FlashCast By PDB, With Phil Di Bella

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    Hi, this is Phil DiBella and you're listening to Flashcast by PDB. In today's topic, I want to address why are we seeing so many cafes and restaurants close whilst we see so many open. So a very topical question, something that I obviously specialize being in the hospitality industry. And as we head into Christmas time where a lot of people get to enjoy cafes and restaurants great time to be addressing this to make you a little bit more conscious of what's going on in the the lovely world of hospitality.

And so let me reiterate what I'll be addressing is why are we seeing so many cafes close whilst we're seeing so many cafes and restaurants open at the same time. So let's get straight into it without further ado. And firstly, why are we seeing so many cafes close? Well, very simply put it's supply and demand.

There's two big problems to cafes closing right now. And number one is that planning laws haven't changed in so long that we're seeing the bottoms of buildings that used to be occupied by multiple retail sites now being purely food and beverage. And therefore. Planning laws needed to change a good five, seven years ago to make sure that we wouldn't have an oversupply today.

Builders and developers now when they build buildings and for so many years have to build X amount of retail space underneath. But of course the demand for that retail space doesn't exist like it used to. So what we're fighting is developers are actually paying for fit outs for people and making it easy for people to go into the business.

Now easy to go into a business. to start. However, to operate is another thing because firstly, they might not have the expertise to operate, but secondly, they're not operating anything that gives somebody a point of difference to attract it. However, no matter how small the business is, they will always dilute.

So dilution is reason number one of why we're seeing so many cafes close. We're getting this dilution effect because there's too much supply and not enough demand. There's cafes. with with no point of difference. However they're still taking business away from those around them. And every time something opens you dilute another business then we have a problem.

The other reason we're seeing a lot of cafes close is because of consumer behavior. And this is something I really want people to be conscious of. You know, in a world of where we all expect more for less. Now, remember that we're expecting more for less. We have a problem. Expenses are going up. However, as consumers, we expect more for less.

There is no such thing of being able to sustainably be paying 1 or 2 for a cup of coffee. I get asked that question a lot. The price of a cup of coffee today should be 4 to 4. 50. Correct. 4 to 4. 50. Keep in mind that 35 to 40% of that That price is going to wages, 10% is going to rent, 10% is going to utilities, which is gas electricity, 10% is going to GST, right?

We're starting to run out of the percentages very, very quickly. Cost of goods are 25 to 30%. So what you have right now is a lot of cafe owners are making no money. Or they're making a wage only, or they're lucky to make single digits profits. Now, cafes used to be quite profitable because the wages were not as high as what they are now.

The electricity costs were nowhere near what they were. Now, we've seen rents come down, but the scary thing is that we've never seen, over the last five years, we haven't seen the cost of goods go up. And let me explain what that means. A liter of milk is the same price now as what it cost five years ago.

A dozen eggs is the same price. A loaf of bread is the same price. Now that's scary for the people that are the bakers, the people that are producing eggs for the milk farmers. This is scary because their costs have gone up, but they haven't been able to charge any more for their product. So what that means for the cafe owner is controllable costs like cost of goods, they can no longer decrease anymore without an impact.

The scary thing in the industry of hospitality is the costs right now that are going up are ones that owners can't control. And that is the cost of wages, the penalty rates, right? All the things that consumers are demanding, especially around penalty rates, we see people being very vocal around this area.

However, the consumer is the person that is still not prepared to pay 4 or 4. 50 for a cup of coffee. When I tell you that. on a Sunday, a Saturday and Sunday that a dishwasher is on a base of around 35 to 40 an hour. I get people that always their eyes light up and go, I didn't know that. Well, they. Is absolutely correct.

So rather than whinge and carry on, I tell people, let's educate the consumer, let's educate the consumer that 40% of whatever you pay and a bill in a restaurant or cafe is actually going towards wages. And it's not that owners want to pay less wages or not pay people right. It's that they can't afford to pay people.

So what they're doing is cutting wages, they're cutting staff. And therefore you're, you as a consumer are getting bad service and it's something I get asked all the time. Why are prices going up and why is the service getting worse? Well this flashcast was all about helping you understand that as a consumer at the same time answering the question of why we're seeing so many cafes close.

Cafes used to be quite profitable. Now as I said, they're either losing money, the owners are either just bought themselves a job or if they're fortunate enough, they're making single. Digit profits. So the cafe industry, that's why you're seeing cafes close. And it's something that we need to address as consumers.

