Almost 4000 businesses in one sector collapse in a flash – and there are warnings of worse to come

Exclusive: Cafes, restaurants and takeaway food outlets are collapsing across Australia at an alarming rate, and analysts are warning the bloodbath in the hospitality sector may only get worse.

Data from agency CreditorWatch shows 3910 such businesses – or one in every eight eateries – closed in the 12 months to July, up from 3639 the year before.

That’s the equivalent of 12 per cent of the industry, almost double average the rate of collapse across the entire economy, which sits at 6.69 per cent.

“Put another way: of every 100 cafes and restaurants trading a year ago, 12 are no longer operating,” a CreditorWatch report stated. 

“It’s a clear illustration of a sector caught between rising costs it has limited ability to control and households that are dining out less.”

To make matters worse, the agency has warned the industry may still be a long way off reaching any light at the end of its tunnel.

Are you a cafe or restaurant owner struggling to make ends meet and want to share your story? Get in touch at daniel.jeffrey@nine.com.au.

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Ten per cent of cafes and restaurants have fallen 60 days or more behind on their payments – nearly double the national average.

At the same time, the sector has hit a trade payment default rate – the rate at which it’s missing payments to suppliers – of 1.15 per cent.

That’s nearly quadruple the national average for a measure CreditorWatch describes as one of the strongest early insolvency indicators it tracks.

It added that figure suggests “a further pipeline of failures” in the next financial year.

“A closure rate of one in eight reflects the pressure the sector has already absorbed, but the trade payment default rate is the number worth watching, because it points to what’s still ahead,” CreditorWatch chief executive Patrick Coghlan said. 

“When a sector is defaulting on its suppliers at close to four times the national rate, it suggests a pipeline of stress that hasn’t fully worked through.

“Defaults are among the earliest and most reliable signals we have that a business is heading for difficulty.”

He added the businesses at risk of closure aren’t necessarily poorly run, and are instead just at the mercy of surging costs.

Given their typically tight margins, hospitality businesses are particularly vulnerable to cost increases – and several have hit the industry in recent years.

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Wages have increased at about 3 per cent per year since mid-2022, while the minimum wage, which covers many hospitality workers, is up far more over the same period: 30.1 per cent.

At the same time, energy costs have surged, the conflict in the Middle East caused oil prices and therefore freight charges to spike, and supplies – such as alcoholic beverages for restaurants and bars, and coffee beans for cafes – have got more expensive.

“Many of these are well-run operators being squeezed on costs rather than performance,” Coghlan said.

“The data suggests the hospitality adjustment has further to run.”