It doesn’t take a genius to see how hard this hits when the dining public has less to spend. Pxhere

It seems every year I’m penning an article about the difficulties of hospitality. Unfortunately, here I go again. This time though it is more a discussion about the broader industry—not so much my own and Fix’s travails.

At time of writing I can quickly count about 20 higher profile restaurants and cafés that have closed this year, and there will be many more that have shut their doors in the past six months that are not on the radar, but the reasons are all likely to be the same. I’d like to say that will be all, but I’d be very surprised if we don’t see a similar number of closures between now and the end of the year.

At no point in the two decades that I have owned a hospitality business would I ever describe the business as easy. Margins are always very tight and it only takes a sneeze from the economy for any discretionary service business to catch a cold.

The GFC in 2008 was the first serious downturn I had experienced as an owner. Fortunately we had a small buffer built up and that kept us holding on by our fingernails until things turned around. This time around there are so many businesses that used whatever buffer they had built up to survive the COVID lockdowns, and that has been a fatal blow for many when we hit the choppy waters of rising inflation and interest rates.

Inflation and higher interest rates hit discretionary spending very hard. I cannot blame anyone for that because I know myself that my pay doesn’t go anywhere near as far as it did 18 months ago. But in the restaurant game, inflation has a double whammy: our raw produce costs have skyrocketed—across the board we have seen about 25% increase in our food costs.

It doesn’t take a genius to see how hard this hits when the dining public has less to spend, and putting prices up by 25% is a very rapid way to exit the market. Add to that, the 30% hike in utilities and those tight margins go into red very quickly. As a restaurateur I understand the tightening of purse-strings … maybe three courses and a couple of bottles of wine isn’t in the budget, but I’d always rather see you for a few shared dishes and a BYO bottle than not at all.

But there’s another factor in play here as well, and that is fatigue and burn-out. Most commercial leases for restaurant spaces are based on five-year blocks, so there are a lot of leases that would be coming into the renewal window either last year or this year, probably more than one might expect because of extensions or deferrals accrued during COVID lockdowns. For anyone in the current market, looking down the barrel at another five years after the last five we all just survived is tough. How to keep finding the will to continue? And what more can you do to stay afloat? These questions often end in the decision to walk away and become an employee again.

Sydney has a couple of very large restaurant groups that seem to be very successful in the market. They offer something to experienced operators that can’t happen when going it alone: job security and the ability to go to sleep not worrying about how to pay the bills. In NSW at least those big players have a huge advantage over independent restaurants. It’s not economies of scale, though that helps, but an incredibly large number of poker machines on their books. Latest figures show a single poker machine’s net profit in a hotel is AUD $167,518 per annum, so the maths is obvious for groups that own them in the hundreds. I can’t blame them for making the most of the opportunity: it isn’t up to them to legislate.

But there’s a rub to that large group dynamic, and that is the reduction of the small independent restaurants. They cannot compete on price and quality, it’s hard to compete on service except over time with the building of relationships, and the back end management takes more and more hours every year. It is likely that the stand-alone restaurant will be relegated to ethnic cuisine and suburban eateries within the next decade.

I’m not even going to touch on the crazy number of new openings that are about to be revealed. With major building developments in Sydney around the Metro coming close to completion, I know that each building will have another set of eateries to take another slice of an ever-shrinking pie.

Having said that, it is not all doom and gloom. Australia historically has a resilient economy. We seem to have at least plateaued these past few months. Hopefully beyond winter we can see some light shining through. For now, if you are heading out for a meal or just a coffee or a wine, take a moment if you can to ponder visiting your favourite family-owned venue. They’ll appreciate it far more than you know.