We need to be a lot more aware and vigilant and we need to be prepared to pay what's fair. It's fair enough to to expect more for less, but there's also the word of value. We need to appreciate and understand what fair value is so that we actually see a sustainable hospitality. Otherwise, we are not going to see our favorite cafes and restaurants be around for much longer because none of us want to work for a loss.

None of us want to work just for a wage and risk hundreds of thousands of dollars of building a business and single digit profit will only few are making that. So Please be aware. Next time you go into a cafe or restaurant, what a fair price for a product is and keep in mind, the percentages that 40% of what you're paying is actually going towards wages.

That 25% is going towards cost of goods. 10% is going to GST 10% is going to electricity and gas and we're not leaving. leads into another discussion, which we'll do a flash cast in 2020 about around why franchise industry is actually a dying trade, because where do you find the other 10% to pay a franchise?

So a whole nother discussion, which I'll address next year, but numbers don't lie. And the purpose of this and the intention of this is to just make people, we all eat in restaurants and cafes and, and, and take away and all the rest of it that we get more vigilant about what we're doing and what we're not.

Doing. 'cause then when you throw in Uber Eats, who take 30 to 35% of the revenue. So if you spend a hundred dollars in your favorite shop and get it delivered, $35 of that goes straight to Uber Eats. These are percentages that cafe owners and restaurants just don't have to give away or play with, right?

It just does not happen. So again, be a little bit more vigilant and understanding as you're going and heading out for the fest of season of what a fair price to pay is for something. Now, addressing the other side of why we're seeing so many shops open. Well, I did open with it developers. are screaming for changes.

I work with a lot of councils and government and I'm, and I'm passing that on as a representative of industry. Developers want to be doing ground floor apartments. They want to be putting more car parks. They want to be putting more grain green space. They don't want to be putting, you know, retail at the bottom and therefore having to find operators and fitting it out.

So we're seeing a lot of places open because it's actually the barriers to entry are quite low. Operators, especially if you're a good operator are being approached all the time to open multiple sites multiple sites. doesn't mean multiple profits. It often means multiple headaches. However, when somebody is doing a beautiful big development with nice apartments in a nice area, they don't want empty shops down the bottom.

So they provide high incentives for people to open, whether it's an espresso bar, a cafe a brewery, whatever it is, the developers are often funding the majority or providing incentives for this to happen, which means that we're getting a oversupply because the barrier to entry is quite low. Also, because our industry is not regulated, you're getting a lot of people that.

And that transfers to how they execute. And that's why you'll find that you might go to a beautiful, amazing new restaurant, but the execution is quite poor because it doesn't matter how great and fast the race car is. If the driver doesn't know how to drive it, it's going to crash. And unfortunately we see that happen a lot in the cafe restaurant and bar industry where people are, you know, the barrier to entry to open a store is very low.

The cost is very low, so they often go in not prepared to burn money for the first year. And then they execute poorly and the consumer is the person that suffers. So in recapping, I love hospitality. It's been my life since I was 15 years old. It's been very kind to me, but I've seen the changes that have happened and gone through and I want to see hospitality for a long time to come.

Hospitality is, you know, the backbone of this country. Also an amazing industry where it teaches a lot of the young people great skills, skills that are necessary for everybody to have. And if we don't look after it, nurture it, well, we're just not going to be able to have this industry thriving or operating for very much longer.

It is all about. controlling what you can control. And as a consumer, I ask that you please be a little bit more vigilant, a little bit more patient and understanding and understand that why your cup of coffee should be 4 why your bacon eggs are now heading towards 20 a plate. And also understanding and being a little bit more compassionate about wages and all the rest of it.

And again, I don't condone people not being paid what they're worth. Everyone should be paid what they're worth. There is no. argument around that. And I can tell you that over the three and a half thousand stores that were responsible for supplying coffee globally, nobody that is a good operator wants to pay staff poorly.

Of course, there are certain roads which should be weaved out. However, this whole issue of being able to pay people, people are the backbone of your business and you're there and you must look after them. The owners need to be paid the right amount for their products so that they can look after it. So 📍 next time you're enjoying great hospitality, please be a little bit more aware, be more patient.

And now I hope that through this flashcast, you understand a bit more about the industry and why we're seeing so many stores close and so many open. You've been listening to Phil DiBella. This is flashcast by PDB. Send me your feedback and your questions until next time. Be the best you can be.