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‘Groundbreakers can’t survive any more’: Is Australia’s restaurant industry on the brink?

For many restaurants today, simply breaking even is cause for celebration. Will 2024 be remembered as a year of closures? And what can cash-strapped diners do to help?

Dani Valent

Cornersmith owners Alex Elliott-Howery and James Grant have called time on their Annandale cafe.
Cornersmith owners Alex Elliott-Howery and James Grant have called time on their Annandale cafe.Dion Georgopoulos

When Alex Elliott-Howery announced that her Sydney cafe Cornersmith would close at the end of February because “hospitality is a bit broken” and it wasn’t possible to turn a profit, the floodgates opened and the pent-up anguish of those in the hospitality industry rushed towards her.

“People were so thankful that we explained the struggle,” says Elliott-Howery. “They felt just like we did: that they were the only losers who couldn’t figure it out, that the margins are getting tighter, and it’s so hard to make it work.”

It’s always been challenging to run a food business. But none of the previous hospitality crises compares with the dire sentiment in the restaurant world today. Profit margins have traditionally sat at around 10 per cent. In 2021, only 19 per cent of businesses hit that mark, according to the Restaurant and Catering Industry Association. Now, for many restaurants, breaking even is cause for celebration.

The combined crunch of inflation and a cost-of-living crisis means costs are up, spending is down and profit for many is a pipedream. Some restaurants are partly protected from these pressures, the very big and the very small, perhaps. But one thing is certain: it has become far harder to run mid-range restaurants, and not all will survive.

‘We’re at a pivotal point where the solo groundbreakers just can’t survive any more, and it could ruin what everyone loves about hospitality.’
Alex Prichard, Icebergs Dining Room & Bar culinary director

Mark Jensen, who has run Red Lantern restaurant in Darlinghurst for 22 years, points to the latest data from the Australian Securities and Investments Commission showing insolvency claims in the accommodation and food services sector rose by 92 per cent in the December quarter compared to the same period in 2022.

“Unless you’re a tiny little shop with barely any staff, or you are part of a bigger restaurant group, I don’t know how anyone survives,” Elliott-Howery says.

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Head chef Alex Prichard at Icebergs Dining Room & Bar.
Head chef Alex Prichard at Icebergs Dining Room & Bar. Edwina Pickles

“Everyone is facing similar pressures,” says Alex Prichard, culinary director of renowned two-hatted Bondi restaurant Icebergs Dining Room & Bar. “We are lucky that we have 21 years of reputation and a client base to keep us going, but the more you talk to people in the industry, the more you hear it,” he says.

“We’re at a pivotal point where the solo groundbreakers just can’t survive any more, and it could ruin what everyone loves about hospitality.”

Icebergs has swapped to a set menu in the 120-seat main dining room to steer smaller-spending customers to the bar. “You’d have the situation where tourists might walk in, have a glass of water and a pasta dish to share between four people. But we can’t do that and still cover free bread, beautiful olive oil, linen and staff to look after them,” says Prichard. “We are in hospitality – we love to say yes whenever we can, but you also need to safeguard the business.”

Saori Tsuya and her chef husband Kazuki co-own Kazuki’s, a modern Japanese tasting menu restaurant in Melbourne’s Carlton. At the end of October, bookings rolled in after Kazuki’s was awarded two hats in The Age Good Food Guide. But the following week, the Reserve Bank raised interest rates for the 13th time since mid-2022. “We got calls for cancellations straight away,” she says. “People are switched on to economic changes, and they make decisions accordingly.”

Kazuki and Saori Tsuya from modern Japanese restaurant Kazuki.
Kazuki and Saori Tsuya from modern Japanese restaurant Kazuki.Peter Tarasiuk

She’s understanding. “Dining out is one of the first things people let go as they become more conscious of their budget. I would be doing the same.” Kazuki’s added a five-course menu ($180) alongside its seven-course degustation ($220). If every table in the 26-seat restaurant took the cheaper option, there may be no profit that night.

