For 25 years, Mike Georgopoulos — better known to his friends as “Mikey G” — has built a legacy in San Diego, opening 30 restaurants in the last decade alone. But today, the veteran entrepreneur says the California dream is being choked by a math problem that no longer adds up.
With raw material costs rising sharply and energy bills up 24%, Georgopoulos said a staggering 2% cost is being ripped straight from the bottom line before a single burger hits the grill. In an industry where a 5% profit margin is considered a win, Georgopoulos warns that owners are now “trapped” in a “vicious cycle” of record gas prices and what he calls predatory regulations that have them “working for peanuts” just to keep the doors open.
“We built over 30 restaurants in the last 10 years. The barrier to entry is insane. It takes years to get permits and entitlement. It costs a lot of money, and there’s a lot of money at risk before you even have your award of the appropriate permits. So you may have to risk some money and then not get what you need,” he told Fox News Digital from his newly-opened brewery.
“They’re working for peanuts because they just can’t make it, but they’re trapped. They can’t get out. They own a business, they’re in a lease, they have no other place to go. So they’re just in a vicious cycle, and there’s just nothing coming out on the other end in terms of profit,” Georgopoulos added. “It’s sticker shock, it really is.”
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Rising energy and electricity costs began to escalate for California small businesses in 2022 after the pandemic, according to the restaurateur, but bills saw what he described as double-digit hikes since the conflict involving Iran intensified just over a month ago. At this point, Georgopoulos is “constantly” changing pricing on his menus, but admits prices should have increased by 100% over the past two years.
“It’s pretty significant. It’s a lot and it’s going up. It’s not coming down,” he said. “But there is an upper limit to what people are willing to pay before they decide to cook it at home. So we have to cut in other areas and keep our menu prices competitive… In California, our labor is as high as anywhere in the nation, and we don’t have a tip credit, which is disappointing, to say the least. So we have to reduce labor costs by reducing staffing, so cutting shifts, making shifts shorter, which then takes away from the guest experience… and that’s the struggle we go through month by month.”
“It’s clear cash flows are clearly impacted by what we are experiencing today. Not only gas prices, but just turbulence in what the future has to hold for small businesses. But it’s clearly from anywhere from accounts receivable to accounts payables, we’re seeing some slowness in those factors. That basically tells us the pressure is there, and it’s mounting,” Cardiff Co-CEO Mo Tehrani, whose lending company has funded more than $12 billion in small business loans and even helped Georgopoulos, also told Fox News Digital.
“Especially in California, we have probably the highest gas prices anywhere in the country, and it’s directly impacting small margins that the transportation sector operates under. So it’s an immediate impact,” the CEO continued. “The pump obviously impacts how people hire, how people route their deliveries, surcharges, pricing their products, all those things are impacted.”
A spokesperson for the California Energy Commission told Fox News Digital that “California is committed to energy affordability for all residents,” adding that affordability is a key factor in advancing a fully clean energy future. The spokesperson also said energy prices in the state are largely outside the commission’s control.
Besides the pain at the pump, recent data from WalletHub suggests the pressure California business owners have long felt. An analysis of more than 1,300 small cities found that California is home to the most difficult environments for entrepreneurs, with the final 10-plus rankings exclusively occupied by California municipalities, including Pacifica, Danville, Castro Valley and Saratoga.
According to the Public Policy Institute of California, the state’s private-sector employer base has grown 52% since 2005, more than double the 21% increase in public-sector entities.
“It’s really costly to move an organization and folks and their customer base out of the state. So for those that are fortunate enough, we’re seeing that happen. But the majority of Main Street doesn’t have that opportunity to do that,” Tehrani explained. “And we’re fortunate in California, it’s one of the largest economies in the world. We have a lot of entrepreneurs here that want to live here, and they want to build a business around them. Some of those are serial entrepreneurs that are building new businesses that may not necessarily abide by the historical rules of having a lease here, having employees live here.”
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“We are losing staff in part because it’s less expensive for them to work in more rural areas out by where they may live. We’re also losing staff because we’re experiencing a homeless crisis that you hear about constantly and the vagrancy that comes with that in downtown San Diego,” Georgopoulos said. “You’re just paying more taxes, making less tips, and getting less hours… We have 700 employees that we have to think about every single day… We want them to come into work and make money, and we don’t want their costs to be so high.”
Another massive issue: California’s legal and regulatory landscape — business owners are being targeted by what Georgopoulos described as “shakedown” lawsuits related to wage and hour laws, forced to settle or spend six-figure sums on what he called frivolous claims; and law-abiding owners face aggressive health inspections and permit requirements, while illegal, unpermitted vendors operate with “impunity” in the same neighborhoods.
“The laws are very favorable in California to allow these law firms to do this. So what that does is there’s a compound effect, right? A given restaurant could spend $100,000 in one year dealing with lawsuits… These lawsuits are killing us,” Georgopoulos noted. “And then the ongoing regulations are just… very taxing… There’s a hundred illegal hot dog vendors operating in downtown San Diego. They’re not supposed to be there. They don’t have permits. They certainly don’t even have [outdoor bug] screens. They don’t even have hand washing stations. They cross those individuals to come shut me down while those guys are operating.”
“Traditionally, access to capital has been difficult, takes weeks to months of planning and going through an application process,” Tehrani highlighted on regulations. “What we’ve tried to do is make that process as simple and flexible as possible to allow a business owner to be able to have an opportunity and be able fulfill that [operational funding] within hours or within short few days.”
While the data suggests a bleak future for California’s mainstream businesses, Tehrani believes the survival of the U.S. economy hinges on the very “problem solvers” currently being squeezed in the Golden State. For him, the current crisis is a forced return to the innovative roots of entrepreneurship.
“Small businesses are resilient. They are by far the most resilient and probably the reason why the U.S. economy is as strong as it is; It relies on small businesses to be successful. In no place on Earth does this small business environment exist other than in the United States,” Tehrani said. “Having said that, these challenges require business owners to go back to their roots. They’re innovators. They’re builders. They’re adaptable, and they’re problem solvers. And that’s really what’s required to get through these challenges. And so there are $8 per gallon gas prices, [but] I bet on small businesses innovating their way out of those issues.”
For Georgopoulos, the ultimate advice to struggling peers — “move to Texas” — is a joke that carries a heavy weight of truth. Yet, he is choosing to double down on his home state, even if it means fighting an uphill battle against a system he says is making him “love it less.”
“We did not get into this business to get rich. It’s not a get-rich business. You’re in the restaurant and the hospitality industry because you love what you do. You love hosting people. You love having people at your place of business and showing them a good time. We’re starting to love it less. And eventually, you’re gonna have all the cookie-cutter chain restaurants if we’re not careful,” Georgopoulos warned.
But even with the “sticker shock” of his own home solar bill and the exodus of staff, he isn’t walking away yet.
“California has given me everything. I’ve worked for it, it didn’t come easy. So I still believe we can make it work. We just bought a new local company called Ballast Point that we’re remaining here in San Diego. It would be much cheaper for me to move it out of state. We would get significant profits from that. But we’re going to stay and we’re gonna fight it out and we’ll keep Ballast Point here, and we are going to make it work. We’re going to speak out when we can and try to get some relief where we can. And hopefully, someday, soon, things will change in our favor.”
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