Café society

The sluggish cafes and restaurant sector is about to turn a corner – the growth prospects are now good. By Jason Baker of IBISWorld.

Over the past five years, growth in the cafes and restaurants industry has been slow, rising only 2.1% in the past five years, reaching $7633 million in 2006-07.  But the outlook is more positive, with 3.2% growth in turnover expected annually until 2011-12.

Cafes and restaurants are sensitive to trends in leisure and recreation time and disposable income. High fuel prices and recent increases in interest rates and taxes have constrained growth in disposable income in recent years, which has led to reduced spending for luxuries like eating out.

For example, in 2002 Australians were eating out 83 times a year compared with 94 times a year in 2000. In 2002, the main reasons people gave as a reason for eating out were, “special occasion”, “break in routine”, and “meeting friends”. Two years before this “convenience” was the main reason for eating out.

But the growth of wealthy time-poor professionals will benefit the industry longer term. Young professionals eat a high proportion of their meals outside of the home because of long working hours, social lunches and dinners with friends.

In the next five years, as people tend to eat more meals away from the home, sales for cafes and restaurants will increase. The industry is also expected to benefit from increased levels of international tourism and innovation within the cafe and restaurant industry. Domestic tourism and international visitor arrivals will increase due to stronger global economic growth.

Competition is high and mainly based on price, due to the overwhelming number of small operators, which results in lower profit margins. The profit margin will remain low for this industry, but will fluctuate depending on establishment size, and in line with the economic cycle and the rate of disposable household income growth.

Franchising is dominating cafes and restaurants. Competition from foreign-owned franchised operators, like McCafes and Starbucks, and local franchises, like Gloria Jean’s, is also increasing. Revenue from franchising in Australia is expected to grow more than five times faster than revenue growth in the café and restaurants industry. (For more on franchising, see the Growth Resources section.)

While general unemployment is anticipated to remain low, the industry will continue to have problems in attracting and holding staff, particularly given the high casual employment component and the high demand for chefs.

While the outlook for this industry may not be as promising as some other industries, there is some growth ahead, and employees will still be able to put food on the table.

Revenue