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“In the end, we always come back to wanting to perform at our absolute best for each service for each table, so we make our guests’ dining very memorable,” says Tsuya. “It’s even more important when it’s tough: we want to make sure people come back.”

Why are times so tough for restaurants right now? Simply because they are subject to many of the same pressures felt by their customers. Rent, power, insurance, interest rates and produce price hikes are experienced by households and food businesses alike − and of course, restaurateurs are householders too. Then there are increased labour costs, payroll tax, Workcover premiums and a post-COVID tendency for government agencies such as the Australian Taxation Office and state revenue offices to urgently call in debts, often with interest.

Andrea Vignali, Davide Bonadiman and Michelle Bader at Al Dente Enoteca.
Andrea Vignali, Davide Bonadiman and Michelle Bader at Al Dente Enoteca.Elke Meitzel

Raising prices would help, of course, but many customers are extremely sensitive to that. “We can’t really charge the customer too much more, but our costs are increasing all the time,” says Andrea Vignali, co-owner of 90-seat Melbourne restaurant Al Dente Enoteca.

“There have been times we have really thought it’s impossible. Do other people not pay taxes? Do they have crazy discounts I don’t have? You ask yourself what you’re doing wrong. You can’t stop investing in staff because they are the pieces that make the machine work. And your food is what the customer comes for: I use good products, I never cut quality.”

There’s only one way to stay open. “You have to be very, very attentive,” says Vignali. “It’s so easy to do an extra order of something you don’t need or get something from a supplier that charges you too much or a batch of bolognese burns and that’s $400 of meat. Well, that’s half my salary. As an owner, we take money when we can and when we can’t, we don’t.”

He funds holidays with a side hustle: dealing chairs on Facebook Marketplace. “One day I sold 40 chairs at 40 per cent markup and I made $1000 in one day,” he says. “Sometimes with the restaurant, we run around all week, and then maybe something breaks, and you don’t make any money at all. The margins are so small.”

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He’s not complaining, though. “We are building a community, we welcome our friends to our restaurant, we have great word of mouth, we’re busy,” he says. “I’m happy. I’m doing what I love.”

Like Vignali, Icebergs’ Alex Prichard wouldn’t do anything else. “It’s one of few careers where you can make something and get an almost instant response,” he says. “When it’s good, that feeling is incredible and gives you a real sense of pride. I imagine it’s like being a builder and building a house for your mum and dad: I’ve done this, I’ve put that smile on those people’s faces.”

Noma restaurant in Copenhagen.
Noma restaurant in Copenhagen. Laura L.P. HDG Photography

But smiles don’t pay bills. Unlike other industries with strong lobby groups − think mining, film and TV, medicine − there is no cogent, respected industry-wide voice for hospitality. This is a major issue, according to Ben Liebmann, who was chief operating officer at Copenhagen high-flyer Noma, overseeing its expansion from a single restaurant to a diversified hospitality group during his seven-year tenure, which finished in 2022. Liebmann now lives in Sydney, where he consults to food businesses and advises chefs.

“There’s no quick fix … it’s always hard to repair the car while you’re driving down the freeway,” he says. “But why aren’t we having a conversation around GST relief on hospitality? Why aren’t we having a conversation about fringe benefits tax, about rebates and offsets to future-proof the industry around ESG [environmental, social and governance pillars] or technology?”

He believes we do ourselves a disservice as a society if we don’t support the restaurants that are part of our identity as Australians. “Hospitality adds tens of billions of dollars to the economy and employs thousands of people,” says Liebmann.

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“It’s important as an industry, even if you don’t love it like I do. The film industry gets offsets and tax breaks, but I would argue hospitality is far more impactful in terms of employment, a sense of community, and a place for changemakers. This industry is vital, more important than ever.”

Chef Hansol Lee at Matsu restaurant in Footscray.
Chef Hansol Lee at Matsu restaurant in Footscray.Eddie Jim

When announcing Cornersmith’s closure, Elliott-Howery speculated that only very small restaurants or restaurants that were part of larger groups would be able to survive.

