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Café Closures Signal Economic Shift in Australia

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Amid rising food and energy prices, coupled with a decline in discretionary spending, the Australian hospitality sector is undergoing significant upheaval.

Data from the Australian Securities and Investments Commission (ASIC) indicates a notable increase in business insolvencies, with over 1,900 hospitality businesses shuttered in the last fiscal year alone.

Within the accommodation and food services sector, insolvency appointments surged by 50% last year, reaching an unprecedented total of 1,667. This surge exceeded the previous peak recorded in 2023, highlighting the increasing pressures on the industry.

A report by The Australian sheds light on the impact, revealing the loss of more than 90,000 jobs within the hospitality industry over the past 12 months. Interestingly, while these jobs were lost, they have largely been absorbed by the ever-expanding care economy, driven primarily by the National Disability Insurance Scheme (NDIS).

According to The Australian, the healthcare and social assistance sectors flourished last year, creating 171,000 new roles. The chief executive of the Australian Hotels Association, Stephen Ferguson, noted the transition of hospitality workers to sectors like healthcare, in part due to better growth opportunities.

Echoing these challenges, Ed Kitchen, Managing Director of Uber Eats Australia, termed Australia's hospitality scene as facing “a collision” of adverse factors: "In our conversations with restaurants, there doesn’t seem to be a singular factor they isolate, but rather … several themes including higher rental costs, competitive pressures, supply chain issues, growing insurance premiums, increasing utility and wage bills, and more expensive raw products," he elaborated.

Similarly, the CEO of the Restaurant and Catering Association, Suresh Manickman, described the situation as an “unprecedented fusion” of challenges that make today’s economic environment one of the toughest on record, affecting businesses' operational viability.

Predicting that one in eleven hospitality ventures could face closure in the upcoming year, Restaurant and Catering Australia underscores the severity of the issue. Such dire forecasts paint a bleak picture for the hospitality industry's sustainability.

Reflecting on the rapid expansion of cafés across the country, particularly in cities like Melbourne, there is a growing perception that downsizing may be necessary. During the 18-year period I spent in Ashburton, Melbourne, the number of cafés on the main shopping street blossomed from four to over a dozen. Most of the new establishments were often empty, underscoring a possible over-saturation of the market.

This narrative mirrors a nationwide challenge, where excessive café numbers have not been matched by customer demand, pushing many towards eventual closure. The economic impact of COVID-19 only exacerbated this mismatch by intensifying financial pressures on consumers.

With mortgage and rent costs reaching exorbitant levels, and real household disposable incomes dropping significantly in the past two years, luxury expenses such as $5 or even $7 coffees are increasingly being reconsidered by financially strained Australians.

Rising living costs force a shift in consumer behavior, evidenced by the growing preference for home-brewed coffee or affordable machine options from service stations or retailers like 7-Eleven. It's evident that despite the reduction in numbers, a leaner, more financially sustainable café landscape can still thrive, as Australia recovers its economic footing in these challenging times.

Published:Thursday, 24th Oct 2024
Source: Paige Estritori

Please Note: If this information affects you, seek advice from a licensed professional.

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Fixed-Rate Mortgage:
A mortgage loan where the interest rate remains the same for the entire term of the loan.

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