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

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.

“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.”

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.

“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.

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.”

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.”

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.

“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.”

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.”

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.

“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.”