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Government red tape erodes B.C. restaurants' profits

Red tape, taxes and fees are making the business of running a restaurant increasingly unviable, say many B.C. restaurateurs.

Red tape, taxes and fees are making the business of running a restaurant increasingly unviable, say many B.C. restaurateurs.

While restaurant owners accept the need for strictly enforced food safety regulations, many believe governments don’t consider the cumulative impact of other policies, such as civic restrictions on parking or a small hike to the minimum wage, which can drive a borderline restaurant into the red.

With B.C. restaurants having the second-lowest pre-tax profit margin in the country, industry insiders say things need to change or the province will see a swath of for-lease signs hang in the windows of once marginally profitable restaurants.

“When it comes to new rules and regulations that cost money, it’s like a death by 1,000 cuts,” said Mark von Schellwitz, vice-president for Western Canada of the federal lobby and research group Restaurants Canada.

Several years ago the provincial government and the BC Restaurant & Foodservices Association (BCRFA) collaborated to produce a manual that outlines all the steps that prospective restaurateurs must take when opening a restaurant.

B.C. Minister of Small Business Naomi Yamamoto hails the project as a success because it makes it clearer how to comply with government regulations.

BCRFA CEO Ian Tostenson has a different take.

“The manual does take restaurant regulations and rewrites them in English. The conclusion, though, has to be, ‘Who would want to open a restaurant in this province? There is so much regulation.’”

GREASE TRAPS

One of the newest regulations might be one of the most onerous.

Metro Vancouver – which is made up of 21 municipalities, one First Nation and one electoral area – restricts how much grease restaurants can flush into sewers.

Inspectors have started visiting restaurants and are telling owners to make plumbing changes within a few months or risk financial penalties.

Plumbing costs could exceed $10,000.

Restaurateurs told Business in Vancouver that they have been caught off guard because Metro Vancouver never prepared them for how the regional bylaw, which passed in 2012 but did not come into effect until January 1, was going to affect them.

Now they’re learning that they have to connect dishwasher piping to grease traps, which they say is misguided.

Grease traps are boxes that vary in size but are often around 15 cubic feet. They connect to pipes from sinks and collect grease that is generated when kitchen staff wash pots and pans. Companies such as Redux visit restaurants every month or so, empty the grease traps and recycle the congealed grease.

Requiring high-temperature dishwasher water to flow through grease traps is controversial because plumbers believe it will have little effect, if any, on the problem of grease buildup in sewers.

“When you add an additional grease trap for a dishwasher only, the water that goes into the grease trap and then flows out of it will not let the grease solidify in the trap,” said Mark Mason, a principal at Wheatley Plumbing. “So the effectiveness of doing that would be negligible.”

Ray Robb, Metro Vancouver’s division manager for regulation and enforcement, told BIV that he and his staff weighed these objections but determined that there is more to be gained by requiring that all dishwashers be connected to grease traps than allowing dishwasher water to flow directly into sewers.

That decision is provoking resentment among the restaurant owners who have to shell out thousands of dollars to reconfigure pipes, buy bigger grease traps and sometimes get new sinks to make room for the new larger grease traps.

“To comply with what Metro Vancouver wants, we would have to increase the size of our grease trap three to four times,” said Tapenade Bistro owner Vince Morlet.

Paesano’s restaurant owner Satinder Jaswal, who has until May to have his dishwasher and mop sink connected to his grease trap, said the new rules are onerous and ineffective.

“I have to do this even though my plumber says dishwasher water should not go to the grease trap,” Jaswal told BIV.

Metro Vancouver, however, is determined to have restaurant owners comply with the new rules because, Robb said, the problem of grease buildup in the region’s sewers is worsening.

Grease-clogged pipes have caused sewage to back up into people’s basements, he said. Further, grease buildup is forcing municipalities to dig up clogged sewers and clean them.

He said that Metro Vancouver did consult restaurant owners before its Greater Vancouver Sewerage and Drainage District board passed the bylaw.

FOOD SCRAPS

Restaurant owners are more accepting of rules that require them to remove most food from the garbage or face fines of about $50 per infraction.

Metro Vancouver instituted new rules on January 1 that prohibit trash from containing more than 25% food waste, but the region does not intend to inspect and enforce the new rules until July 1.

The rationale is clear. Food waste makes up more than 40% of the region’s trash, and disposing of food with non-recyclable waste creates more greenhouse gases, leaves less room in landfills and signifies a missed opportunity to create compost.

Most restaurant owners who spoke with BIV said they don’t object to the change because the regional authority gave them detailed information about the new rules and, by broaching the subject more than a year ago, provided adequate advance notice.

They also see an opportunity to save money.

That’s because separating food out of the trash means less trash they have to pay to have hauled away.

