How to fix the broken parts of hospitality

From left to right: Stuart Knox of Fix Wine Bar and Restaurant; Rebecca Lines of banksii; and Mark Jensen of Red Lantern.

The pandemic has exacerbated problems with the hospitality industry—such as high costs and low margins—which will lead to many restaurants closing forever. Three leading restaurateurs look at what we can take out of the other side of the crisis that will make it stronger and better for everyone.

When the pandemic ends and we find ourselves in a sustained recession, what will the hospitality industry look like? It will be smaller, without question. But does it necessarily have to continue facing the cost and revenue pressures it has always faced?

Given those pressures—of increased labour costs, inflexible rents and downward pressure on prices—have been a reality for most of this century, it’s worth asking whether it’s even possible to change. We asked Mark Jensen of Red Lantern, Rebecca Lines of Banksii and Stuart Knox of Fix Wine Bar + Restaurant about how they see a post-pandemic restaurant world.

Mark Jensen

Mark Jensen, Red Lantern

“When we talk about large structural issues, the two major expenses of most businesses are wages and rent. Prior to the pandemic, there was the big issue in the industry regarding underpayment of wages. It has long been thought of as an industry where you do your time. Pay rates and overtime rates were broadly ignored. What the pandemic has done is make people realise that you can do a lot more with less. That old employment model of people working longer hours and being underpaid was clearly wrong and that system has now been broken for the better. 

“So on the other side of this, I see restaurants in the industry employing less staff, trying to employ highly trained staff, and paying per hour. A 38-hour week will be the norm.

“Change also needs to include the general public. They have to realise that what they’re prepared to pay directly affects what a restaurant can pay their employees. So they’ll have to accept that prices will have to rise.

“I think that there’ll be a really distinct demarcation in the industry in the future. You’ll see a thriving burger and pizza casual market. Fine dining restaurants will still do what they do because they are aspirational and essential dining experiences where people can celebrate special occasions. 

“But the real casualty of the pandemic will be that middle ground: restaurants that are family run, who are trying to provide an ambience and a dining experience but are confined by the expectations of the customer. Middle level dining will have to switch from individual owned companies to group management.

“Food production will be more centralised. It all comes down to economies of scale. No-one can afford to have a team. I know I can’t afford it. Ten years ago, I’d have a dozen chefs in my kitchen. Now I have six. I’ve drastically reduced the team. And I’ve had to really define the way that I prepare food and deliver food.

“The other thing I mentioned is rent. That 20th century paradigm, where you work out a cost per square metre and that’s your rent, will have to die. I’ve received some emails from property developers who are already talking about rent based on percentage of turnover.

“As soon as we work out different models and different ways through this, everyone benefits and realises that ‘we’re all in this together’. At the moment, we’re not ‘all in this together’. That’s become apparent to many people who have tried to do the right thing. People are in it for themselves, protecting their own cash. You can pose all these questions, but it’s very hard to find the answers because everybody has a different agenda, and everybody is placing themselves first.”

Rebecca Lines, banksii

Rebecca Lines, Banksii

“I’d love to say this pandemic would be an opportunity to change, but that’s not what I’m seeing. When we were going into opening after the first lockdown, there was conversations around that. But all I’m seeing is the same stuff happening. Individual operators might change their format to do things differently. But overall, margins are low and people try to fill bums on seats by discounting.

“Consumers want to eat out more, but they don’t want to spend the right amount on it. I think consumers don’t understand what it takes for them to actually have that plate of food. And some of that’s some of the issue. But it’s going to be difficult to come out the other side and say, ‘We’re going to put prices up’, because people aren’t going to have more money in their pockets if we’re in a long recession.

“Rent is a significant portion of costs, but wages are the highest amount out of anything. Many restaurateurs pay nearly 50 per cent labour costs. We’re a labour-heavy industry. So we’re paying exorbitant amounts in payroll tax. Payroll tax is a huge problem and should be wound back. It’s almost like we’re being punished for being labour-heavy and creating jobs.

“I think right now, the part that’s being really squeezed is the middle market. Those are the ones that usually have high turnover, they’ve got more labour, they’re paying lots in payroll tax, but there’s a ceiling on what they can try and charge people. As a result, the industry will become less about single operators and you’ll find more groups who are taking those sites.

“If the government wants to help CBD restaurants, the two things they could address immediately are payroll tax, and the fringe benefits tax. They need to get businesses back out spending in restaurants. If they can get corporates spending again, then there’s hope.”

Stuart Knox

Stuart Knox, Fix Wine Bar + Restaurant

“The industry has had major structural issues for quite some time. I think the cracks really started to show as the bushfires happened last summer. And then those cracks turned into gaping holes once COVID hit.

“During the bushfires, we saw a significant downturn in trade. About 30 per cent of our capacity is outdoor dining, so that heavy smoke across the city for long periods of time through November and December really affected that trade there. It also impacted the celebratory part of the festive season as well. So for the month of December, we did exactly the same number of covers and our revenue was 20 per cent down.

“In an ideal world our selling prices match what the input costs are, bearing the cost of goods and the cost of wages and all the other fixed costs in mind. One possible solution in Sydney—perhaps less so in Melbourne—is currently we don’t have an all-day light lunch/early lunch/early dinner/late supper habit. In an ideal world, having people coming in and starting lunch at midday and finishing at 2pm, and others starting lunch at 2pm and finishing at 4pm, would be ideal. So we can get two sittings at lunch and three sittings at dinner. That would change those costs dramatically.

“I think there was a silver lining to enforced social distancing in that respect. When we were restricted to fewer than 10 people, we were able to see people across several sittings. I think we can probably make some inroads into that, but not while the CBD has fewer people in it.

“Although people worry about it, now is probably a good time to put prices up. You put the price up and you get some sticker shock, but there’s meaning behind it. People are going to look for your prices to go back down. But the bigger problem is that if I put my prices up, but no-one else around me puts their prices up, then I get stuck hanging out in the cold. And there’s a hell of a lot of operators. I’ve got a cafe just next door to me, who do coffee and sandwiches. They’re not my competition, but he’s put his coffee prices down after COVID. So we’re now 80 cents a cup different to him.

“Everyone’s got to make their own business decisions. Problem is, I think people tend to panic about little things when in actual fact, there are two people in the building that sell coffee. So if we’re both selling it at the same price, it would all still sell. But if we look at the bigger picture, we both might come out of this in a better position.”