The hospitality industry is facing one of its most challenging periods, with new Australian Bureau of Statistics (ABS) data showing that slowing economic growth is impacting discretionary spending.

The Australian economy grew 0.2% during the December quarter 2023 and 1.5 per cent in annual terms. While we experienced a ninth successive quarter of growth, this was the slowest annual growth rate since the COVID-19 pandemic.

Inflation continued to impact most goods and services and the labour market has started to slow.

According to the ABS Australians ate at home more in the December quarter. Household consumption rose a meagre 0.1%, following a fall of 0.2% last quarter. Spending on food rose 0.9% while spending on catering services, pubs and clubs dropped off. Total discretionary spending by households fell 1.6% over the year.

ABS head of national accounts Katherine Keenan said: “Households upped their spending on essential items like electricity, rent, food and health. Meanwhile they wound back spending in discretionary areas including hotels, cafes and restaurants, cigarettes and tobacco, new vehicle purchases and clothing and footwear.”

The falls in household expenditure on discretionary categories was reflected by falls in the production activity of accommodation and food services (-3.2%) and arts and recreation services (-0.8%).

Hospitality “a bit broken”

Alex Elliott-Howery told Good Food that her Sydney cafe Cornersmith would close at the end of February because “hospitality is a bit broken”.

“The margins are getting tighter, and it’s so hard to make it work,” she said.

As Good Food reports: “Profit margins have traditionally sat at around 10 per cent. In 2021, only 19 per cent of businesses hit that mark, according to the Restaurant and Catering Industry Association. Now, for many restaurants, breaking even is cause for celebration.

“The combined crunch of inflation and a cost-of-living crisis means costs are up, spending is down and profit for many is a pipedream.”

The latest data from the Australian Securities and Investments Commission showing insolvency claims in the accommodation and food services sector rose by 92 per cent in the December quarter compared to the same period in 2022.

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