Hansol Lee opened his four-seat omakase restaurant Matsu in Melbourne’s Footscray precisely so he could have minimal staffing costs, doing almost everything himself. But a year later, he’s feeling the pinch.

“A tiny restaurant is a way to go if you are willing to work 24/7, but in the long run I don’t think it is worth it because I won’t be healthy enough to run it. My health will go downhill.”

Cornersmith in Annandale is busier than ever as it prepares to close.
Cornersmith in Annandale is busier than ever as it prepares to close.Brook Mitchell

At Cornersmith, there’s a sense of loss but also satisfaction: the cafe’s sustainable values and practices inspired others to do the same. “We live in a culture where success means financial success,” says Elliott-Howery.

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“To say something didn’t quite turn out, then you are admitting vulnerability and maybe there’s even shame. We feel a real sense of letting go of ego, which is going to be good for what we do next, whatever that is.”

There’s no doubt there’s been purpose in what she and husband James Grant have been doing for 13 years. “The response has been overwhelming, from industry but also our customers, who are telling us what Cornersmith has meant to them,” says Elliott-Howery.

“Someone told me they had a relationship breakdown and this was where they could build themselves up again. One woman was isolated with postnatal depression, but she felt a sense of togetherness at Cornersmith. It’s more than coffee and food. It’s community.”

There’s a final irony: the cafe has been packed since people found out it was closing. “We’ve put more staff on, we’ve been pickling again, I’ve been driving around to buy bread because we’ve run out,” says Elliot-Howery. “It feels like one of those rug shops that has a closing down sale all the time. It’s bittersweet. If you loved it so much, why didn’t you come here more often? Customers are reminded to support businesses that they love.”

Restaurant survival strategies

Consider technology

Mullberry’s Leon Kennedy is sure that AI will play a big part in hospitality, so he’s brainstorming ways to use it. “I could ask AI to improve our building quotes: how can we cut this budget by 22 per cent without diluting the quality? We would then look at the line-by-line cost savings. It could be a game changer.”

Look at menu structure

Boris Portnoy wanted a more accessible set menu at his Gray & Gray wine bar in Melbourne’s Northcote. “We dropped all the mains and now serve more khachapuri (a Georgian cheese pie) on a $55 set menu,” he says. “It improved our food costs tremendously and reduced the number of staff we need in the kitchen and on the floor.”

Go direct

Alex Prichard deals with suppliers directly if he can. “Cut out the middleman as much as possible,” he says. “The farmer is better off and so are we.”

Don’t compromise on training and development

“If you aren’t taking people that are inexperienced and turning them into weapons, your quality will dilute,” says Kennedy. “As soon as things get tough financially, people go into survival mode and training and development gets forgotten, but the businesses that will thrive and prosper will be the ones focused on that.”

Comb through expenses

Saori Tsuya from Kazuki has gone through all the restaurant’s software plans looking for better deals. She ditched the PO box because it was rarely used. “They’re little things, but it all makes a difference,” she says.

How diners can help

Turn up

“Last-minute cancellations and no-shows affect us emotionally and financially,” says Kazuki’s Saori Tsuya. “For fine dining, it’s harder to fill a table at the last minute. It does impact us when people didn’t bother to call us, or they make multiple bookings and decide we are not the one.”

Appreciate quality

Icebergs’ Alex Prichard shares the example of a NSW South Coast fish and chip shop serving locally sourced fish, and chips fried in beef fat. “Is it more expensive than a shop using imported shark meat? Yes. Is it still what I would consider an affordable dinner? Yes. It’s about people understanding the difference and making educated decisions about where they spend their money.”

Save to spend

“There are other ways to save,” says Prichard. “What if more people cooked at home five days a week? Maybe they could then afford to go somewhere a bit nicer on the other nights.”

Be brave

Many people can make lobster or rib-eye taste good, but a chef who can make chicken giblets delicious is more unusual. When menus include offal or lesser cuts, diners can meet the commercial imperative in the middle by ordering unfamiliar items.

Original URL: https://www.watoday.com.au/link/follow-20170101-p5f795