The big squeeze

The cost of living is a subject on everyone’s lips. From higher food and energy prices biting into business bottom line to increased interest rates pushing up rental prices and pushing down diners’ desire to eat out. In December last year, the interest rate peaked at 7.8% but dropped to 7% by late April.

This rise in the cost of living is affecting the industry in different ways. Firstly, and most obviously, it changes the behaviour of clientele. They are going out less or changing the way they use hospitality. The hardest hit has been the fine dining sector. According to figures compiled by booking platform ResDiary, fine dining bookings have dropped by 28%. Some fine dining restaurateurs we spoke to complained of an increase in noshows, some who booked against a credit card emptied of funds. The upshot is that middle and lower-spend venues are experiencing a rise in bookings.

The inflationary nature of the present economy is also putting pressure on wages. With prices for food, rent and mortgages going up, every dollar that hits a worker’s wallet bought less than it did at the same time last year. There is a growing demand from workers across all industries for more in their pay packet. 

Increased global demand for gas due to the war in Ukraine, plus other factors, will see the price of electricity and gas rise by almost 25% in some states. The price rise could be higher if not for a federal government cap on energy price hikes. Energy is a huge cost for hospo, with businesses paying 250% more than other commercial enterprises using equivalent floor space. Higher energy costs also mean more expensive items that use electricity and gas in their production, from paper packaging to milk.

2022 and 2023 saw unprecedented rainfall in parts of the nation, especially food bowl regions. This reduced the production of certain fruits and vegetables and pushed up prices. Poor growing conditions also affected the bounty of fruit crops, apples to grapes, reducing the number of pears and apples in cold storage and even bringing down the volume of wine made this year. This will lead to further price increases in these areas later this year. When all these costs go up, some business owners and managers have little option but to increase retail prices. In a cost-sensitive market, this can force some retail customers to look for less costly options. Some diners are simply eating at home. A recent survey by NINE polled almost 600 Australians on how often they go out to eat. Twenty-nine percent said, ‘never’, 34% responded ‘once a month,’ and 26% said they eat out two to three times a month.

Small changes in behaviour can accumulate to large shifts in spending. Here are some simple ideas to shave a little off some fixed costs and rethink some of those other outgoings. Remember, if you change the way you do business, make sure the team is on board 100% because they are the ones implementing your plans.

1. Consider simplifying the menu or doubling up on mise en place. This can help lead to less labour and less food waste.

2. Sub out a few less costly ingredients in a dish. Question whether every component is necessary and find ways to
replace or reduce them.

3. Have a strategy in place to replace dishes that depend on ingredients that suddenly skyrocket.

4. Use labour carefully. Are you hand-making some ingredients inhouse when you could buy in the equivalent quality cheaper?

5. Reduce energy outgoings by having a blitz on lights, oven and fridge seals. Even use oven preheat and cool down times to dehydrate and dry foods. Every cent counts.

6. Now is the time to push the upsell on sides and wines.

7. Communicate with customers about the value you can bring to them. If you’re running a special, let them know. If you have a low-priced key dish, tell the world. Right now, people are looking for a bargain.

These ideas won’t suit every business, but they are a prompt to think outside the square, to reassess the way you are doing business. Adversity brings about ingenuity.

As seen in Winter 2023

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