There's no such thing as a free lunch.

And in San Francisco, where complimentary in-house meals have become one of the most attractive perks that some tech companies based here offer their employees, local restaurants are paying the price.

Some businesses and city supervisors are arguing that the company cafeterias are keeping workers inside the office during meal times, discouraging them from patronizing local eateries. The trend of eating in has prompted two San Francisco supervisors, Ahsha Safai and Aaron Peskin, to propose a ban on companies moving into new office space in the city offering their employees free meals.

"We are confronting and are about to enable 6 more million feet of office space in what we call Central SoMa, closer to the south of downtown," Safai told CNBC. "And so at this particular time, thinking about one of the things that could have been different about the mid-market tax break, I decided to put forth a policy to say let's limit these or completely ban them in certain areas that are offering essentially free food — and that's OK, I'm not trying to take away anyone's lunch. We really want to encourage people to get out of their silos, get out of their offices, and go interact and contribute to what makes for a healthy city."

About 40 office cafeterias offer untaxed food throughout San Francisco, according to Safai and data from the San Francisco Department of Health. Those providing free grub include Twitter, Uber and Square.

Thousands of affluent tech workers staying at work for lunch instead of visiting local restaurants is not what the city had in mind when offered companies in its Mid-Market district hefty tax breaks. Yet companies providing free meals also likely didn't intend for the collateral economic damage caused by what they see as a competitive advantage in retaining top talent.

"So when you have thousands and thousands of people taking up all of the real estate, but they don't ever leave, it makes a very weird dynamic for other businesses in the area that kind of didn't think it all the way through and banked on the number of office space, the number of employees, the number of people, and how their patterns probably should have been," said Ryan Cole, partner at Hi Neighbor Group, which owns and operates four restaurants and cafes in San Francisco. "But these tech companies are so smart that they disrupted the normal patterns, because it is a benefit for themselves."

Some say that the proposed ban on future businesses giving free in-house food to employees falls short because it isn't retroactive, meaning companies already offering the perk won't have to stop the practice.

Others argue the ordinance would be regulatory overreach and will deter tech companies from coming in to the area.

"I appreciate the ordinance in that it wants to support local restaurants, I think that's great," said Vanessa Brown, a city worker. "But I think it's a little too regulatory to tell people they can't eat in their place of business."

Solutions to the lunch feud have started to surface. Twitter, for example, sometimes invites and pays businesses to cook in their kitchen to provide them exposure to its employees. And Square shuts down its cafeteria roughly two Fridays a month in an effort to encourage workers to eat outside of the office.

Katherine Chiao — the owner of Kagawa-Ya Udon, a Japanese restaurant in the Mid-Market district — and Cole said they see a noticeable boost in business on those Fridays.

"It's like day and night," Chiao said. "It's already fairly busy on Fridays, but when Square has their culinary shutdown days, we see an increase in sales by 20 percent."

San Francisco would join Mountain View, home of Alphabet's main headquarters, as the second Bay Area city to ban new tax-free office cafeterias if the proposed legislation passes.

"I think tech has been a phenomenal contributor to San Francisco," Safai said. "But that does not mean that we can't be reflective and think about ways in which we can strengthen certain aspects of our economy and our society, and encourage those to look at their business model and say, 'Maybe that worked in Silicon Valley, but it does not work in an urban environment.'"