And private contractors, such as Northwest Waste Solutions, charge less to take away separated food waste than to haul garbage because they can use that organic material to make compost.

Mark O’Hara, Northwest’s director of sales, estimates that savings for restaurateurs from separating organic material could be as much as 10%. The penalty for not separating that material and having trash that contains more than 25% food waste is 50% of the cost of a tipping fee, with those fees tending to be about $100 for a large restaurant.

Joey Restaurant Group has made a specialty of saving money on waste disposal.

“We enjoyed a 37% saving on our waste disposal costs in 2014 compared with 2013,” said Joey’s director of procurement and supply chain, Caroline Smart.

OTHER REGULATIONS

But even rules that have been around for a while can cause problems for restaurant owners.

Especially onerous can be the penalty for serving underage drinkers. The B.C. Liquor Control and Licensing Branch (LCLB) employs minors to attempt to order alcohol in restaurants. The fine if a waiter fails to ask for identification and instead serves a drink is $7,500. That amount would be equivalent to about one-and-a-half months’ profit for a small restaurant, said Earls Restaurants owner Stan Fuller.

The LCLB has committed to review this policy and the amount of the fines as part of the government’s liquor review, but after years of pushback from restaurateurs, no action has been taken.

In 2014, there were 30 instances in which minors were able to order alcohol, and in 11 of those situations, the $7,500 fine was levied. A 10-day closure of the restaurant or hospitality venue was ordered in place of that fine in 13 cases, whereas the penalty is pending in six cases.

Smaller fees and regulations can add up too.

For example, restaurant owners have to pay fees when they collect tax for the provincial and federal governments, von Schellwitz of Restaurants Canada said.

He explained that credit card companies charge businesses flat percentage fees on each dollar that patrons put on their credit cards. Restaurant customers’ bills, however, include the federal goods and services tax and often also include a 10% provincial tax on alcohol.

Von Schellwitz is lobbying for governments to reimburse restaurant owners the portion of those fees based on taxes – although one of his association’s longtime members, Bishop’s restaurant owner John Bishop, said he will not hold his breath for that to happen.

Bishop’s skepticism stems from years of watching governments enact policies that hurt small business. For example, he said his fine-dining business continues to suffer from the two-hour parking limit that the City of Vancouver imposes on drivers up until 10 p.m. seven days a week.

If drivers pay for parking with coins, instead of smartphones, they must physically move their vehicle after two hours or risk a ticket.

City of Vancouver spokesman Jag Sandhu said the parking time limits “free up on-street parking in busy areas of Vancouver and help create spaces for shoppers and people doing business.”

The increase in the minimum wage is another cut. While Glowbal Group co-owner Emad Yacoub said he agrees with the provincial government’s decision to raise the minimum wage by $0.20 on September 15 for staff such as dishwashers, he doesn’t think it should apply to servers who make tips.

“This higher minimum wage is going to fine-dining waiters who make great money – $60,000, $70,000 or $80,000 per year,” Yacoub said. “These people can make more than my general manager, and I have to give them a raise.” 

GOVERNMENT MINISTERS VOW TO KEEP CLIPPING RED TAPE

While the government cuts red tape for small businesses the restaurant industry keeps facing new rules. Ian Tostenson, CEO of the BC Restaurant & Foodservices Association accepts that food businesses should be more regulated than others because of public safety concerns. But he thinks the government should create a fast-track program that would be run like the federal Nexus program for entry to and from the U.S.

In this system, good business owners who smoothly navigate the initial labyrinth of regulations – from patio licensing to health and liquor inspections to ensuring that staff all have Serving It Right training – could pay a registration fee and be rewarded by being given an easier time when it comes to inspections and permit renewals.

“If a restaurant owner can go through all the hoops, you could put a symbolic happy face on that business with the happy face signalling that they are a really good operator,” Tostenson said.

Tostenson also suggests having a specific person in the provincial government responsible for overseeing small-business regulations with the aim of reducing and simplifying them.

“That’s my job,” said Naomi Yamamoto, B.C.’s minister of small business.

And when it comes to businesses in general she has done that, she said.

Yamamoto  identified an e-filing system for paying taxes as an initiative to make things simpler for small-business owners. Another is a program to make it easier for a small business to sell to government.

“In the past, even this past year, if you wanted to buy from government, we sometimes made you fill out a 50- to 60-page request for proposal. We’ve now said that for any contract worth less than $250,000, the form is two pages.”

Federal Small Business Minister Maxime Bernier stressed to BIV that he, too, is committed to clipping red tape.

The Conservative government last year introduced a bill that stipulated that whenever a new regulation is instituted, a comparable regulatory burden must be eliminated. The legislation is awaiting Senate approval. 

gkorstrom@biv.com

@GlenKorstrom

For more business news go to our sister publication Business in Vancouver at biv.com.