Restaurants and cafes are at most risk of default in the coming financial year as they deal with rising costs and consumers tightening their eating out budgets.
Chef and Bao Down owner Joshua Gordon made the difficult decision to close his business after seven years at Mount Coolum.
CreditorWatch says operators in the food and beverage sector have a 7.2 per cent chance of defaulting on payments next financial year, a higher rate than companies in construction (3.8 per cent), transport (4.7 per cent), financial and insurance services (4.5 per cent) and education and training (4.4 per cent).
CreditorWatch chief economist Anneke Thompson said that while the food and beverage industry had benefited from strong trading conditions, economic conditions going into the new financial year would not be favourable.
“It is one of the few areas where Australians are continuing to increase their spending, but paradoxically this sector is most at risk over the next year,” said Ms Thompson. “This is because restaurants and cafes will continue to have to deal with rising and sometimes unpredictable supply costs, but also contend with softer demand.”
Ms Thompson said one positive factor was that workers may be easier to hire, but energy costs, particularly gas, are due to rise dramatically in September.
30 Chef and entrepreneurs Shane Delia founded Providoor.
National restaurant chain Sushi Bay and fine-dining restaurant meal delivery platform Providoor are among the high-profile failures in the sector over the last few months.
“Overall business owners are encouraged to be aware that trading conditions are likely to be much more difficult going forward,” said Ms Thompson.
“While the worst of inflation is behind us, energy prices are still set to rise and consumers will only continue to spend less as they grapple with high interest rates and rent.”
CreditorWatch said that by September, the full impact of the Reserve Bank of Australia’s 11 cash rate rises will have been felt in the bank accounts of the roughly 40 per cent of Australian households that have a home loan.
Restaurants and cafes in southeast Queensland and western Sydney would be at particular risk, given the high number of people with new mortgages in those regions.
“Retail trade volumes are already falling, even if nominal retail turnover is rising due to inflation,” said Ms Thompson. “We are spending more on less, further eroding the savings of Australian households.”
She added that consumer confidence was at record lows, and there seemed little likelihood of people feeling more confident until they feel sure that we are at the peak of the monetary policy tightening cycle.
“Beyond that, we are some months away from any hints that the RBA will begin to cut the cash rate,” she said. “This is unlikely to happen until both goods and services inflation is on a sustained downward trend and the unemployment rate is at roughly 4.5 per cent.”
The outlook is bleak for restaurants and cafe owners as consumers tighten their spending, amid rising living costs.
She said changes in the labour force would be one of the most noticeable differences in the coming financial year, with unemployment set to rise, impacting on consumer spending.
“Both a drop in the number of jobs needing to be filled, following a massive surge in available jobs post-lockdown, as well as an increase in labour supply through overseas migration means that unemployment can only go up from here,” she said. “This will start to make workers feel nervous and further impact consumer spending.”
Ms Thompson said the construction sector, which has seen a large number of insolvencies, would continue to suffer as housing starts decline.