is up 300 percent, the labor pool is tighter and that drives up kitchen costs, commercial real estate taxes are going up, construction costs are through the roof, and then you have the whole union issue to deal with.”
Though he loves the density and ever-changing customer base being in the city provides, he admitted opening in the suburbs has tempted him — especially because he and his family now live in Haddonfield (thanks, Philly school system).
Not the case for Jason Evenchik, who operates more than half a dozen city bars and restaurants under the Vintage Syndicate moniker.
“Been doing it for years,” he said, “and it doesn’t seem that difficult once you get your head around it.” Sure, there are a lot of options to eat and drink really well in Philly, “so you’ve got to stay on your A game. But taxes and all that sounds a bit like bullshit and a scapegoat.”
There’s one Philly restaurateur fully in agreement with Magrogan’s point of view — but he’s never going to take his business outside the city, for philosophical reasons.
“My company is rooted in mission-based development,” said John Longacre of LPMG Companies, a revitalization-driven development firm that also runs South Philadelphia Taproom, American Sardine Bar and Second District Brewing. “So we’ll do a restaurant out of necessity because we feel it will help the area. But if a standard restaurant guy wanted to open in this business environment…”
Longacre, a longtime supporter of Mayor Kenney, is hopeful things change. “I hope Jim fixes everything, I really do,” he said. But as of now, he believes the climate in Philadelphia is “extraordinarily hostile” towards restaurateurs. “The city could be a lot more successful and have a lot more going on if they had a friendly environment.”
Michael Pasquarello, co-owner with his wife Jenniphur of 13th Street Kitchens (Kensington Quarters, Cafe Lift, Bufad, Prohibition Taproom), is annoyed by the many tax drains on his business, but thinks there have already been general strides toward improvement.
“If anything, the way the city has started to handle things has been a little better,” he said, describing recent dealings with the Health Department and L&I. “I think it was a broken system, but now it’s being fixed. It’s all computer driven now.”
Figuring out how to work with the various departments is really the key to any restaurant’s success here, said Jeff Benjamin, COO of the Vetri Family, which operates seven Philly spots as well as a couple in other cities. “Over the years we have learned how, but it might be helpful to have a system that embraces the newcomer. Maybe a concierge system or advocate assigned to a particular business industry or vertical to help shepherd them through the process,” he suggested.
Perhaps that could be one of the ideas advocated for by Kitchen Cabinet PHL, the new lobbying group forming for the local restaurant industry.
“Seventy percent of restaurants fail within the first year,” said Kitchen Cabinet PHL founder Becky Davis, “and because of our low margins, the industry is especially sensitive to legislative and regulatory change. Part of our goal is to ensure our elected officials learn more about how we operate so we can work together to help Philly’s restaurant industry grow and succeed.”
The general takeaway is that if a restaurateur really wants to make it work here, and has a good product plus a solid business plan, they will probably find a way, despite idiosyncrasies in the city’s tax or regulatory structure.
“I think to blame Philly is somewhat of a cop out,” said Marc Vetri. “Sure there are some taxes we don’t like, but Philly is great, growing and expanding with young people, families, and great minds.”
Not that the star chef finds it easy: “Is it challenging? Yes! But I welcome the challenge. I’m more excited about it than ever.”