“The gap between perceived value and the true cost of doing business is becoming unmanageable”: Chef David Schwartz on why your favourite restaurants close

Recently, my team and I announced that Mimi Chinese, our regional Chinese restaurant in Yorkville, would be temporarily closing for renovations. We didn’t say anything about shutting our doors. We didn’t say anything to imply that there was trouble with the restaurant. And yet, the overwhelming response we received was anxious and immediate: Are you shutting down?

I got to thinking about why people jumped to this conclusion so quickly. Unfortunately, it’s because we’ve gotten so used to seeing our favourite restaurants close abruptly, often without any signs of failure beforehand. The rooms are full, the food is good, people speak of them fondly, then they’re gone. “I can’t believe it,” people say. “They were always busy.”

Why is this such a common reaction? What’s not adding up? And why are we so used to seeing successful restaurants close so unceremoniously?

It’s because of what people don’t see: failed restaurants weren’t pricing their menus to maximize profitability; they were pricing their menu items to match their diners’ perceptions of what those items are worth (and, consequently, what they’re willing to pay for them). Menus are priced to survive judgment rather than to reflect full cost.

The problem is that, as the cost of doing business continues to rise, those perceptions about what a dish ought to cost stray further and further from reality. This gap is breaking down the system. And unfortunately, the obsession with cost only widens that gap every day.

Open the comments section on almost any post on any platform about any restaurant. The dominant thread is almost always about how much it costs. It doesn’t matter if it’s about a place that serves sandwiches or one that makes two-Michelin-star tasting menus; the conversation always comes back to how expensive the food is.

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What’s left unsaid in many of these conversations is that much of the value in dining is contextual. What farm did that beef come from? What journey did that empanada go on before it reached your hand? Who are the people behind that perfectly cooked piece of fish? How many hours went into folding those dumplings?

This context is second nature to the people doing the work. It lives in hours at the pasta bench, reps behind the bar and years spent learning how to perfect a sauce. There’s also the human component: skilled labour, training and retention. The cost of paying staff a living wage is rising along with the cost of living, and it has to show up somewhere.

But none of this is apparent to a restaurant’s guests, who encounter the dishes they order at the absolute final stage, when it becomes easy to assess them at face value, purely by the sum of their parts. Even for people who do understand the background, the cost of dining out can feel jarring. I still wince at prices from time to time despite having seen behind nearly every curtain, so expecting anything different from the general public would be unrealistic.

The famous Picasso napkin story comes to mind. Pablo Picasso was asked by a fan to draw a quick sketch on a napkin. When Picasso then asked for one million francs as payment for the piece, the fan was appalled, saying that it took him only five minutes to draw it. Picasso’s counter: “No, it took me 40 years to draw this in five minutes.” This is at the heart of what the culinary world is contending with: a great delta between what guests experience and everything that went into creating that experience.

The pastrami sandwich at Linny’s Luncheonnette, our deli counter on Ossington, encapsulates this challenge. At a price of $16.60, it is both our most popular item and—because of how much it costs—our most criticized. What people don’t understand, however, is that each sandwich is the product of seven days of work. We use only premium Ontario beef that is brined, trimmed, rubbed, smoked for 12 hours, rested, steamed, trimmed again, sliced to order and served as one-third of a pound on fresh bread with mustard.

After food, labour, rent, packaging and utilities are accounted for, the sandwich ends up costing us $15 to make. That means we earn a mere $1.60 on each one. It’s enough to make you wonder why we even bother. Thankfully, we’ve been able to make this work by piggybacking off of Linny’s, our full-scale steakhouse next door.

But the gap between perceived value and the true cost of doing business is becoming unmanageable. It’s hitting every kind of place, from the casual mom-and-pop shop to the neighbourhood takeout counter to your favourite special-occasion restaurant. Take two dishes: a $19 serving of handmade noodles that costs $12 to produce yields less profit than a $32 carpaccio with a $5 food cost. But, of the two, diners will often label the noodles as “bad value” even though the numbers say otherwise.

With perceived value in the driver’s seat, product quality gets pulled down to match expectation, craft is punished and menus drift toward safer, cheaper ideas. Think of the kinds of places where you see sushi on the menu next to pizza and burgers. That gut sense of what something “should” cost ends up writing both the menu and the profit and loss statement. It determines which restaurants survive and which concepts attract capital.

The cost of everything is rising, and wages have not kept pace, so the anxiety around spending is real. With that in mind, it’s not surprising that diners misread value on menus. Portion size, familiarity and category expectations become the standard of worth. Fish and chips are expected to be cheap regardless of the products being used. Sandwiches are expected to stay below a certain price point no matter the ingredients. The gap between those beliefs and the real cost of good-quality food and skilled labour is now wide enough to break a business.

Related: Inside the culinary empire of Chinese food king David Schwartz

Distorted pricing sends the wrong signal. It’s easy to assume that a full dining room means a healthy business, but a packed restaurant can still net very little if pricing is not aligned with real costs. This leads to those “surprising” closures, which in turn teach investors to back concepts that have already been proven. New ideas, or ones rooted in craftsmanship and high quality, get tagged as risky and left on the shelf.

Faced with the pressure of rising costs, quality, focus and nuance bleed out when restaurants try to reach more people. A strong point of view that resonates deeply with a smaller crowd starts to look financially reckless, while a concept that resonates weakly with everyone looks sensible. The result is a homogenized middle.

I live for restaurants. They’re where I work, where I socialize, where I get to be creative, and where I feel joy at the hands of other people and their craft. Watching the culture flatten and seeing some of my favourite rooms close before their time makes the future of the industry—and of my entire lifestyle—feel uncertain.

The gap won’t close on its own. We need industry reform that bridges the widening distance between the cost of operating a restaurant and what diners expect a meal to cost. This could mean targeted support for small independent restaurants: payroll tax relief, a rent credit for small businesses, property tax relief that incentivizes landlords to lease to these operators, training and apprenticeship grants, or even an HST credit that shows up directly on a guest’s bill when they dine out.

Restaurants are essential to a city’s cultural landscape and economic framework. Yet they survive on razor-thin margins: more than 90 per cent of every dollar that comes in goes straight back out to staff, vendors and landlords. When one restaurant closes, the impact spreads far beyond its four walls: everyone in the supply chain is dealt a blow. Without incentives to keep independent businesses alive, we’ll watch them disappear one by one, until we’re left with nothing but Tim Hortons, A&W and the Cheesecake Factory.

But policy is only part of the solution. Restaurants themselves can also help to close the gap. They can price accurately and offer frank, honest context. Put the supply chain back into the room. Name the farms and fisheries. Make the craft visible.

Supporting independent restaurants that prioritize quality and craft is not a sentimental choice; it’s a practical one. Every meal is a vote for what survives: the rooms built for scale or the rooms built with passion, culture and a point of view.