Hospitality

“Someone has to pay”: Restaurateurs warn of price hikes as wages and UberEats crush margins

Priscilla Pho /

Huxtaburger

Motto Motto's head of franchising Matt Fickling. Source: supplied.

Restaurant-goers will foot the bill of increasing operational costs as owners under “significant pressure” raise menu prices, a new survey shows.

The 2019 Benchmarking Report, published this morning by Restaurants and Catering Australia (R&CA), surveyed 656 cafes and restaurants across Australia, concluding the industry is “defined by low profit margins, rising costs and technological disruption”.

A commonality across the industry is the rising cost of business, especially in relation to staffing, but also spanning food, property and marketing.

On-demand delivery services were often referenced, with participating small businesses noting less profit despite earning higher revenues.

Without the room to tighten belts further, 57.9% of surveyed restaurants and cafes are looking to increase the price of their menu items over the next year.

Pressure pricing

Owner of Melbourne restaurant Mahjong, Max Tsang, tells SmartCompany rising menu prices are reflective of the overall cost of living for consumers, and the rising cost of doing business for owners.

“Everything is going up in prices — products, items,” Tsang says.

“Someone has to pay. The consumer has to pay.”

SBO director Jason Andrew agrees, saying restaurants “should increase their prices” to balance out costs.

On the other hand, Matt Fickling, former chief executive of Huxtaburger and now head of franchising at Motto Motto, says restaurants can avoid increasing prices by utilising software and being vigilant with their supply chains.

“We went into the market knowing the cost,” he says, “because obviously, you need to be a compliant and ethical operator.”

The industry landscape is starting to change though, Fickling admits, affecting the cost of goods and wages and the success of services.

Tsang agrees, saying “I spend twice as much to make the same amount of money.”

“And I work one-and-a-half times harder to make the same amount of profit.”

Staffing costs

Respondents say staffing costs represent 50% of overall business expenses, up 3.2% from last year’s survey.

Of that percentage, wages and salaries make up 82%, and according to Tsang, penalty rates and bolstered minimum wages are to blame.

“I pay my staff a lot more money after the government put down the stupid Sunday rates and holiday rates,” he says.

“If you work in an office, you work Monday to Friday. If you work in hospitality, in a restaurant, you expect to work on the weekends and take other days off.”

Part of Tsang’s frustrations come from the need to continually onboard and train floor staff, saying he “needs to teach them everything from the start”.

Fickling, however, considers staffing “a cultural piece” of his restaurant, and has been using online training systems and engaging team members in the early hiring stages to retain staff.

“In terms of onboarding, it’s only expensive if you don’t want to invest in your team,” he says.

“Labour has always been an issue in Australia — it’s the main cost of running a business.”

Compared to last year, the proportion of businesses expecting to decrease their staff numbers increased by 1.8%, and a slight majority of surveyed restaurants expect the numbers to stay the same.

Andrew agrees, saying “it’s always been complicated, but I would think it would get easier with all the technology and automation in the market”.

Food delivery services

Restaurants using food delivery services, such as UberEats and Deliveroo, are making lower profits despite an overall increase in revenues, the report reveals.

Aussie restaurateurs have told SmartCompany the same story this year.

“At the moment, it’s probably the hardest it’s ever been to operate in hospitality,” one veteran owner said.

Andrew says this is often the result of “jumping in”, and suggests restaurant owners spend more time weighing up their business’ finances and needs to the benefits of joining delivery platforms.

“In our experience, people are going into delivery platforms without thinking about the ramifications of it, or with a clear strategy,” he says.

Neither Tsang and Fickling use the services with profit in mind, finding success by considering the platforms as customer wish fulfilment.

“We’ll be where the markets are and our customers are demanding that level of convenience,” Fickling says.

Keeping the percentage of delivery business in the single digits, he says “the percentage is not a massive impact to the business whatsoever”.

Tsang says he is happy, having used services such as UberEats and Deliveroo “almost since they first came to Australia”.

“To me, it’s a bonus. I don’t rely on it,” he says.

“I don’t pay for extra staff, don’t pay for extra rent or energy or gas.”

NOW READ: “Hardest it’s ever been”: Disrupted but not dejected, Australia’s restaurant owners discuss what’s next

NOW READ: Should your business use UberEats? All the pros, cons and costs explained

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Priscilla Pho

Priscilla is a reporter at SmartCompany. You can contact her at [email protected].