SYDNEY: The cost of serving up a sandwich with a cup of coffee has hit the roof across Australia’s vaunted cafes, squeezing profits and forcing a wave of closures for those that managed to survive the COVID slump.
The A$10 billion ($6.6 billion) Australian cafe industry, the world’s biggest outside Europe per capita, is shaping as an early, visible casualty of a perfect storm of rising utility bills, produce costs, wages and rents plus a slowdown in discretionary spending brought on by interest rate hikes, say economists and people in the industry.
A Reuters analysis of popular cafe orders found the cost to commercially produce a steak sandwich, including all overheads from electricity to cuts of beef, rose by one-sixth in the past two years, while discretionary spending flatlined, effectively wiping out the 10% profit margin typical of the industry.
The cost to make a flat white, one of the most popular Australian coffee orders, jumped by nearly one-fifth. The result is smaller profits, a shrinking pool of regular customers and business owners heading for the exit.
“The cost of living started to bite, especially on people who used to come in for a daily meal,” said Jack Hanna, a former World Latte Champion who closed Goodsline Cafe in downtown Sydney last month, two years after opening to rave reviews and spending roughly A$1.5 million on the fitout.
“People are just not willing to spend money on discretionary items when the supermarket also costs quite a lot. We had to increase our prices and pay staff a living wage,” Hanna added.
Damian Krigstein, a nearby cafe owner who helped Hanna pack up Goodsline, said his business, Bar Zini, plans to convert to takeaway to cut costs.
“When you look around Sydney and you look at so many businesses for lease, institutions from when you were a child just completely gone now, people losing their livelihoods - it’s scary times,” said Krigstein. Before COVID-19, hospitality venues were about one-third of Australian small businesses advertised for sale.
Now there are more businesses up for sale, and the percentage of hospitality venues is closer to half, with asking prices being discounted by up to 50% of historic market values, say selling agents. “Many of these hospitality vendors are simply exhausted after surviving COVID,” said Peter Meredith, a broker at SBS Business Brokers. “They are relieved to get out of leases.”
About one-sixth of cafes advertised for sale now close down before finding a buyer. “People are starting to panic with increased electricity, wages, rent,” said Guy Cooper, a director at Link Business Sales Australasia, which has more than 400 hospitality businesses for sale nationwide.
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