Cafe culture hiding a cruel underbelly

Date Posted:27 October 2018 

Shopping Centres - those original disruptors of "Neighbourhood Strip Shopping" and the long forgotten "Corner Store", continue to face relentless pressure from a myriad of niche online specialists.

Today, most Shopping Centre hospitality tenants are literally counting the days until they are "released" from a slavery of high rents and unreasonable, onerous lease terms. Some even revert to premature liquidation in order to escape from unfair environment and we can expect to see this tactic used more frequently when it's become impossible for a tenant to fairly negotiate with a landlord.

Smart food operators in Shopping Centre are deserting Food Courts - frustrated with congested and competitive conditions caused by landlords signing up too many similar outlets and pricing floor space out of touch with reality. It's almost as if the Shopping Centre owners reside at some mythical parallel universe in denial of any real threats from alternative retail channels. Some get it, others are like a rabbit in the spotlight.

Unfortunately, it's no better in the traditional foodie precincts of our capital cities - new places opening with a bang and then disappearing inside of 12 months without a trace, generally not long after the initial lease incentives have ended.

Apparently, if you listen to commentators, social media is to blame. You see, huge amounts of capital is being spent on luxurious fit-outs desperate to achieve "insta-worthiness" attention and not enough focus on the substance of quality, value and service.

Seems the fickle diner, according to most blowhards, is today influenced heavily by "trends" and the window of opportunity is now measured in mere months, not years. In other words, build it sexy, make a motza and get out fast by flipping at the peak to a willing wood duck buying a rapidly declining enterprise. The lifecycle has become incredibly short - almost "pop-up" like.

Serial entrepreneurs, those self-appointed heroes claiming false glory from "multiple start-ups" like a badge of honour - are the only ones getting away with it, oh yes, so are the designers and fit-out builders. Unfortunately, nobody is holding these start-ups to account for their reckless abandon of high debts, exploiting wage fraud and withholding supplier payments. Growth funded on other people's money.

But I'm not so sure social media is having such a big impact. Just like Gerry Harvey @ Harvey Norman, he's been calling bullshit on the percentage of online sales from his competitors and we think that a pre-occupation with social media has become an easy, lazy and inaccurate way to correlate unexplainable relationships between situations and circumstances.

A recent article about the state of cafe openings moaned incessantly about how so many new outlets in Melbourne reach the predictable peak of "boring monotony" - fit-outs all following the same common pattern of expensive, clean style lines and lacking any sense of individuality or distinct uniqueness. It's been the same for a few years now in Melbourne.

These facilities were being designed entirely around the random "blogger" or "influencer" so that beautiful images would somehow attract patrons - designing the right light, various platforms for taking selfies, etc.......it seems the customer, the quality and consistency of the offering are of secondary concern - staff obsessed with their social media channels and forgetting why they are there in the first place.

It seems such a shame many cafes exist solely to garner hollow "likes" by openly soliciting bloggers - some even privately admit their staff have no idea whether the coffee is dialled in properly or even if the customer experience was good. Lately, whenever we visit cafes we have been left underwhelmed by untrained staff, haphazard service and poorly prepared food.

Gone were the brave, bold design statements, with many recent Melbourne fit-outs displaying a lesson in "play it safe" conservative styling, lacking innovation or taking risks - cloning each other over and over.

Sydney is now regarded as having more cutting edge cafe design than Melbourne which is no doubt controversial to the historical holders of the cafe culture supremacy.

Cafes disrupted fine dining/silver service and along with the MasterChef/My Kitchen Rules brigade with their gourmet-in-your-kitchen experience. All of a sudden everything became really, really serious - an endless continuum of competitive behaviours that escalate battles going further than the next person - ok, what outrageous foodie trend can we conjure up today to hook in the punters?.

Throughout 2018, wage fraud has been a constant and disappointing reminder of the serious failures in many hospitality business models. Even the most celebrated brands have taken some big reputational hits for exploiting their staff - underpayment, threats over residency status, demanding longer work shifts without penalties, etc.

Evidently, it's explained with a poker face as just an accepted practice in hospitality - which is nothing but a lame excuse. How can the leaders in Australia's hospitality industry just crumble by saying "everybody's doing it" - does that make it right !.

In today's economic climate of increasingly unaffordable housing, tight rental markets and rising transport costs, those staff subjected to wage fraud are being driven into abject poverty. Is it any wonder nobody wants a career in hospitality when it's just a pyramid of exploitation.

It's inappropriate to see celebrity Chefs flaunt their expensive assets - trophy homes, beach houses, investment properties, etc. at a time when their staff are struggling on minimum wages, calling into question whether the public should support their brands. Wage fraud has been justified by hiding behind the weak excuse that payroll systems were not setup properly - this is not a game of monopoly where you can play the get out of jail card.

Just like the Royal Commission into Financial Services, the miniscule fines and penalties for blatant wage fraud are a joke and just like Banks, Financial Planners, Insurers and Super Funds, they get a slap on the wrist - enforceable undertakings.

And when you think it's already tough enough to turn a dime from the slog of hospitality, along come the menu aggregators throwing their imaginary weight around by slicing 30% from the order value which is more than twice the Outlet's operating profit, if they are lucky.

Food outlets are indeed standing on a slippery slope if they believe the menu aggregators are helping their business - they are handing over the identity of their customers and to make it worse, that same customer is subsequently bombarded with mass marketing from the menu aggregator promoting a competitor's offering. Pure insanity.

With the threat of bad publicity from wage fraud, operators of hospitality outlets have shifted focus onto the last remaining area that can be tightly squeezed - suppliers. Sure, it's been going on forever, but it's no secret that credit and terms in the hospitality industry have forever been the worst of any sector of the Australian economy - worse even than the building industry.

Hospitality is renowned for defaulting on debts and hence obtaining credit or terms remains the key priority of an operator and often the deciding factor on where to source goods and most of these terms are unsecured, which is a huge risk.

It wasn't that long ago when the primary criteria for supply to cafes was based upon "the best tasting product" but these day's it's "who gives me the best financial package". It's all just part of the deceptive imagery - projecting a cafe as earnestly trying to source the best quality when in fact it's only about what methods help prop up their cash flow each week.

Cafe suppliers have transformed into credit providers (although many, if not most, are poorly qualified or ill-equipped to manage these "unsecured commercial packages") and when the situation begins to feel some real tension, quality rapidly deteriorates as suppliers shift to lower grades to protect and preserve their margins.

This is of course a downward spiral as commercial pressures inevitably translate into cheap, inferior outcomes for everyone involved.

Our own experiences over the last decade in dealing with cafes have been frustrating and heartbreaking - a reason we exited cafe supply many years ago. Maybe we were just unlucky with more than a fair share of bad paying customers, but it's reasonable to suggest a large portion of cafe owners think nothing of running away from their financial commitments - treating suppliers as dispensable by placing them at the bottom of the payments list and in most cases simply refusing to pay their obligations. Canny operators know it's often an equal or higher cost to recover debts so they readily play the game of bluff.

We see the tenet of supply changing. Inevitably, the debts of questionable cafes will mount and suppliers exposed to the cafe segment will experience tougher conditions and struggle to generate sufficient cash to fund their own operations as debt provisions grow.

All it's going to take is for raw coffee prices to spike upwards and you have the ideal conditions of a perfect storm.