The Squeeze on Small Business: Rising Costs Threaten Australian Hospitality
For decades, the clinking of glasses and the buzz of conversation have been the soundtrack to Simone Douglas’s life. As a publican with a long history in the industry, she’s seen her fair share of ups and downs. But these days, the daily worry of keeping her two pubs in Adelaide and Port Adelaide afloat is a constant companion.
“If you’re a small business owner, your sleepless nights have increased probably by 50 per cent,” Ms Douglas shared, her voice tinged with concern. “Every day on Facebook there is something that pops up in my feed about another cafe or a restaurant or a pizza bar that’s closing down. It’s a pretty sad state of affairs in the local industry and the national industry at the moment.”
Having weathered the storm of the pandemic and its economic fallout, Ms Douglas believes the current challenges facing the hospitality sector are even more dire. “It is 100 per cent more challenging [now] than it was during COVID,” she stated. “The cost of doing business in South Australia, and particularly in a hospitality environment, is skyrocketing and they are costs that we don’t have any control over.” While acknowledging that life isn’t entirely bleak, she issued a stark warning: “Life isn’t all doom and gloom, but we really need to be aware that if we continue to create an environment where small business can’t succeed … the economy is going to flatline.”
The reality of these escalating costs hit home hard for Ms Douglas when she was forced to close her CBD cafe in mid-2024. She explained that essential operating expenses, such as electricity, gas, and insurance, had simply “gone through the roof.” She recounted her efforts to keep the cafe viable: “We spent probably 18 months trying to get it to work and … I’ve been in the game a long time. That thing just haemorrhaged money left, right and centre to the point the smart decision was to close it down and absorb the cost of rent.”
‘Unprecedented’ Cost Hikes Across the Nation
The struggles faced by Ms Douglas are not isolated incidents; they reflect a national trend impacting thousands of businesses. John Hart, Executive Chair of Restaurant and Catering Australia, the national peak body representing over 57,000 cafes, restaurants, and caterers, confirmed the severity of the situation. He revealed that approximately 10.9 per cent of businesses have closed their doors in the past year alone, translating to thousands of establishments across Australia.
“The cost increases right now are absolutely unprecedented,” Mr Hart emphasised. “Food prices are going up, the cost of transporting goods is going up but then also labour costs are going up dramatically, over the last three years, a 21 per cent increase. Even in the last four months, we’ve seen a 17 per cent increase in the cost of goods. Serving that cup of coffee is nearly a quarter again as much as it was only three years ago.”
Despite these mounting pressures, Mr Hart noted a curious paradox: an increase in the number of patrons. However, he quickly qualified this by explaining that dining habits have shifted significantly. “They do that by selecting different items from menus, sharing entrees, sharing desserts, doing things that lessen the cost of the meal, but still allows them to go out,” he said. “We see customers want to eat out more but they want to eat out locally and they want to eat out in a way that’s better value for them.”
While 10.9 per cent of businesses have unfortunately folded, Mr Hart also pointed out that another 10.9 per cent have opened. He shared the sobering statistic that around 20 per cent of new businesses fail within their first year, and a staggering 50 per cent by the four-year mark. “It’s quite astounding how quickly those businesses go out of business, but what never ceases to amaze me is that there’s another business to take their place each and every time,” he remarked.
Navigating the Storm: Strategies for Survival
For young entrepreneur Elliott Brown, the dream of opening his own cafe quickly turned into a challenging reality. After years in the hospitality industry, he launched his first cafe in McLaren Vale in 2023. Within a year, he was managing three locations across McLaren Vale, Henley Beach, and Aberfoyle Park.
“Things started to get very tough as I opened the third one just with staff and, obviously, I can’t be in every place at once,” the 24-year-old explained. “Prices were going up, which meant we had to put the price up and people who used to buy three coffees a day were buying one or a regular you’d see every day, you’d see them three times a week.”
Facing increasing financial pressures, Mr Brown implemented several cost-cutting measures. These included producing their own coffee beans, introducing a weekend surcharge, reducing staff numbers, and opting out of employing a chef. Ultimately, however, he was forced to close two of his venues and sell the remaining one earlier this year.
He highlighted the delicate balance of pricing: “People don’t want to pay more than $22 for smashed avocado, but avocado [has] probably gone up a dollar and so you then need to factor that in plus the wages.” He added, “You essentially need a line out the door the whole day if you want it to make money … which just wasn’t feasible towards the end.”
Mr Brown expressed a desire for more government support, particularly in the form of subsidies and rebates. “I think probably like more rebates that businesses can get access to, like gas, power, they’re both very expensive,” he stated.
Government Response and Future Outlook
In response to these concerns, SA Minister for Small and Family Business, Nadia Clancy, acknowledged the global and national pressures impacting budgets, including oil prices. However, she asserted that South Australia remains a prime location for business due to its competitive tax, regulatory, and planning environments.
“This is why more than 25,000 small businesses opened in South Australia in the last financial year, the third highest percentage of growth in the nation,” Ms Clancy said. “We also have the second highest survival rate for new businesses in the nation and ASIC insolvency data shows South Australian companies represent a relatively small share of national insolvency. South Australian small businesses are also set to get a big break on energy costs, with a significant drop in the default offer power price of 12.1 per cent announced last week.”
While the government points to positive statistics and future relief on energy costs, the immediate reality for many small business owners remains a daily battle against escalating expenses. The resilience of the Australian hospitality sector will undoubtedly be tested in the coming months as it navigates these unprecedented economic headwinds.
