Record number of cafes and restaurants going out of business
Australian households are deserting cafes and restaurants in favour of pubs and clubs, new data released today shows.
An alarming 10.4 per cent of food service companies closed during the past year - the highest rate of any industry and double the economy-wide average - according to CreditWatch's January Business Risk Index.
But pubs, clubs and bars, buoyed by stronger cash flows and asset backing, were more resilient, with annual failure rates closer to 8 per cent.
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Many cafes are reeling from tough economic conditions, a new report shows. Getty
The commercial credit monitoring firm says its report shows the hospitality industry is splitting between winners and losers.
In the food service sector, the share of business-to-business invoices overdue by more than 60 days has climbed to 12.4 per cent, compared with a national average of 5.9 per cent.
By contrast, pubs and clubs have recorded levels of 3.1 per cent, reflecting stronger balance sheets and greater ability to absorb rising costs.
CreditorWatch chief executive Patrick Coghlan says the figures show a clear divergence in the hospitality industry.
"Asset‑backed pubs and clubs are holding firm, but cafes and restaurants are operating on razor‑thin margins with very little room for error.
Pubs and clubs are proving more resilient in keeping customers and healthy balance sheets. Getty
"When overdue invoices in food service are running at more than double the national average, that's not cyclical noise – it's sustained financial stress."
Balance sheets of cafes, restaurants and takeaway outlets have been hit hard by steeper operating costs and weakening consumer demand.
CreditorWatch says successive minimum wage increases, steep rent hikes in commercial property, food inflation, higher power bills and existing high debt levels have pushed many businesses to the brink.
Smaller food service operators - typically run on slim profit margins and at risk of losing customers if they pass on cost rises - are particularly vulnerable.
Retail data shows cafe and restaurant turnover has remained largely flat since early 2023, with cost-of-living pressures and high interest rates causing consumers to shun dining out and spend less when they do.
"Businesses without pricing power, diversified revenue or cash reserves are being exposed, and the pressure has been building for months," said Coghlan.
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